Rule Breaker Investing: July Mailbag Questions Are Here

By Markets Fool.com

David Gardner is a big fan of Pokemon Go . . .but not necessarily in the way that you think.

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For this episode ofRule Breaker Investing, Davidturns to his loyal listeners for inspiration. Fans write in to learn about investing benchmarks beyond the S&P 500, strategies for getting into a stock position, Pokemon mania, negative interest rates, and more.

On a more personal note, David also discusses the unique nature of the company he co-founded with his brother, Tom, over 20 years ago and how an initial public offering is probably not in the cards for the Motley Fool, despite the potential benefits.

A transcript follows the video.

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This podcast was recorded on July 27, 2016.

DAVID GARDNER:

And welcome back to Rule Breaker Investing. I'm David Gardner and it is the final Wednesday of the month and that means it's Mailbag day. And here we have our July, 2016 Mailbag. We've been doing these [about 5 to 9] months. I hope you enjoy them as much as I do. I love seeing your questions. Seeing what you're thinking. What you're wondering about. Doing my best to provide a Foolish answer.

I can't always say it's a comprehensive answer. We don't often have enough time in this show to go really deep with some of the questions that I'm asked and certainly I can't answer every question that is sent to us. I try to answer the ones that are most relevant and most interesting or fun to talk about for this show. And thank you, once again, for a nice stuffed Mailbag that I look forward to cutting through as we speak.

In fact, let's get it started right away this week with one from Jordan Parcel. Jordan, you wrote: "Hi, David. Thank you for all of your help and everything you do for the average investor. I love hearing it all. I have not missed one of your podcasts, yet." OK, I need to just pause it right there. Jordan, you rock!

Back to your text: "Specifically, I enjoy hearing about your big winners and losers, but I find it hard to judge how I'm doing with my investments. I've been following the Fool for about four years and investing for three. My goal has been to accomplish higher returns than the S&P because if I can't beat that, I ought to be fully invested in ETFs. With your team's help (knock on wood), my portfolio has held up pretty well against the S&P, but I was wondering if you had a better guideline to judge my performance. Thanks, Jordan Parcel."

Or maybe Par-cel. Although the former coach of the New York Giants and New England Patriots used an extra "L" when he went by Bill Parcells, so I'm still thinking, Jordan, I've got your name nailed.

You've actually asked a few questions. First of all, you said you've been following the Fool for four years and investing for three. That's not a question, but I want to say good job. So it sounds to me like you were following along for a whole year before you started investing. And that says a really good thing to me about your taking the time to educate yourself and to think about all this. Maybe even to save and scrap some money together to invest, and then you got started, so congratulations and good for you.

There are really two threads that I want to pull out of your question. The first is just beating the S&P 500. That's what you've described in your note, Jordan. You said that you're doing this because if you're not going to be beating the market (the S&P 500), than you might as well be in ETFs.

And I want to reassert that that is, in fact, the goal of at least Motley Fool Rule Breakers and Stock Advisor, the services that I work on. Certainly Motley Fool Supernova, as well. Not every service for every Fool is designed to meet the market, necessarily. Some of our members, especially older members, don't care as much about beating the market as they do preserving their capital. So you have popular services like Jeff Fischer's Motley Fool Pro, which is really there to help people try to not lose money, even though it also has a good record of beating the market.

So I do want to mention that not everybody has this same goal, but at least for me, David Gardner and my brother Tom, and the books that we started The Motley Fool with (the 1996 best seller The Motley Fool Investment Guide) from the beginning pretty much ... in fact the very first day we launched on AOL (August 4, 1994) ... we said we think you should be trying to beat the market, otherwise buy an index fund. Follow along with us and watch us. We think we can beat the market.

And I'm happy to say from that day forward we pretty much have been beating the market, and I don't think it's that hard of a thing to do, really, in a world in which so many people are just trying to mail it in. They're just giving their funds over to somebody else who's managing them, often charging them 1-2% just to replicate the market's averages, but delivers that person, unfortunately, a submarket return because of the fees of 1-2%. If we can get around that, and do it ourselves (and that's what you're talking about, Jordan), then I say bully to us and it's worth going for. I've certainly been well rewarded in my life for investing in stocks directly.

