In this episode of Rule Breaker Investing, David Gardner shares some of his favorite quotes from the likes of Shakespeare, Proust, and . . . himself. Tune in as he discusses important themes of persistence, perspective, culture, and more.
A full transcript follows the video.
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This video was recorded on Jan. 4, 2017
David Gardner: Welcome back to Rule Breaker Investing. I'm David Gardner. Happy New Year! I hope I'm not the first person to say that to you.
It is the first episode of this year and we're going to make it a Great Quotes episode. In fact, I was looking back over our annals and the last Great Quotes (Vol. 4) was August, so I think it's time to continue the series. And I've got five for you, although I'm going to have a smattering of a number of additional, so there are going to be some bonus quotes thrown in throughout.
I want to start off -- I hope this is not too self-indulgent. I know sometimes I write myself questions in our own Fool Mailbag, but I'm going to give one of my lines that tends to get retweeted most often. Maybe one of my top five or 10 quotes. Really it's an excuse to tell a story, so that's what I'm going to do with quote No. 1.
So the quote's pretty simple. Here it is: "I try to find excellence, buy excellence, and add to excellence over time. I sell mediocrity. That's how I invest."
I first typed that out on our Netflix discussion board at Motley Fool Stock Advisor. I was checking the date. It was April 14, 2010. And the question at the time -- I was reacting to one of my favorite community members. His screen name is Cobra2001 on The Motley Fool discussion boards. And Cobra had asked very simply: "David, this question is for you. Do you think Netflix is getting in overvalued territory?" So it's worth checking back in and looking over some stats and dates to learn a great investment lesson.
So why was Cobra asking, in April of 2010, if Netflix was getting in overvalued territory? Well, it was very understandable to do so. We had first found Netflix around $2 a share -- this is in modern-day prices adjusting for splits -- so around $2 a share in 2004 to 2005. And by 2009 it had doubled, so it was a good four-or-five-year run for that stock. That certainly outpaced the S&P 500 over that time. So it doubled from $2 to $4.
But from 2009 (the start of that year) to April 2010 (about a year and a half later), the stock had gone from $4 to $12, so you can understand why a smart guy like Cobra2001 would be saying: "Hey, David. I know you don't really think in these terms very often. You don't talk a lot about overvalued, undervalued. You're more about just buying, and holding, and finding great companies. But don't you think it might be getting in overvalued territory right now?" to paraphrase the question. So let's continue the story forward a little bit more.
By July of 2011 (so this is 13 months after our exchange, after I delivered my "find excellence, buy excellence, add to excellence over time, sell mediocrity" quote), the stock would go from $12 a share to $43 a share, so it almost quadrupled from the point that question was asked in just 13 months.
And yet, those of us who remember what happened to Netflix (the Qwikster debacle, etc.) in 2011; from that $43 price in July of 2011 the stock, by December of that year (just five months later), would drop to $8. In other words, you lost more than 75% of your investment and it had returned below the point when Cobra was asking, when it was at $12: "Hey, David. Do you think this stock is getting a little overvalued?"
So it all comes down to your perspective, doesn't it? So often studies of investment performance come down largely to when people start counting and stop counting, and you can prove lots of different points about the length of bull markets or bear markets based simply on when you want to start counting.
So looked at from one standpoint, it was a great time to ask that question because the stock would go from $12 to $8 from April 2010 to December 2011. So over the next year and a half, the stock would lose a third of its value. And yet, in between that time, it almost quadrupled; from that point, losing 75%. That was a great time to ask if it were overvalued -- when the stock was at $43 in July of 2011.
But I hope you've gotten to know me well enough by now on Rule Breaker Investing to know that it's not about an 18-month period or a four-month period. What's remarkable, I think, about this story is where Netflix is today. Netflix, today, is trading at about $127 a share as we speak, so the stock is up 920% since that posting on April 14th of 2010.
