The prompt: For this week’s podcast, I’d like to experiment by having you, ChatGPT, come up with five of the most beautiful, challenging, inventive, valuable, provocative, and/or Foolish questions about “Rule Breaker Investing.”
In this podcast, ChatGPT asks Motley Fool co-founder David Gardner its five “most thought-provoking questions” about Rule Breaker Investing, and he takes his best shot answering every one! Cutting-edge technology meets timeless investing wisdom in our newest episodic series.
To catch full episodes of all The Motley Fool’s free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.
This video was recorded on June 5, 2024.
David Gardner: I asked ChatGPT this week what it knew about the Rule Breaker Investing podcast, you know? ChatGPT, as we’ve got to know each other over the past year. What do you know about this podcast? It gave a pretty good answer. Then I thought to ask this, for this week’s podcast, I’d like to experiment by having you, ChatGPT come up with five of the most beautiful, challenging, inventive, valuable, provocative, and/or Foolish questions about Rule Breaker Investing and I will endeavor then to answer these in this week’s podcast. Well, in a groundbreaking collaboration between cutting-edge technology and timeless investing wisdom, Rule Breaker Investing proudly presents the debut of ChatGPT Asks, David Answers, Volume 1, only on this week’s Rule Breaker Investing.
Welcome back to Rule Breaker Investing. It’s June. Welcome to June. The first week of June. June every year, this time of year, I start thinking about the Market Cap Game Show, because we do that four times a year as you know. This time we did a little bit more. March was March Market Cap Madness, but we haven’t done any market cap game show since March. In a couple of weeks, the Market Cap Game Show comes back, and I’m looking forward to that, but as I thought about what I wanted to do this week, I thought, well, we first started talking about ChatGPT on this podcast when Dan Pink, the New York Times best-selling author, somewhere near the end of 2022 said, “I think this is going to be big.”
I remember Dan saying on this podcast that when he first heard about email, This is somewhere in the 1990s, a friend of his had just clicked his mouse on his computer, and he said, “Hey, I just sent that,” and Dan said, “What was that?” His friend said, “Yeah, I just sent an electronic mail.” Dan said, “What was that?” His friend said, “Well, what I can do is I can write mail now, and then I can press a button on my computer, and it instantly goes to another person as mail. It’s called email.” Dan said from that day forward, he realized email was going to be big. At the end of 2022, he said, “I think ChatGPT is that same moment for many of us now.
Ever since ChatGPT was first rocked in this podcast and certainly spending time with Mahan Tavacoli, my AI friend, last summer, It’s come up a number of times. I’ve had a lot of fun learning about and with ChatGPT. I thought, let’s have ChatGPT ask me its most provocative questions about Rule Breaker Investing. The first thing that I did, and for a lot of people who use ChatGPT you already know this, in any thread with ChatGPT, you can ask, what do you know about me? What do you remember from this thread? Please summarize what you know about me. Since one of my threads on my ChatGPT, and by the way, I’m using the most recent version, ChatGPT 4.0. I said to it, what do you know about the Rule Breaker Investing Podcast as we’ve gotten to know each other over the months? I want to share back exactly the six things that ChatGPT summarized about this podcast in brief, because I wanted to have confidence that it knew what we’re doing on this podcast and how we think. The six things it had in order from what ChatGPT has learned about this podcast is one, our investment philosophy. I quote, “The podcast emphasizes unconventional investing strategies that aim to make people smarter, happier, and richer. It encourages investing in top-performing companies with strong growth potential.”
That was Number 1. Number 2, educational focus. David provides valuable lessons on investing habits, traits to look for in stocks, principles for building a portfolio. Number 3, engagement with listeners. Monthly mailbag episodes, address listener questions, enhancing engagement and providing personalized advice. Number 4, ChatGPT said, quest features. The podcast frequently features authors, experts, and thought leaders, offering diverse perspectives and insights. Five and six go like this. Number 5, humor and storytelling. David incorporates humor, historical references, and storytelling, making complex financial concepts more accessible and enjoyable. Finally, Number 6, conscious capitalism. There’s a strong focus on conscious capitalism, advocating for businesses that positively impact society and operate with a long-term perspective.