I do want to reassert that that is the goal, so if you're a new listener to Rule Breaker Investing this week (if you've just found our podcast or The Motley Fool), I hope you know that we think most of us should be invested, to start with, in index funds and just specifically how about the S&P 500 Index Fund (or Vanguard has one called the Total Market Index Fund). We like Vanguard because they are the Wal-Mart of the industry. They have the widest selection and the lowest prices, and really the fees that you pay for funds are what affect your returns so much over long periods of time.

So darn it -- if you can't beat them, join them. Just go ahead and take the index fund and have fun with the rest of your life. But I think Rule Breaker Investing, in particular (not just the podcast, but the service) appeals to people who want to do better than average. And the benefits of doing better than average are very substantial, especially when measured over time.

If you and I can just exceed the S&P 500's return by 1% annualized, it might not sound like much after one year, but take out a calculator and do the math, and check out the difference between an 11% annualized return over 25 years versus a 10% annualized return. Now I'm not doing it right now, because I'm doing Mailbag. I don't have my calculator in front of me, but it's not that hard to do with a calculator, and you'll see it's very substantial. Just a one-percentage point difference, and I'm happy to say we've managed to achieve more than that in services like Motley Fool Stock Advisor. I just want to reassert that's why we do what we do most of the time for many of our members who are looking for that, even if not everybody in life is looking for that.

Then the one other thread I wanted to speak to, before we move on, is how you judge yourself and score yourself. For me, I still haven't found a better way than something as simple using anything from Quicken, where you can type in your stocks. At The Motley Fool we have a scorecard tool. You can use a spreadsheet. You can no doubt search the internet for a simple spreadsheet -- a template that you could use -- and just keep track of how you're doing with each stock.

When I buy a stock, I type in the ticker symbol. On the next cell over, I type in the price that I paid for it, and I usually include the commission, there. Then on the next cell over (the next column of my spreadsheet) I'll just indicate where the S&P 500 was that day, and then I have another couple of cells where I show the percentage gain in my stock (or loss). That happens, too, sometimes. And then the S&P 500, by comparison, and I net those out.

Then at the bottom -- and I hope this doesn't sound too hard, because I don't do that much buying and selling, so it's not that hard for me -- I would encourage you to track not just stock by stock, but the overall portfolio, of course. And if all that sounds like too much work, how about just note the amount of money that your brokerage account starts at on January 1 of each year and then the amount that it closes at. Then do just tag it against the S&P 500. That's still, to me, the best way to judge your performance.

Of course, if you're investing in a more focused way (like you're just buying oil stocks or something) I guess you should be comparing yourself to an oil sector fund, so make sure you're picking the right benchmark. But for most of us at The Motley Fool, the S&P 500 does just fine.

Now for a horse of a completely different color, the next one up is Jerry Lynch. Jerry, you wrote: "Dear Dave, would you please describe The Motley Fool's cost/benefit analysis regarding the decision, up to this time, not to take your organization into the IPO marketplace." When I first read that from Jerry, I was wondering if he was saying we should be covering IPOs more. Like we're not in the IPO marketplace for a newsletter covering IPOs. Nope. Jerry, as it turns out, as he goes on, is wondering why we don't go public as a company at The Motley Fool.

"When you describe keeping score of all The Motley Fool projects, I always ask myself," Jerry writes, "why won't Dave and Tom make that ultimate next step to play in the big league of the stock market? My question is motivated by my sense that The Motley Fool is at an exciting point in their evolution where your media empire," (that's very flattering for you to say and to use that phrase), "can jump to an all-new level of international presence. Yet I'm concerned this next rule-breaking recreation cannot happen without a major infusion of public financing." He goes on a little bit from there. "Thank you for your work. Jerry Lynch."