Might it be overvalued? It's up 920%. The S&P 500 at the same time is up 92%, so it's 10 times ahead of the stock market average since that time. And that is why our lead quote, this particular podcast is: "I try to find excellence, buy excellence, and add to excellence over time. I sell mediocrity. That's how I invest."
Quote No. 2. Quote No. 2 comes from that grab bag of great quotes -- you might know this one -- that sound familiar, often bumper sticker. And yet, the person who is said to have said this thing never actually said it. So you may remember in the past the great Gandhi quote, "Be the change you want to see in the world." Well, it turns out Gandhi never actually said that, but TED Talks are quoting him for that wonderful quote. And it's true in the spirit of Gandhi, no doubt. "Be the change you want to see in the world."
And that's why I also love this Marcel Proust quote, which I'm sharing with you as quote No. 2 because Proust, as best I can tell, anyway, never actually said what I'm about to say, and yet it is a great quote. And here it is: "The only real voyage of discovery consists not in seeking new landscapes, but in having new eyes." Marcel Proust (though Proust never actually wrote that, in French or English).
And it's a beautiful quote, and I think it speaks to me in two different ways that I want to share. The first is sometimes we go off and we travel, and we see something and then we come back, as Proust is talking about, and we actually just see where we were before in a totally new way. For me, just reflecting back, August of last year (and I podcasted about it at the time), but my military tour for a week with the Joint Civilian Orientation Conference, that outstanding program that I got to be part of for seven magical days.
But when I came back to my native city of Washington, D.C., a city that I've always been a little bit cynical about because I'm pretty apolitical, so it's ironic that we started The Motley Fool in Washington, D.C. when we could have started it in Silicon Valley or, gee whiz, Bermuda. Any one of a number of lovely places. But we happened to start it kind of near where we were born.
But I've always been a little bit cynical because people tend to think that Washington, D.C. is all about the federal government (and certainly a big part of it is and I'm not that interested in that). And yet as I came back, I realized there are really three thirds to Washington, D.C. One-third is the government. Another third is the private sector. There are a lot of big companies, a lot of for-profit, big companies all around Northern Virginia and Maryland. Lots of biotech, lots of high tech, and that's what I love about our area.
But then there's a third of it that was kind of invisible to me before that, and that's the military. So the Marines at Quantico, or the Pentagon, or a lot of people who have given a lot of service to the United States of America who love the United States of America and are swarming all around Washington, D.C. So that, for me, was kind of a Proust moment.
But I think, also, Proust reminds us of something I once first came across, really, in Warren Bennis's book On Becoming a Leader, where Warren Bennis says, in so many words, now that you're an adult, you now own, for the rest of your life, your own education. You are now responsible to educate yourself.
Up until this point, many of us kind of felt forced to go through the educational system in whatever country we're in with a lot of testing, and not a lot of choice. Maybe you got to choose your classes but sometimes not your teachers. Or you got to choose your teacher but not your material. But from that point on, when we leave school, the real education begins and it's a process of self-education.
In fact, Bennis wrote: "One of the marvelous things about life is that any gaps in your education can be filled, whatever your age or situation, by reading and thinking about what you read." So yes, the only real voyage of discovery consists not in seeking new landscapes but in having new eyes, and you have a lot of control over what your eyes see.
Quote No. 3. So this is a quote from Chuck Yeager, General Chuck Yeager. He's alive and doing well. You may remember him played by Sam Shepard in the great movie The Right Stuff. General Yeager is in his nineties today. He still tweets out on Twitter pretty actively, and he's always had a sharp wit, so if you ever want to follow him (I do), he's @genchuckyeager on Twitter.
So I came across this quote in an article by John McElroy in WardsAuto. This was posted up, linked to at Fool.com in July of 2016, so a few months ago. It was about self-driving cars and autonomous cars, and I just want to read a little bit of an excerpt from this article. It's written by somebody who thinks there's a really compelling reason to have autonomous cars and it's about saving lives, and that's the purpose of the article. But I love the Yeager quote and I want to reflect on it, a little bit, after I get to it.