I said back to ChatGPT, thank you very much. That is a very good summary, indeed, of what this podcast is about, and stands for, and aims to deliver every week. With the confidence that my interviewer knew what I was about, I asked this, the question I mentioned at the top, and I’m going to restate it now because I carefully thought about this prompt. How we prompt AI is such an important garbage-in, garbage-out, quality-in, quality-out mechanic. Here again, is what I said. I said for this week’s podcast. I’d like to experiment by having you ChatGPT come up with five of the most beautiful, challenging, inventive, valuable, provocative, and/or Foolish questions about Rule Breaker Investing.
Indeed, within the proverbial three seconds or so, that’s exactly what ChatGPT delivered. For each of the questions, I only looked at it. I didn’t look below it at the next question and I just formed my answer, and I thought about it. I was curious, what would be the next question after that. Well, thus, ChatGPT asks, David Answers is born. I’m calling this Volume 1 of maybe a recurring episodic series. I’m going to have a lot of fun. This is a shorter podcast this week, but it hits on some of the essentials.
Let’s get started. All right. Question Number 1 from ChatGPT, and here it is. How do you see the evolving role of technology, shaping Rule Breaker Investing strategies in the next decade, particularly in sectors like AI, biotech, and renewable energy? How do I see the evolving role of technology shaping our strategies? Well, I want to, first of all, say in response, things will continue to evolve technology and get smarter. I’m pretty persuaded about that. I very much hope that we will, through this period, especially with the growth of AI, that we will maintain what I’ll call a human-centered approach to AI. I think AI is here to benefit us not vice versa. This was articulated well in a tweet I saw on Twitter X in the past week. This was articulated in an article by Joanna Maciejewska. In a recent article, Joanna listed as an author and video game enthusiast herself. Here’s what she said. I love this line, don’t you? “I want AI to do my laundry and dishes so that I can do art and writing not for AI to do my art and writing so that I can do my laundry and dishes.” I think a lot of us are head-nodding at that one as we go. It reminds me of a similar viewpoint. This one from the Futurist Gerd Leonhard, who emphasizes you can check and follow him on Twitter if you like at G. Leonhard. Gerd emphasizes the importance of ensuring that technological advancements are here to serve humanity’s best interests, rather than replacing human values and capabilities. I think AI, in particular, is going to show its comparative advantage in whatever ways it can, and in whatever ways are most valuable. I remember a comparative advantage, perhaps you studied this in school as well. I didn’t major in economics, but I remember it from my economics course in college.
Comparative advantage is basically what countries end up doing with their industries. Yes, the United States could be the world’s best producer of skateboards. We could be the greatest skateboard nation of all time but it turns out we have a higher calling. We have more of a comparative advantage in other fields and so we leave it to another country to rise up and be the skateboard manufacturer. I’m making up this example, but comparative advantage reminds us that if the economic system is working well, each of us will rise to provide the best thing that we can that we’re most advantaged to do at the level at which we operate. Comparative advantage. I think that AI, in particular, will inevitably show up where it’s most valuable, where we value it most. That means if replacing a lot of human effort, and I would even say some of our creative efforts, is what AI can do more effectively, I would say more beautifully, more cheaply. These are big ifs. If that’s possible, then I think in time, it inevitably will but I hope, and I want to say I do believe that our developing wisdom, because we’re all getting smarter about AI at the same time AI gets smarter, our developing wisdom, which ironically is itself aided by AI, is going to help us steer technology toward, I think, ways that elevate, not denigrate humanity. It’s with that cautious optimism that I will be fully invested in the next decade as I have been throughout my life. The traits that I use, the six traits of the Rule Breaker stock, and the stocks that we choose, that I chose, that you choose. If you use these traits, I think they’re very unlikely to change, and ChatGPT the fields, you mentioned: AI, biotech, renewable energy, are all fields where I have plucked fine companies that I’ve recommended for us to buy stock in. Some of which have risen, some of which have declined. Those are just a few examples of bleeding-edge fields.