Jerry, thanks for the question. I will speak to this briefly, but it's a fun question. We are in our 23rd year of being a private company. We've been private from the get-go. We've taken in a lot of venture capital over the years, especially in the first 10 years of our company, and then in the succeeding 10 years, we spent a lot of time paying back out our venture capitalists in order to remain a private company. We love being a private company. We also are really glad that there are public companies -- otherwise we wouldn't have much of a stock market for you and me to be invested in, and find great companies.

I would love for The Motley Fool, one day, not necessarily to be a public company or not, but specifically to be a great company. I think we still have a lot of work to do in that regard, but that's what Tom and I are building together and what we've been building with the help of, now, about 350 others who are full-time employees at The Motley Fool.

We would be a different entity if we were public. I don't think we would be quite as fun a place to work. It would be little bit more intense around here. We're not complacent, at all, but I think there's some really nice benefits to being a private company. One benefit we don't have is regular access to capital, which is what you gain when you become a public company. First of all, you can float some stock and take in some money right there, but you could also do secondary offerings and other things. You also increase your visibility a lot.

Jerry, you asked specifically in regards to our international growth opportunity. You're right. If we received a substantial infusion of capital, we could definitely spread Foolishness faster, harder, deeper, and broader than we are today. As it is as you're hearing this podcast I pretaped this about a week ahead of time because I'm out visiting Motley Fool Singapore and Motley Fool Australia. I think I'm having a really good time as you hear this.

It's certainly a little bit of entrepreneurial pride for me to think that The Motley Fool is now in those countries. In Canada. In the UK, where we've been for a long time. Germany, recently. So we're going to continue expanding, even with the little bit of capital that we have. It does keep you more focused when you have less capital, and you generally have to be more disciplined, so I think that there can be strengths to that, as well. Anyway, don't expect ticker symbol (FOOL) to show up anytime soon. At the same time, I don't expect anybody else is ever going to take that ticker symbol, but we'll have to see.

And the next one up is from my friend Troy Springer. I got to know Troy at the University of Richmond where I was leader in residence at the Jepson School of Leadership Studies over the past year. And Troy, I think you were ROTC, so I know that you have some military background, but you've also been a very faithful podcast listener. It was a pleasure to shake hands with you in Richmond.

Troy, you write: "I've been meaning to get this question out for some time, now. What is your favorite way to get into a position?" For example, you write: "I have recently gotten into the habit of placing, 'Good till canceled' limit orders on stocks I like. A lot of times I'll buy a stock at its market price and then the next day it will be down something like 2%. And I'll say to myself, 'Oh, man. I should have been a little more patient.' I know it's impossible to predict where the market will go and time the market, but I think being able to save a little when you enter a position is valuable. Plus by placing such limit orders, I don't have to pull out my phone all the time and check the price of a few stocks."

You go on. "Motley Fool recommendations don't seem to give too much insight into the moment of the actual transaction. Even Best Buys Now seem to be not especially time bound. How would a Fool save a bit on his transactions aside from commissions?"

Well, that's a great question. Let me start by saying that there isn't any one approach, here. I'm going to tell you what I do and how I think about it, but you might well do this better than I do because, frankly, I don't think I'm particularly good at picking prices or picking entry points for stocks (or picking the right time of day or having the right approach).

Troy, here's what I do. I just place market orders. I remember when I was an earlier David Gardner (somewhere around a 30-years younger David Gardner, so I was around 20 years old at the time) I would place limit orders at that point. I felt like -- and I was often buying smaller-cap companies -- the smaller cap the company, the more illiquid the stock, the more it's worth placing limit orders to ensure you get a price that you want.

But back in those days, that was more consistently how I bought stocks and it was a less liquid market with much lower volumes than we see today. The spreads were much wider. The difference between the asking price and the offer price were substantial, so you'd have to buy a stock at, say, $20.5 and a second later it would be bid at $20. In other words, you would have paid up a half dollar just to buy that stock. That was, again, in more illiquid stocks in a more illiquid time.