But first here's a snatch of that article. So McElroy writes: "The statistics are chilling. Yesterday more than 100 people were killed in traffic accidents in the United States. Today another 100 will be killed. The sad fact of the matter is over 100 people are killed every day, and over 6,000 a day are hurt badly enough, they need to go to the hospital. It almost seems silly to get hung up on one fatality in a semi-autonomous car when this technology offers the potential to eliminate 80% to 90% of all accidents.
"Back in 1986," the article continues, "when the Challenger space shuttle exploded [...] there was a similar amount of national hand-wringing about safety. A panel of experts that NASA brought together quickly concluded cold temperatures on launch morning caused a gasket to fail, which led to the disaster. Yet NASA shut the entire shuttle program down for nearly three years to do more studies."
The article continues. Here's the Yeager quote. "I remember a television reporter at the time asking Chuck Yeager, the famous war hero and test pilot, what he thought NASA should do."
"I think they should wait for a warm morning," he drawled, "and shoot off the next one."
McElroy goes on to say: "That's the attitude we need in developing autonomous cars. Shoot off the next one. The benefits are too big to ignore, and we can measure any delays with a body count."
So I love that Chuck Yeager quote because it reminds me of the beauty of persistence. Sometimes it's cast as a uniquely American trait. I remember having been invited to speak in Great Britain right around the year 2000. I was an entrepreneur from America asked, in fact, by the American ambassador to speak at a conference in Britain, and the purpose of the conference was to talk about how Americans allow failure. About how Americans fail and why that's a strength.
From the British standpoint, at least in the year 2000, it was a strength that we would do that, and that you can get a new start and try again. And, at least in Britain at the time, if your own business failed it was devastating for your future, your reputation, and your finances to ever get another start again. And I think that was kind of the purpose of that conference 16 years ago.
But I still think about it today. I think about, speaking of America, I think of the great Calvin Coolidge quote. Not the great Calvin Coolidge -- not necessarily a great president -- but the great Calvin Coolidge quote. I hope you know this one. If you don't, here it is.
"Nothing in this world can take the place of persistence. Talent will not; nothing is more common than unsuccessful men with talent. Genius will not; unrewarded genius is almost a proverb. Education will not; the world is full," these are Coolidge's words, "of educated derelicts. Persistence and determination alone are omnipotent. The slogan 'press on' has solved and always will solve the problems of the human race."
I think, again, of that great Vince Lombardi quote. "It's not whether you get knocked down. It's whether you get back up," or as I said a few weeks ago, quoting I don't even know who in this case, "Winners are losers who didn't quit." So yes, General Yeager, I love it. I agree. I think they should wait for a warm morning and shoot off the next one.
All right, great quote No. 4. This one comes from Sam Altman -- Sam of Y Combinator fame. I checked in with his Wikipedia page. Sam's 31 years old today, so 31 years young for somebody with a lot of wisdom and a lot of experience in and around the world of start-ups. In his book Startup Playbook, which I definitely have read a portion of (like a lot of business books, I've read a portion of it) and here's the quote. Love it. Very simple. "Culture is defined by who you hire, fire, and promote."
Much is made of corporate culture today. We certainly make a lot of it at The Motley Fool, both in terms of trying to craft, and manage, and cause to excel over the course of time our own corporate culture, but also looking at the corporate cultures of companies and asking do I want to buy that stock in part because do I believe in that culture.
The reason I think culture matters a lot is because it's even stronger than whoever the CEO is or whatever the new whizbang product is. Culture runs deep. A lot of us get to know it, I think, best of all, maybe if you went to college. A lot of university campuses have a strong sense of culture and you can say that would only happen at this school, not that one.
So I think a lot of us can get in touch with a little bit of culture. Or institutions that we're tied to (your church, or not-for-profit that you might work for, or the youth league that you're coaching sports). A sense of culture for each of these organizations is important, and the reason it's important is because it is. It runs deeper. It's communally shared.