There are many others, and I constantly suggest to each of us that if we want to practice Rule Breaker Investing, we are in a way, pioneers. We should be looking at the next frontier and asking ourselves where are things headed and getting our money there as quickly and as well as we can. Again, I don’t think Rule Breaker Investing is going to start choosing different companies. We’re going to continue to be technology-focused and asking ourselves, where is the world headed? I also want to say as I think about closing my answer to this first question, the time frames that we use are going to continue, I think, to be the only ones that matter. That is the long-term because the long-term is the only term that matters to me, at least to my investing, and that’s also the most rewarding term of all, where you’re going to make the most money. I don’t think our time frames are going to change. I realize there’s a perception that everything’s speeding up, and we’re not going to be able to keep up with all this new technology, and I think that’s true, in some ways, but in other ways, rule Number 1, let your winners run high, which is the first habit of Rule Breaker Investing. It’s all about time frames and letting winners run. I don’t think that’s going to change. Overall, In conclusion, I would say, I don’t see our investing strategy changing. After all, my Rule Breaker approach has now lived through the birth of the Internet back in the 1990s, through smartphones, through social media, Cloud computing. Now we have AI. There will be more technology frontiers in our future, and I would say that Rule Breaker Investing has worked wonderfully through all of these. In fact, I think we have an approach that is not just future-proofed, but I would say future-interested and future-ready. Thank you for question Number 1. I don’t want to come across as too strong. I don’t want to come across as too confident and assertive. I don’t want to have my head in the sand. If in fact, technology is changing in a way, I don’t anticipate, but because I’ve always tried to be as open-minded and generally positive as I can about technology. I think that approach will continue to stand as well.
Again, open-minded, ready to be wrong, but interested, and invested, and positive about the future. Those are outstanding attributes of Rule Breaker Investing, and evolving technology isn’t going to change that anytime soon, at least for me. Let’s move on to question Number 2. Question Number 2 from ChatGPT. I quote “With the increasing focus on sustainable and socially responsible investing, how can Rule Breaker Investing principles be aligned with conscious capitalism and environmental, social, and governance, ESG criteria?” Well, I appreciate the question. Let me just say first off. I think it’s a good thing to be thinking about, but I also think it’s not a great question because here I think ChatGPT, you’ve shown a little bit of a lack of knowledge of who I am and what we stand for because we’re not going to have to worry about aligning our principles with conscious capitalism when remember the tenets of conscious capitalism is habit Number 4 of Rule Breaker Investing. In fact, for years now, I’ve said, and I’ll say it again, make your portfolio reflect your best vision for our future. That’s one of my watchwords and it’s the quote I pin up on my Twitter feed at the start of every year. I say, here’s something to think about in 2020, 2021, ‘2, ‘3, ‘4. Make your portfolio reflect your best vision of the future. Now, I want to emphasize this is not prescriptive in that I’m not telling you what should be in your portfolio. What I’m telling you is that what is in your portfolio should reflect your best vision of the future. I’ve got to know a lot of my fellow Fools, a lot of listeners over the years. Yet, I don’t know everything about everyone, and there are many people hearing me right now that I will never meet, but I want you to know, even though I don’t know what your best vision of the future is, I think your money should be demonstrating that if you were to show your portfolio statement to a spouse or partner, to your grand kids, to your broker. I think that’s how we all should be invested, and I’ve thought that all the way through.
We first wrote a chapter about socially responsible investing in our first book, The Motley Fool Investment Guide. The brothers, Tom and Dave wrote that book, and we split chapters, and I wrote that chapter. I basically said I think each of us should be showing through our money what we believe is socially responsible. I went on to say, to press the point a little bit, I question how socially responsible this is irony. I question how socially responsible mutual funds are because do you know the manager of that fund? Do you know all of their criteria? Does that person know you? Does that person understand you and what you think leads to our best, most socially responsible future? I don’t think so. It’s impersonal. If you’re being responsible about this, shouldn’t you be investing your own money, yourself toward your best vision of the future? I appreciate our mutual fund friends. I’m sure there are some very good socially responsible mutual funds, but I question whether it’s socially responsible to invest in them. At least if you care, if you want to put in the time, if we’re going to be this painstaking around our money. I think it’s a great thing to be. Let’s talk a little bit more about consciousness-conscious capitalism.