These days, I don't really approach the market that way and there's a lot more liquidity. The spreads between the bid and the ask are more like one cent. Sometimes they're less than that, and so I don't really find it that important for me to try to put in a limit order. Also, how many times (and it happened enough times that I remember) did I put in a limit order. The stock never quite crested down to that price that I wanted and I never got that stock.

And here's the bad news when it never did go back down to that price that I wanted, that means it went up from there, and I missed a winning stock because I was trying to grab a couple of pennies here or there. I decided that for me, as an investor, I'm not going to worry or be too intense about when I buy a stock, or what price I buy the stock at. I'm going to place a market order when I'm ready. It will fill instantaneously from that point, and I will be a part owner of that company.

That's my approach, but I'm the person who is convinced that within a day or two of whenever I buy a stock, it will be lower the next day, and whenever I sell a stock (and I don't know how this happened) it goes up the very next day. So I'm just at peace with the idea that I'm never going to get it right. But here's the good news. It's so short term, it's so meaningless a year, or two, or three later, that I don't think it's that worth it.

Now all that said, there are many different approaches, here, and especially if you're starting out as an investor (and commissions can be a substantial chunk, sometimes, of your purchases), maybe you do want to pick your prices. And if you're a more precise person, or exactitude matters to you, maybe you want your order to fill right at the price that you have predetermined if the stock hits that price, so I completely understand it.

I'll close by mentioning that we've talked a lot over the years about just buying stocks in thirds. This is something that The Motley Fool certainly popularized the idea that rather than go all in with your full position right away, sometimes we found it's smarter to parcel it out. To divide it, let's say, into three pieces, and buy your first third right now. Don't worry about whether it's high or low. Don't sweat your limit orders. Just get invested. Get your feet wet. Become a part owner of that stock with one-third of your position. And then, perhaps a month from now, buy your next third and a month after that, fill out your final third.

Why does this work and why do we recommend this approach? Well, I think it's for this reason. It's because for a lot of us, we're gun-shy. We don't even want to buy. It feels all or nothing, and so sometimes we wait. Or we put in a limit order that's not even realistic, and we never get invested. Or we wait too long to invest.

So I think for a lot of people, when you make it piecemeal, and you just give yourself an opportunity to get your feet wet and start with the investment, you put yourself in a good mental place, because here's the trick. From that point forward, you've already bought a one-third, so now if the stock goes up from there, you can say, "Well darn it, I'm awfully glad I bought some that day. That I had the courage to step in and I bought some. And it is up some, so I'm already making money. I like the company, and I'm already making money, so I'll buy the rest now, or in the future."

On the other hand- and here's the mental trick -- if the stock has gone down from there, what are you saying? You're saying something like this. "Well, I did buy some, but here's the good news: It's down, and I still have two-thirds of the position left to buy, so here I am able, on sale and at a discount, to get what I was paying up for a little bit earlier, and I still have more money off the table than on, so now I'm going to buy happily and confidently at these prices." So if you followed me through that example, Troy (and everybody else listening), you'll see that I think it's a fun mental trick we can play on ourselves to get invested.

I will close by saying that there are documented studies that show the longer you wait to buy, the less well you will perform overall. So dollar-cost averaging (which is kind of what I just described), or buying in thirds (if you space it out over time and you do that systematically, and you track the results), 30 years later you're going to find that more often than not, you would have had more money if you did not do that.

And why is that? Well, that's because the stock market, on average, tends to rise over the course of time 10% a year. So with every passing day or month, you're paying a little bit of an opportunity cost waiting to put your money into the market. It certainly feels great when the market, one year out of three, declines and you waited. That feels great. But two years out of three it keeps going up. So studies will show that dollar-cost averaging is actually less efficient for long-term returns, but for a lot of us, humans as we are, it's more emotionally efficient. Sometimes it gets us off our duff and gets us moving to start practicing buying in thirds. And if that helps you, then that's another way to enter a position, as well.

Always more to think about these subjects than I can possibly cover, but I hope that was pretty good. And by the way, Troy, you do mention being a gamer at the end of your note. I didn't read that. You said, "The biggest problem with playing more board games is getting enough people around the table."

