Key Principles From the New "Motley Fool Investing Guide": Buy and Hold (and Hold Some More)

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On this episode of Motley Fool Answers, Alison Southwick and Robert Brokamp are joined for a very special podcast crossover event by Motley Fool co-founder (and host of Rule Breaker Investing) David Gardner. The hook? The Brothers Gardner will this week release the third edition of their now-classic tome, The Motley Fool Investment Guide, updated and revised for the world we're investing in today. But much of the advice they gave 19 years ago hasn't changed, including one of the hardest piece to follow: Invest for very long term. David explains why and offers an example of why it works.

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A full transcript follows the video.

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This video was recorded on Sept. 5, 2017.

Alison Southwick: So David is here to talk about some investing principles you can learn about in the Investment Guide, and the first one is buy and hold. And hold. And hold. And hold.

David Gardner: Mm, yeah. So this is probably the hardest thing for most people to do, especially people who are new to the stock market who have heard phrases like "buy low, sell high," which has the word "sell" coming right after you've bought low. Or a world, whether it's news media-driven, that's always trying to get you to think something's changed and you should take some action, or even just our human instinct to take action, because in most spheres of life, doing something leads to results that we hope are pleasing, but you feel like you should be doing something.

But I think that our record now shows the benefits of, as you said, Alison, buying and holding, and holding, and holding. So there are any number of stories that I could tell right now. And I'm tempted to tell my greatest hits of all time, which would be maybe Amazon, which has been an awesome hold, and hold, and hold from $3 to over $1,000. So that's been an amazing investment recommendation for our members.

But I decided, let's go a little bit more recent. This is still a buy and hold, and hold, and hold, but -- NVIDIA (NASDAQ: NVDA). So NVIDIA is a fascinating example of this. This is a company that I think many of us may have heard of these days. But NVIDIA, years ago, was making graphics cards for PCs. So for video gamers like me, you would try to get a really nice NVIDIA card to drive the graphics part of your computer that would make the games awesome.

And over the course of time, the business has continued to diversify. They started turning these from graphics cards into being the processing units for the machines. And then they took their graphical processing units and they started to do things like, "Hey, let's put them in cars, and as things become more autonomous for cars, we could be driving that. And by the way, AI is showing up, and we can help with that. And Tesla, Tesla's beautiful screen that you have -- we can participate there." And so NVIDIA today is a monster. It is an awesome company.

But here's the story -- some of the numbers. So I first recommended NVIDIA on April 15 -- tax day -- 2005. It was at $6.61 -- split-adjusted today -- so in today's terms it was at $6.61. From there, two years later it went to $40. From 2005 to 2007, remarkable. Buy and hold.

And then, as you might remember, 2008 and 2009 weren't great years for not just the stock market, but the world, especially the financial world. It went in the next year from $40 to $5. So we went from $6 to $40, and from $40 down to below our cost, and that didn't feel very good for our members, I'm sure. It certainly didn't look good for me with some egg on my face.

One year later, though, it had bounced back as we started coming out of 2009, and it gets back to $20. So $6, to $40, to $5, to $20 -- all of this in just four or five years. And then, nine weeks later, it drops back to $8.50 again.

So with that, I don't want to create too crazy a stock graph in anyone's head. In fact, if you are an investor or you enjoy following individual stocks, just go online to our site or any other that has a stock graph and just look at NVDA over the last 15 years or so, and you'll see this. It's a big, beautiful graph today that you don't even notice at this point the movements that I just described for you. Because it looks like it did nothing for 10 years, and in the last two years it looks like it went crazy.

So really quickly, just to catch back up, then -- in 2011, six years after I made the recommendation, it's at about $26. And for the next five years, from February 2011 to February of 2016, it basically does nothing. It kind of drops down below $26 and does nothing for five years. That was a great five years for the stock market. So now here we are in 2016. It just gets back to $26, where it had been five years before, and since then, I'm really happy to report that NVIDIA has gone to $165 a share.

Southwick: Wow!

Gardner: In fact, it more than tripled last year. It became the No. 1 performing stock on the S&P 500, so we were really happy to have that in Motley Fool Stock Advisor for members. It tripled. And a lot of people said, "Well, I mean, that's an amazing move, but it's got to end, probably." I'm only going to tell the story here because I can pat myself on the back a little bit. Why would I tell any other story?

So I want to let you know that despite hearing that talk, in January of this year I decided to re-recommend it at its price then, because I thought the conventional wisdom was the stock is played out. It's tripled. It was the No. 1 performer on the S&P 500. So I decided, let me actually go ahead and re-recommend it, which I did at $103 in January of this year. So here we are just about to start September, and it's gone from $103 to $165.

So this is a company that we bought, and held, and held, and held, and it's become not just a better company but a more impactful company than we ever thought it would. But it's gone from $6 to $165, but you had to go through the $6, to $40, to $5, to $26, to $8, back to $26. You had to wait 10 years before this took off and became what is today the stock that is up about 25 times in value. So it has been a wonderful 12-year investment, but it's all been in the last two years, my friends. And that's remarkable, so you need to know these stories to be an investor.

Alison Southwick has no position in any of the stocks mentioned. David Gardner owns shares of Amazon and Tesla. Robert Brokamp, CFP owns shares of Tesla. The Motley Fool owns shares of and recommends Amazon, Nvidia, and Tesla. The Motley Fool has a disclosure policy.