David Gardner: I do believe there is rising human consciousness. In the same way that I agreed with the dearly departed Jeremy Rifkin and his book, the Empathic Civilization, which had a very optimistic and I think very true central thesis, which is that Homo sapiens is far more empathetic today than at any point in history. Indeed, it’s a rising graph, how we treat animals today, even though there’s a lot of maltreatment of animals today, how we treat people from other cultures today, even though there’s a lot of maltreatment of people from other cultures. Nevertheless, it is far better than how things were 200 years ago or 1,000 years ago. Rifkin goes on to show a graph of human empathy over time. He has much more of an academic bent than I do, he’s able to cite lots more sources than I can. But I can save you reading his book, although I’d recommend it, by telling you the graph goes from the lower left at the dawn of time to the upper right. You may agree and be nodding your head already, you may disagree, that’s up to you. But I believe it. In the same way, when Bill Burke came on this podcast a few months ago and said, “If you read the news headlines today, you watch cable TV, you’d conclude things have never been worse”. Yet Bill went on, he’s quoting Kevin Kelly, another great Rule Breaker guest of the past. Quoting Kevin Kelly by saying, “And yet, if you read history and history books today, you’ll conclude things have never been better.” I think it’s really important to understand both the short-term noise and the long-term view that we all need to maintain because we’re all living in the very short term. Listen to this podcast, a very short term, but we’re thinking about our money in the future over a long arc of our lives and the narrative of the human race. Human consciousness is rising, therefore, I think it makes a great deal, ChatGPT, of sense to be aligned with conscious capitalism.
Closing on this one, I’m not a big fan of when movements become acronyms. I like some of the environmental thinking, some of the social thinking and governance thinking, I wouldn’t agree with all of it. I’m sure each of us has different things they might like or dislike when we hear ESG, but the very fact we’re using ESG has me questioning things a little bit. I admit, I also feel the same about other acronyms that pop up at different points in our society or history. DEI is another example. I understand generally the goodness of these things, but once they start becoming acronyms, I start wondering, and people have business cards that say their ESG or their ESG fund, I start questioning the social responsibility of simply mailing it in with established acronymized criteria. I would much rather get underneath things and understand what’s really going on. Yes, I think Rule Breaker Investing principles are aligned with conscious capitalism and encouraging each of us as investors to think hard about what is sustainable, about what is socially responsible, and we’re going to come up with different answers, and I think our money should show that. To complete the answer and move on to number 3, ChatGPT. I don’t think this is a very good question in that the answers I think have already been very evident on this podcast, in my writing, both the recent writing and writing from long ago. I’d say a little bit of constructive criticism back for you on this one, ChatGPT, do better. Let’s move on to question number 3. I quote, “Given the current market landscape and trends, what are the key attributes or indicators that you look for in identifying potential Rule Breaker stocks, and how do you differentiate between short-term market noise and long-term growth potential.” I like this question. I think it’s because it’s focusing and it’s honing in on what are the key attributes or indicators that one should look for when looking at potential Rule Breaker stock. It lets me cast my gaze over the last decade or so and think about what’s worked and what hasn’t. What’s been overrated, what’s been underrated. First of all, I want to say of the six traits we look for in Rule Breaker stocks, the first one always has been the most important and is the most important, that’s why I made it the first trait of Rule Breaker stocks. It is looking for top dogs and first movers in important emerging industries.
That phrase has guided me toward every great stock that I’ve picked, and a lot of stocks that didn’t work out as well. But the timeless lesson we’ve learned together is the winners far outweigh your losers. So don’t be afraid to lose. In fact, if you’re listening to this week’s podcast, if you’re following Rule Breaker Investing, maybe you’re a longtime Motley Fool member who’s seen this work or maybe a friend told you to listen in this week, or you’re just a ChatGPT fan, and somehow through search engine optimization, we found you randomly as a listener this week, I want you to know that finding the top dogs in important emerging industries, the ones that have started industries around them, you could argue [Meta‘s] Facebook wasn’t the first social media company, certainly. Some people will point out that MySpace preceded Facebook in a lot of ways, I think it did in terms of its timing, but not really in terms of its heft, its scale, its speed. It really did start in that Harvard dorm room with Mark Zuckerberg and his early friends, and it became the top dog and first mover. It came public in 2012, you might remember. That is a great example of a top dog and first mover, and a great winning stock. It was a failed IPO, it did very poorly in its first year or so. It was, I’m not going to say left for dead, but it was certainly cast aside by Wall Street, and the stock was well down from its IPO date but here we are having recommended it more than a decade ago. Stock is up 12 times in value from when it came public in 2012, the market over the same time up four times in value, so it’s more than tripled the market’s performance.