I will mention, on a side note, that I'm delighted by the trend that we're seeing as gamers these days; that more and more great board games are coming out as apps and often very well designed. The same components are cards or the look of the game. Sometimes it's keeping score for you in a way you don't have to with a board game in front of you.

A recent outstanding release is one of the more complicated games -- this is not for new gamers -- and one of my favorite games called Twilight Struggle. It's one of the five highest-rated games of all time on BoardGameGeek, my second favorite website. Twilight Struggle just came out as a beautiful app for the iPad. It's a three-hour game that's hard to find somebody to play against, sometimes, for the very reason that we're all very busy. But when you're just playing against the AI, you can really enjoy the game, and I have over the course of this summer. So a little plug there for serious gamers for the Twilight Struggle app.

"Ad: This podcast is sponsored by Rocket Mortgage by Quicken Loans"

The next one up is number four this month. We're going to have a shorter number. I think I'm going longer and deeper on a shorter number of Mailbag questions this month. This one comes from Leonardo Pozzobon and Leonardo write me thus: "You spent a full podcast talking about your love for board games and whether they're good to teach people about investing. My question is about one particular game I remember that was invented specifically for that. I'm talking about Cashflow, created by the Rich Dad guy Robert Kiyosaki. Have you tried it and why did it not make your list?"

A couple of things there, first of all, Leonardo. I'm going to say to Mr. Kiyosaki's credit he generously sent me a gratis copy of his game. This was probably about 10 years ago. The actual name of the game is Cashflow 101. Cashflow is all one word in the title, so you can look it up on BoardGameGeek and you can see the page for that game.

I will tell you that as a gamer, in my opinion it is not a very good board game, just from a gaming standpoint. Any lessons it might teach about money, which is the real intent of that game, are aside. If you just look at how much time you want to spend playing games in life, and if you have limited time with which games you want to play, a game that grades out as a 4.9 on a scale of 1 to 10 -- where 10 is outstanding -- that is the present rating that that game has.

It came out in 1996, I'll say, so that's about 20 years ago. Board games have advanced in lots of ways since 1996. So on the one hand, I certainly want to thank again Mr. Kiyosaki for thinking to include The Motley Fool on his comp list for a game. He sent it saying he knew I loved games (this is, again, years ago) and so he sent me a free copy. At the same time, I'd have to say it's not a great board game.

Then there's one other thing I want to mention. Sometimes the subject of Rich Dad, Poor Dad comes up and people ask what we think about that at The Motley Fool. He has very different advice and thinks about money very differently in some ways than we do. There's certainly some overlap. He's obviously financially concerned. He certainly prizes home ownership and the use of real estate to create wealth, which we would certainly agree with. Rule Breaker Investing isn't about real estate and we're not that real estate focused as a company, but certainly for Kiyosaki real estate is a big thing for him.

That said, sometimes he's ventured away from what I think is his core subject to start giving things like stock market advice; and in general, this is very different advice than you're going to hear from The Motley Fool. And because we had, had enough people ask us about Kiyosaki-- about five or six years ago, he was coming through Washington, DC with what I think was called "Rich Dad Stock Success Workshop." And Brian Richards, the very talented editor now helping running portions of Motley Fool International today, attended that workshop and covered it for our membership.

It's one of the more recommended articles that came out in 2011 on the Fool.com site. It had more than 100 comments and more than a couple of hundred recs, and I'll just leave it there by saying the title of the article (and you can Google it if you want to read it) is "Stock Advice So Bad It Will Make You Cringe." That is the title of Brian's article.

Just a couple more this month. The next one comes from...Oh, look. It's from me. Oh, I wrote myself a question. "David, do you see any similarities between Pokemon Go and the book Ready Player One?"

Well, first of all, great question. I'm glad you asked, David, and yes, I do actually want to mention a few things about it. Certainly Pokemon Go has taken the world by storm over these last several weeks. On a point of extreme nerdiness, I was there day one downloading it. In fact, on the app it says when you came to the game, so I guess I get small-niche geek credit for having it the very first day. I think July 7 is when I joined the game, so I'm not one of those who showed up two weeks later hearing it was a big thing.

