Some things never change. But that doesn’t mean we don’t need to revisit them from time to time. It’s important to review the things that we value most as Rule Breaker investors.
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David Gardner: What are the eternal verities? The things that have the state or quality of being true. Do you know the phrase eternal verities? Well, then maybe you know some of them like truth, right and wrong, good and evil, hope, love, compassion. You might have your own, though. To live up to the phrase, they do need to be eternal and they need to be true. But what are the eternal verities in the world of money, in investing specifically, but also in business? Well, every two years on this podcast, I bring you nine Foolish truths that I hold to be self-evident. Things that I believe that I hope you believe, things that I believe you should believe. Truths I want to make sure I don’t forget to state and occasionally restate, reemphasize at least every two years. Indeed, it was six years ago this week, and then four years ago this week, and then two years ago this very week on this podcast that I’ve last spoken these, which means, checking my Apple watch here, which means, yeah, the time has come once again, time for really one of my most important podcasts that I ever do for you. It’s time for Nine Foolish Truths I Hold to be Self-evident this week only on Rule Breaker Investing.
Welcome back to Rule Breaker Investing. What are we doing this week? Well, I want to go back, as I mentioned, and restate some of the classic Rule Breaker points, stories, basics, especially for those of you who may be new, who’ve never seen all of these laid out on the table for you, displayed in full so that you can dine at this table surrounded by Rule Breakers and know how we think and what we do. Well, longtime listeners have heard me say this before, after you do a few hundred podcasts, and this is by my reckoning number 434. That’s 434 consecutive new weekly podcast without a single skip or repeat. Thank you, Rick Engdahl, and I’m trying to become the Cal Ripkin of financial podcasting, except a lot of people cared about that hall of fame baseball player streak and no one really cares much about Cal Ripkins of podcasts. Anyway, as I say, once you’ve done 434 consecutive new Rule Breaker Investing weekly podcasts, the older ones, they start to drop below the fold on podcast aggregators like Apple Podcasts or Spotify. They fall away from our minds. I might remember how much fun I had here with Seth Godin or inventing the first Market Cap Game Show or five good stocks. But those are all ancient history now and I cannot expect that you, dear listener, that you ever heard them, or know of them, or even so remember them. So I make assumptions sometimes that, well, I said it a year ago, so I’m sure everyone remembers that thing I said, whatever it was, and I can’t assume that now. A lot of podcasts you can just start in the middle. I mean, especially the newsy ones or sports talk, you can just join in any time you like. But for Rule Breaker Investing, this is a strategy. This is an approach. It’s a thought framework, which is very helpful for any new listener already to have in place as he or she begins listening, say, to podcast Number 435, number 436, and that’s why every two years I like to hit the reset button with this podcast Nine Foolish Truths That I Hold to be Self-evident. Nine things that I take for granted and I think you should, too, but I don’t want to take for granted that you do take them for granted or know them for yourself to be self-evident.
So here we are. We find ourselves at this place once again in our end, wrote TS Elliot, is our beginning my nine self-evident Foolish truths. Let’s get started. Foolish self-evident truth number 1 begins by asserting that we’re living in a protopia. That’s according to Kevin Kelly, author of the books The Inevitable and Excellent Advice for Living, both of which we’ve discussed on this podcast with Kevin. We’re not living in a utopia. I think we can all agree on that. Certainly not in a dystopia, but rather Kevin says in a protopia. That’s a world that gets a little bit better almost every day but almost invisibly. So it’s not evident until you step away and look back a year or 10 years or 500 years, and you see the amazing amounts of human progress that get rolled up over time. Yeah, one of the things I love about the time in which we are living is the things are pretty persistently improving. Growing up, I used to have to pay a dollar a minute to place a long-distance phone call home from a big, clunky wall phone. Today, we can connect with anyone around the world by video wherever we’re standing or flying on an airplane for free. That is just one among myriad examples of how much better the world is today than the one you and I grew up in. Quiet, speedy electric cars, anyone? Instead of loud, clunky gas guzzlers.