It’s been a great stock. Today, Meta Platforms, the former Facebook, is a $1.2 trillion company. When I think about the current market landscape, one of the things that I think about is the television show Silicon Valley. Have you seen it? It came out as comedy, 2014 on HBO. I didn’t watch all shows and all seasons, but I enjoyed what I saw. But it was right around that date, this is post the Facebook IPO, where Silicon Valley venture capital, even though the show was there ostensibly to make jokes about it, it was also glorifying venture capital, and that area of the world, both geographically, Silicon Valley, but also psychographically. The idea of start up, start up culture, the idea that you could make it huge in just a few years. Indeed, what we saw over the last decade is companies that, I would say in earlier eras, would have come public younger and earlier. Companies like Airbnb, companies like Uber. Instead of coming public as younger companies, they really blew up in the sense of their size. They became gigantic companies. I’ll give a quick example, Airbnb came public 2020. Do you remember? It was an IPO, we recommended it in Motley Fool Rule Breakers. It’s been an under-performer. It hasn’t been a disaster, but check it, this week, Airbnb from its IPO date is up 5%. That’s right. It’s up 5%. The stock market’s up 45% over the same four-year period, so it’s been an under-performer. It hasn’t lost money, but it hasn’t made any real money for investors. Although it’s done better over the last couple of years it declined initially. I would like to point out this, it’s 5% bigger than when it came public, and its market cap today is $93 billion. That means the company waited until it became worth, in private markets, tens of billions of dollars. The equivalent of $80 billion as it comes public, that was its valuation on its first day of trading, and that is absolutely massive relative to almost every other company that’s ever come public in history. But it’s not the only one. Uber, similarly, 2019 came public. It’s up 55% since it came public.
By the way, the market’s up 82%, so Uber itself has underperformed. Another stock I recommended. It hasn’t been a bad performer, we’re up 55%. Perhaps in time, we shall beat the market, but it also hasn’t been great. I will mention, the last two years it’s been pretty on fire. Uber got off to a bad start over the public markets. The last two years, if you’ve invested in it you’re up 170%. Markets up just 35% over the last two years. Uber has actually been a fantastic stock in just the last couple of years. But here it is, 55% bigger than the day it came public, and it’s worth $134 billion. It too came public around a $90 billion valuation, not a $9 billion valuation, like most of the IPOs that preceded it, like most of the companies that I’ve enjoyed picking in their early stages when they’re much smaller. I’m not trying to blame HBO or Silicon Valley, the 2014 debuting TV show, but I think that something changed in the last decade where companies decide they did not want to come public, where the venture capital market swole with funding, and all of a sudden, you could parlay something small and acorn, and you could become an oak, and you didn’t ever have to go public. But when you eventually did go public, you were selling yourself to you and me, the mom-and-pop investors, I’m a pop investor right along with you. You were selling yourselves to us at a gigantic valuation, it might even be a legitimate valuation. Airbnb and Uber are a little bit up from their IPOs from years ago, but did we make any real money from these stocks? Not so much. In fact, I would say Meta Platforms, Facebook, might be the last big time IPO that has risen 10 times or more in market value over the last decade plus or so. When we talk again, ChatGPT, with your question about the current market landscape, I think we have to notice that.
I don’t think that’s a permanent state, by the way, venture capital is not as cheap and easy to come by these days, and I’ve seen companies in recent years be more willing to come public at smaller valuations. Think about something like Warby Parker or Cava or Sweetgreen, these happen to be restaurants, that and eyewear brand. But Toast, Olo, these are companies that are payment platforms helping restaurants run themselves, tech companies themselves. These companies are much smaller, and they’re much smaller IPOs, but they’re a mixed bag. For example, Warby Parker is down two-thirds in value from the day it IPO’d, although it is up 50% in recent months, it’s worth about $2 billion today. Cava has more than doubled, it’s been a good performer, SweetGreen, the others, mixed bag. I would say about the current market landscape that I was never that interested in IPOs anyway, and I’m even slightly less interested in IPOs these days, unless you’re bringing me more of a mid-cap company. Don’t wait till an $80 billion valuation to get me excited about your stock because I probably won’t be that excited. But if you’re coming public at one or 2 billion, that’s going to be the dodgy experience investors have always had. Statistics point out that if you don’t buy an IPO on average, you wait six months, you’ll get a better price than the IPO offered you on day one. Investors have generally been rewarded for waiting and staying out of IPOs. I guess I find myself talking about IPOs because of the market landscape and how these big brands have weighed over the last 10 years. But let me conclude my answer to question number 3. What are the key attributes to look for? I continue to look for top dogs and first movers. But when I think about what has really made money over the last decade, I see two big buckets of beautiful stocks, many of which we’ve recommended and own. The first bucket, I’m going to call the obviously great companies. These are not companies that were IPOing at massive valuations in recent years, like Uber or Airbnb, these were Netflix, Tesla, NVIDIA and their ilk, what we once called, in another book of ours, the obvious greats.