I am a gamer, as we've established. I do enjoy following games. I played the game some. It's an OK game. It's more of a phenomenon -- a worldwide phenomenon. But I did think some about the book Ready Player One which we've talked about on this podcast as I think about Pokemon Go, because one clear similarity is that [with] both of them (the real-world Pokemon Go and the not-real-world of Ready Player One) the whole world is playing a game. Not everybody, but basically one game is dominating culture.

In Ready Player One, it is the game that has been built by the deceased billionaire, the Bill Gates-like figure who's left all his money in Easter eggs somewhere around the massively multiplayer online game that everybody's playing on Earth at the time. Pokemon Go has that same dynamic, and I think this makes sense. There are network effects in place in these things.

Once you hear that all your friends are playing something, you're a friend, too, so you're going to join and you're going to play. And once you start reading that the whole country or the whole world is playing something, then a lot of people who would not have played it start to play it (we're all social creatures) just to be in the game. Just to be conversant. To be able to interact. To be relevant. So that's one clear similarity of Pokemon Go.

In some ways, it's doing what Ernie Cline, the author of Ready Player One, was conceiving when he wrote his book some years ago. Now whether Pokemon Go has long-term viability -- whether it has legs -- is a separate question, but I clearly see that similarity between them, and I think it's kind of phenomenal, in a way, that Cline foresaw that that would happen. And you can see why it would -- a big, online game with network effects built in.

I will say that the game has been fun. I think what's special about it is it was built over the course of a decade or so by Niantic Labs, which is the Google-owned spinoff. It's a separate company that was playing its own game -- that had built a game like this -- using things like Google Maps, which had been built up over the years, so [there were] a lot of these elements (I think the name of the game was Ingress) that Niantic had developed.

So Pokemon Go was built on the bones of really important innovations that had occurred over the last decade, but added the magic fairy dust of intellectual property that the whole world knew. That a lot of people had grown up with. And when you add that in, that's why I think you see something so phenomenally successful relative to what preceded it.

It will be interesting. I wouldn't be a buyer of Nintendo stock, which has, as of this podcast anyway, more than doubled in just about 10 days, briefly becoming a larger company than Sony. At the same time, I don't think we should [give less] credit to Nintendo for what it's done.

What it's proven is that it has extremely relevant intellectual property, and beyond just Pokemon, certainly we can think about things like Mario, Link, and Zelda. All of the different Nintendo brands and intellectual property. I think the world has been reminded that these things are sometimes more valuable than we were thinking. So some of that big run-up in Nintendo stock I think is just a recognition that probably the world was underpricing that intellectual property until Pokemon Go showed up and maybe, temporarily anyway, caused it to become somewhat overpriced, as well.

And before I go to my last one, I do want to mention a couple of extra things about Pokemon Go which I think are pretty cool. One is the game is largely built on, of course, the real-world map of our lives; but it's built on landmarks that are around you (in your neighborhood or wherever the place is that you're visiting). The way to acquire more items is usually to find that piece of sculpture in the airport, or that statue that you keep walking past on your way to work and forgot is there. Those are the kinds of landmarks that the game keys into.

Another aspect of it, and consonant with that, is that idea that you're out and active in the world around you. You're rewarded for walking 10K. With the app open, you can start doing more stuff. So really half the story of Pokemon Go isn't Pokmon. It's the idea of being out in an augmented reality where you are really, "Oh, that's who designed that sculpture," or, "oh, that's how long that plaque has been there." It is awakening you to the world that you're sometimes rushing by all the time and showing you some of the history of it and encouraging you to walk, look at it, and be active. I think that's pretty cool.

And the last one this month comes from my friend Frank DiPietro. Frank is a longtime Motley Fool member. I've met him at member events over the years. He's @frdip on Twitter. Frank, you wrote @RBIPodcast: "Why would anyone invest in a negative interest rate bond? I understand there are $12 trillion invested in these worldwide."