So in a world where we probably pay too much attention to whoever is the CEO of a company or whoever is the president of a country -- in a world in which we pay probably too much attention to those things -- it's those things that everybody shares as part of a community of an organization. What they think of as the culture and what every day they do which helps create the culture. Culture matters a lot.
And I think Sam Altman is reminding us that when you are in charge of an organization, as a leader; who you hire, who you choose to fire, and perhaps most important of all who and how you choose to promote is going to really form a bedrock of your culture. And I hope for you, whoever you are, that you are making decisions that are in line with the best aspects of the culture that you've inherited for the brief time that you have inherited that leadership position. "Culture is defined by who you hire, fire, and promote." By the way, Sam Altman is @sama if you want to follow him on Twitter.
And last up for our Great Quotes edition, Vol. 5. And how can I not end with Shakespeare? After all, The Motley Fool name is drawn straight from Act 2, Scene 7 of As You Like It. I'm going to try to do this from memory:
"A fool, a fool! I [met] i' the forest,
A motley fool: a miserable world!
As I do live by food, I met a fool
Who laid him down and bask'd him in the sun,
And rail'd on Lady Fortune in good terms.
In good set terms and yet a motley fool.
'Good morrow, fool,' quoth I. 'No, sir,' quoth he.
'Call me not fool till heaven hath sent me fortune.'"
I'll leave that one right there. That's not actually the quote for Great Quotes, Vol. 5. I just wanted to briefly remind you, if you didn't already know, of where our Motley Fool name came from: Act 2, Scene 7 of As You Like It. Probably the greatest scene in all of Shakespeare celebrating foolishness.
But no, this one is also from As You Like It, but this one's from Act 4, Scene 1. It's a very simple quote and I'm going to apply it to markets in a sec. It's just: "I had rather have a fool to make me merry than experience to make me sad." And the reason I love that quote, and think about it from time to time, is because I think whether the stock market is up or down, here in 2017 (and it's been up a lot in recent years), and I'd love to see it go up again.
And I think we've talked about this on this podcast. I always predict the market's going up every single year. If somebody says, "Hey, Dave. What do you think about the market this year?" And that's a very natural question a lot of people ask. I say "I think it's going up."
And the reason I say it's going up is because two years in every three the market goes up, and so the odds are with me when I say that. And when you think about the very poor record of many market timers who don't do much better than flipping a coin with their calls, I think you and I look pretty good when we're right two times out of three just by saying, "I think the market's going up."
But when sometimes the market goes down (an experience [that] makes us sad) isn't it nice to have a fool to make you merry? And that's one thing I love about The Motley Fool and I'm not talking about any given employee, or member, or podcast, or any aspect of our website. I mean the spirit of Foolishness that we all share together.
It's about fun. It's about having fun. And having fun, whether the market's doing well or not, is a really important character test. And I think, as Coolidge reminds us, persistence (and I would say persistence of good cheer and humor) through all situations is a real mark of character. So I had rather have a fool to make me merry than experience to make me sad. I hope you do, too. Thanks for listening.
You can check out past episodes of [Rule Breaker Investing] and all of The Motley Fool's podcasts at our podcast center. Just go to Podcast.Fool.com. And while you're there you can check out our flagship service. That's Motley Fool Stock Advisor. A new issue of Stock Advisor comes out the third Friday of each month with two new stock recommendations from me and my brother, Tom Gardner. You can check it out by going to the podcast center and scroll to the bottom of the page. That's Podcasts.Fool.com.
And finally, if you haven't already, please subscribe to this podcast on iTunes or Spotify. You can follow us on Twitter at @RBIPodcast. Follow me on Twitter if you like. I'm @DavidGFool. Finally, I hope you'll give us a review. Throw me some stars. Let us know how we're doing. Till next week, Fool on!
As always, people on this program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. Learn more about Rule Breaker Investing at RBI.Fool.com.