If you think about what are the obviously great companies with great services, great employees, great stocks, Netflix, Tesla, NVIDIA, this category of company. They were already big 10 or 20 years ago, we’ve watched them become gigantic. Those of us who’ve owned the stocks, these are our favorite stocks, they usually are the tent poles of our portfolios. Of the two buckets that have made money, big money for investors in the last 10 years, one of them is these obviously great companies that were already public. The second, I would describe as the lesser known leaders of their categories. What comes to mind when I think about these? Think about Mercado Libre. MercadoLibre has been a fantastic 100 plus bagger for me in Motley Fool Rule Breakers, and for Rule Breaker members. MercadoLibre is basically the Amazon of Latin America. They’re the e-commerce giant, they’re doing the deliveries, they’re doing the payment systems. This has been a great category leader, but is this a household name like Amazon or Tesla or NVIDIA? No, it’s not. Nor is Axon Enterprise, the former TASER now with Axon police body cameras basically supporting the law enforcement industry with better technology to give our police friends cameras that they now are required to wear, in many cases, filming them and what they do. That’s just one of the things that Axon Enterprise has done to improve the world of law enforcement. Again, not a household name. Most people don’t recognize the name of that company, but we see they’re the category leader. In another example, this one is a little bit better known Chipotle.
Chipotle, Mexican group, technically, their company named CMG. Their Ticker symbol, not nearly as big as Netflix, Tesla or Nvidia, a well-known brand, though. But definitely, again, a category leader and all of those stocks I just mentioned, Mercado Libre, Axon Enterprise, Chipotle, phenomenal winners over the last 10 plus years, rewarding rule breaker investing and rule breaker investing as a strategy. I said I was going to conclude this a few minutes ago. I think I actually will now conclude this answer, but let me just say, I’m not sure you ever heard me say a decade or so a go, there will be an air BNB IPO. It will have blown up before it ever IPOed and the stock will rise only 5% in value over its first four years in the public markets. I wasn’t saying or predicting that. I’m not going to aim to predict now what I think is going to happen next. I would say that’s why rule breaker Investing emphasizes having a portfolio of 25 or more stocks and a fair starting line allocation generally for each, which is my way of saying 4% in each of those 25 stocks. Don’t load up on one with 40% of your money and then just invest 1% in another fair starting line across your portfolio. Those are our strategies. Again, I think they work in every environment. ChatGPT you ended that question with, how do you differentiate between short term market noise and long term growth potential? I would say that’s what helps you avoid short term market noise and long term growth potential, focusing on the top dogs and first movers, not trying to be predictive what you think is going to happen next. That isn’t going to be what makes you money. What’s going to make you money is a diversified portfolio of the companies that reflect your best vision for our future and the emergent ones, especially and 25 or more stocks. On to question number 4 ChatGPT asked “rule breaker investing emphasizes letting winners run.
But how do you handle situations where a stock experiences a significant downturn? What strategies do you employ to mitigate risk while staying true to the rule breaker philosophy?” Stocks decline for us all the time and sometimes they never come back. The first thing I think about, when I think about mitigating risk, while staying true to the rule breaker philosophy is habit number 2 of the rule breaker investor, which is, to recall, add up, don’t double down. In so many words, what I’m saying is when you have new money, because you took the time to save it from your salary, because you’re being smart about your money and your future, you are living below your means, you are not subsisting on double digit credit card debt, you are not, you’ve gotten out of student debt and if you did, God bless you, it’s not easy for a lot of people to do, but you’re at the point where you’re saving. You’re at a point in your career where maybe you could save up to 10% of your salary. That’s a great goal for a lot of people. Maybe maybe your employer matches your savings. You’re that person at that stage of life. I want to say when you have that new money that you’ve just made, and that you’re investing, put it in the things that are rising. Put it in the ones that are doing well. Much of the world here is buy low, sell high and they think, I got some new money. I should put it in the ones that are making new lows, not the companies making new highs, but gut check here. Anytime we talk about a great stock and we just threw down a bunch of company names like Netflix, Tesla, Nvidia, Mercado Libre, Axon, Chipotle, Mexican group. Look at their stock graphs in your head over time, lower left to upper right. Those companies consistently just kept making new highs one year after another. Now, there were years where they lost half their value in one year. Every one of the stocks I mentioned, that’s happened to at least once. If you’re a long term holder of Nvidia, for example, as we have been, you saw that multiple times. You see 33% drops every several years for these greatest stocks of our generation. You need to be ready to lose, but when it comes to the real story of what wins in the markets, it’s the ones that they have some short term setbacks, but they just keep going up.