Well, I've gotten a number of questions about these in recent Mailbags, and I keep ducking it because the negative interest rate world is not something I've studied or thought that much about. I don't really know too much what to do with it either, other than to point out that I don't think interest rates will ever go too negative, because if they do, people will just start sitting on cash and not invest, at all, in these kinds of instruments.

What's happened is that interest rates have gotten so low that when they decline a little bit below that, sometimes they can go below 0%. Technically what you're doing is giving your money away and you're paying interest to whomever is keeping your money for you at your bank for them to do that. It's like you're taking out a self-storage unit except it's for your cash, not for that old sofa that you still haven't given away after college.

This is a really interesting phenomenon. As Frank points out, there's huge amounts of money that are sitting in things where you're paying a negative interest rate. That is, you're not getting paid. You're paying somebody to hold it.

Now, how has this even happened? It's primarily happened because central banks have set their interest rates extremely low. What a central bank (the dominant bank in a country -- let's say the Fed in the United States of America) is doing is saying to banks, "We're penalizing you if you try to put your money with us. We want you bankers active in the world. We want you using Pokemon Go except with your money, not your iPhone. We want you investing your money. We want you loaning it out. We want you starting businesses. Don't just park your money. If you park your money with us, then you will have to pay us to do so. Wouldn't you rather loan your money and make more money doing that?"

And in the same way that a central bank is saying that to its domestic banking system, that's kind of what your local bank is saying to you and me as investors. Rather than leave your money with us, where arguably you're getting paid almost nothing or might even have to pay us at some point to do that for you, why don't you go out and use your money?

Now for a lot of us in Rule Breaker Investing, we're using our money in stocks. I think that's a lot better of a place to be, obviously, than in zero interest rate or negative interest rate things. And good companies that have enough money to pay dividends will have dividend yields, sometimes, of 2-3%. That's like the interest rate you and I are getting paid for just holding that stock, assuming that stock stays at its same price. Whether it goes up or down changes it a little bit. The point is you can find pretty good interest rates just for holding good dividend stocks -- far better than you'll find from your banks.

I think what our banks are saying to us is go out and use your money. Let's get the velocity of money moving ahead, again. A lot of this is still an overhang of the really horrible conditions of 2008-2009. Certainly textbook cases will be written about what's happened here, now, in 2016 when substantial portions of the world (of Europe, for example) are operating with a negative interest rate. It's very rare for this to happen. Again, I don't think it's that sustainable. I'm not that worried about it. If it were to go more and more negative, no one will put their money with banks and so it will not be sustainable for the banking system to do that.

But Frank, you're asking why people do this, because they are doing it. And to try to answer the question briefly here, as we close, the answer is that traditionally bonds are kind of an offset to the stock market. The reason some people think you should be diversified into bonds is because when stocks go down, bonds often don't. If you are a large asset manager, and you're trying to park lots of cash different ways and keep yourself safe and balanced, then you have appreciated having something that protects you in the one out of three years where the stock market loses value.

[Let's say] you don't think the market's going to have a good year in the year ahead and you think that one-third probability is popping up in the next 12 months. Well, darn it, let's say the stock market goes down 13% over the next year. For you to have just paid 1% to somebody for your bond sounds crazy. It was a negative interest rate, but you're in that bond instead of in stocks. Then net-net you've saved yourself 12 percentage points of potentially lost capital.

That's a reason, certainly, if it is $12 trillion, why a lot of that money is sitting in those things. And part of it is there's just so many assets, globally, that they can't just all go into the stock market. They need to be lots of different places and there are all kinds of diversification schemes that people ask of their bankers or that asset managers have to obey, anyway. That explains some more of that money there.

I hope this brief meditation on negative interest rates has been a little bit helpful for you as you think through why the world would work that way and what it means for you. But I'll admit that the world is very complex and it's something I haven't read about that deeply because I just stay invested in stocks as I have been the last 30 years and as I plan to be the next 30 years.

Why don't we close it on that moment, here, for Rule Breaker Investing. Thank you very much for listening to this episode. Next week it's going to be a Donald Trump story. Fool on!

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