They just keep coming back and going like amazon.com as a stock over its nearly 30 years in the public markets at this point. Those are the saddles, the bucking broncos that go up. That’s where you want to put your money. Don’t put your money. Don’t double down in things. The number one risk mitigation strategy, ChatGPT, when we talk about the rule breaker philosophy is to add up. Don’t double down. Another way of saying it, don’t throw good money, your new savings after bad. That would be bad investments you’ve already made. Add up. Don’t double down. There’s one more thing I want to say. This is a quicker answer for me, but one more thing I’d like to point out and that is for years, when I worked for the Motley Fool Rule Breakers team. A team, I ideally esteem, a service that I loved creating from the ground up in October 2004, still going almost at its 20 year anniversary. Now, when I think about our team and our teammates, what we would do is we would look at stocks that were down, and we would ask a series of questions about those stocks that were down. I’m just going to give you a few of them right now because when ChatGPT, in the first part of your question, you’re asking about how do we handle situations when a stock experiences a significant downturn. The first thing you already know is, we’re not going to add new money to them. They’re going to need to prove themselves to us by reversing course before we’re going to add new money. But if you’re a stock analyst or you’re just interested in falling the market, you’re wondering, what are the stocks that maybe come back from those points? Then what are the ones that don’t? There are a bunch of factors that typify, anyway, my pattern recognition as to what comes back. I’m going to share three of them right now very quickly. One of the things we did in my services over the years is we would say, we’re looking for some green flags and we don’t want red flags to show up. When we would publish a new recommendation, we’d say, here are five green flags.
That by our definition, are five things in the future. That we’re looking for. We’re expecting or hoping and when they happen, we’re going to go check green flag, wave that green flag. We got it right. We also did the same with red flags. In fact, we called it our five and three. We always published five green flags and three red flags, a brief explanation as to why it was five and three. If you’re going to buy a stock and you’re an optimist about that company and our economy, you should be looking for more green flags and be able to number them more then red flags. The concept of five and three is always tilted toward the good, because that’s what the market does. It rises over time. We want to align our flags in line with that. If you dear listener, have taken the time to think about a stock before you buy it, you can list it, bullet it out to yourself, somewhere in your digital library, somewhere where you keep your notes, or you can write it down an index paper and drop it in a file folder, just write down what you’re looking for, what your expectations are. Then when stuff happens, especially if the stock doesn’t do very well, you now have an excellent list to refer to to ask yourself what’s really going on. For example, if none of the green flags have been hit and it’s all red flags, guess what? I don’t think that’s probably a great investment going forward. That’s especially one you don’t want to stay invested in or add new money to. If you’ve put in a little bit of sweat equity up front and thought about the future and what you’re expecting to see, that is a great guide to yourself. To remind you of whether you want to still believe keep that candlelight vigil for that company coming back or snuff out the candle. I said there are three things I look for that I’m going to toss out in this interview with ChatGPT. That’s one. A second one is just the balance sheet. Of course, a company’s balance sheet, where it shows its debt and the amount of cash it has, just like you and I have a bank account. We can see how much cash we have and how much debt we have.
Companies have to publish those publicly. When you can see that the balance sheet is strong, it has a lot of cash, maybe no debt. Versus the opposite. Not much cash, a lot of debt. That’s another great thing to look at when you decide, my stock has experienced a significant downturn, will it come back? Then a third thing I’ll point out, we’re going to get away from green and red flags here and financial statements, and we’re going to go right to the heart of human beings. Somebody’s running that company. The CEO. You can also think about the board members maybe or the big investors in that company, or sometimes star employees. In fact, one of the best signs of a great company is when the CEO can attract great talent. Just like if Lin Manuel Miranda comes out with a new musical, everybody wants to be in that musical or movie because he attracts great talent. The exact same thing happens in business. Jony Ive works for Apple, not its competitors. I would say, look at the CEO that’s in place at that company now. Do we find ourselves increasingly knowledgeable about that person or the management team? Start with our names. Do you know the name of the CEO? Has the CEO changed? Is that part of the reason the stocks down? Do we know anything about the new CEO? These are really important questions. You want to be admiring of the people that you’re putting your money behind. You should be inspired by them. You should be inspired to dig deeper. If you find yourself disconnected or you don’t like the CEO of the company, that would be another great example of a question you could ask yourself to guide the decision as to whether you think the company’s going to come back or not. ChatGPT, to close this one, I want to say you have to be comfortable with losing. You need to be ready to lose to win. One of my big themes on this podcast. If you use our approach, you’re adding up, not doubling down.
Onto question number five, the final question for this first episodic series, ChatGPT asks, David answers, ChatGPT, here is your provocative question to close.” As rule breaker investing encourages individual investors to think independently and embrace innovative ideas. How can listeners cultivate a mindset of continuous learning and adaptability to navigate the ever changing investment landscape successfully?” That’s a beautiful question. The funny thing about this question is, it’s not being asked of me. It’s actually being asked of you. Dear listener, how can you cultivate a mindset of continuous learning and adaptability to navigate this ever changing landscape that we live in together? I would say, first off, that’s probably already you. These are the listeners that we attract to this podcast, and to our strategy, regular listeners tuning in each week are very likely, I would say way over index toward lives of continuous learning and adaptability. I once did a 12 minute sermonette on this topic. You can still go back and listen to it. It’s only 12 minutes long. Shorter than this week’s podcast. It was May 15, 2021. It’s entitled to lead a more interesting life. If you ever need a 12 minute pep talk from me and a reminder of the importance of that, it’s there for you. When you think about cultivating a mindset of continuous learning and adaptability, It’s not just true of our investing landscape. ChatGPT, I know you were asking about our investment landscape, but remove the word investment there, because that’s what’s happening, not just in investing, but in business, ever changing. What is AI doing to business and for your life? Those are the three domains of this podcast, investing, business and life. I urge you, dear listener, to be cultivating a mindset of continuous learning and adaptability. We have a lot of those types on staff at The Motley Fool. We have a lot of continuous learners. We have many more in our membership.
Our membership base is much bigger than our employee base and there are so many fascinating people who are always asking questions and trying to make things better for those around them. In fact, I would say that it is its own reward. A life of continuous learning and adaptability, sure, it’s going to help your investing. It’s going to help your business, but it is its own reward to live that way through life. ChatGPT, remove investment from that question, but you’ve asked the right question and it isn’t even of me. It’s of you, dear listener. This is the future we’re living into, by the way, if you think this future where you’re going to need to continuously learn and adapt, if you think that’s any different from the past, I want to tell you, I do not think that it is. In this regard, pretty much, since the start of the Industrial Revolution in the 19th century there has been an ongoing, continuous, changing landscape in our business world, in our society and sure enough, of course, for your investing as well. It’s always, In fact, if you think about it, what is the story of human history except one of constant evolution and adaptation to ever changing circumstances? It can push us out of our comfort zone. Sometimes it doesn’t sound fun to say, we always hear people don’t like change but I actually think we love change when you really think about it.
Can you imagine nothing changing from right now? That sounds like a small hell. To me, I love and encourage betterment and change. I think that’s in a lot of ways, what I hope I’ve enabled through this podcast this week. ChatGPT, I want to thank you for the questions that you asked, the beautiful, provocative, challenging questions. One of them maybe not as good as the others and I know we all are expecting AI to get better. These questions should improve if we want to continue this series. If you’d like to see the series continue, drop me a line, [email protected] is our email address. Of course, at the end of this June, we’ll do a mail bag and I’ll read back your thoughts if you take the time to write me and share what you learned from this week’s podcast. In fact, I invite you to do the same. Just as I said to ChatGPT. Come up with a beautiful, challenging, inventive, valuable, provocative, foolish question. I say the exact same thing to you, dear fellow fool, as you drop a note, maybe for this month’s mailbag, you can tweet us at RBI podcast. As I say goodbye this week, I’m reminded of another past author on this podcast. How could I not mention Warren Berger and his book, a more beautiful question. That’s really at the heart of this week’s podcast. I love that book. It just came out. I think in its tenth anniversary edition. Warren dropped me a signed copy. Thank you, Warren. That was completely of your own volition. I appreciate that. But asking beautiful questions. Even knowing what is a beautiful question is, I think one of the great pleasures and value lockers in life and in investing too and business and life. Fool on.