Computer keyboard instead of typewriter. For female CEOs, the worldwide poverty rate around 50% in 1973 and now closer to 10% in 2023. This progress is obviously not straight up. It comes in fits and starts. Sometimes we take a big step backwards, like when countries start wars with each other, which make the overall world worse and tragically much worse in some places and yes, things like pandemics can happen. There is human misery in many places in the world today, and I’m not gain saying any of it. But then I do want to remind us vaccines. Wow. In great contrast to the flu epidemic of 1918, our businesses, companies like Pfizer and Moderna, actually created and developed a vaccine within one year of the pandemic outbreak. Now those vaccines came from businesses, people working for profit every day to do a little bit more good in this world. Whether we’re talking about Pfizer and Moderna or totally different industry. Chick-fil-A, which I recently heard characterized as a leadership academy, masquerading as a fast food chicken chain.
But from Pfizer and Moderna to Chick-fil-A, to the companies that you are invested in because maybe they make the clothes you wear or the video game you’re playing, the AI which just gave you a better new idea, or the healthy snack you just enjoyed, companies that are contributing to our protopia. Again, little improvements even when measured in the millions are still just little improvements. They won’t look like such a big deal right now, but that’s invisibly the world getting a little bit better every day because of the collective efforts of everyone around the globe to make it so. Make no mistake about this, there are so many more good guys than bad guys out there. The bad guys, they may get the headlines. They may get your click because they generate negative headlines and negative headlines get the clicks, but they’re way outnumbered. As I said, Foolish self-evident truth number 1 is reflecting on a protopia, which is explained by increasing numbers of private efforts from the little guy to the big corporation to do well by doing good. In a phrase, I call it conscious capitalism. In fact, remember the four tenets of conscious capitalism is one of the six habits that I believe every Rule Breaker investor needs to develop.
You can google conscious capitalism, if the phrase is new to you. But you’ll discover four underlying foundations that make for the best, most sustainable companies worldwide, and those are quickly, first, that they value purpose first and foremost even over profit. Second, that they work to create win-win-win for all their stakeholders. They create a win for their customers who love to shop there; for their employees who love to work there; for their partners and suppliers who grow proud and prosperous from their partnership; and, of course, for their shareholders who enjoy gains above market and, in some cases, the best gains investors will get. Period. Those are the first 2/10 of conscious capitalism, three and four. Number 3, they exhibit conscious leadership. They have leaders who are actually servants, who care deeply for the planet and all its inhabitants, the kind of people want to follow. The kind of people, sadly, that may be increasingly few in our political world and yet, good news, increasingly numerous in our business world. Fourth, conscious capitalism creates great corporate culture. They’re the companies everyone wants to work for and with. I want to make sure that you get all of this, and that’s why I packed it all into Foolish truth number 1. It’s a little bit of a mouthful, but I want to make sure you understand that I hold this truth to be self-evident that we are living in a protopia, one that is increasingly being driven by conscious capitalism, which is a great way to do business and many of the best businesses of our time do this every day.
Conscious capitalists keep getting all the first round draft picks. It wouldn’t be fair in sports for one team or business to get all the first round draft picks every year. But in the sense that the best people, the best employees in every industry go to work for these companies and as investors, you and I should be sitting up in our seats when we find companies operating in this manner. Foolish self-evident truth number 2. I’ll just call it by the watchword we often use, which is optionality. The truth is value optionality. Consider it, look for it because it’s underrated and underappreciated, and it runs deep. Truth number 2 is basically that the best businesses are able to evolve. Now, why does that matter? Well, just like in biological evolution, changes in external circumstances happen and your organization needs to be both aware of those things and be adjusting itself to be relevant and/or successful, and/or just survive sometimes into the next era by evolving. One of the best ways that innovative companies manage to do this is often they have a second or third trick. We call that, again, optionality. It means you have multiple possible futures.
One of the strongest businesses of our time is Alphabet. Looking across all of Alphabet’s different businesses, starting of course with Google, but then looking across the globe and seeing all the different places that it is doing its googly things. That’s incredibly strong. The optionality there is enviable. It started with its Google search engine, of course, and Alphabet still, years later, carries the artifact ticker symbol GOOG. But Alphabet is YouTube. It’s GV, that’s Google Ventures, start-up financing. It’s DeepMind AI and it’s Fitbit. Remember that? Yeah, Alphabet bought one of my poorer-performing Rule Breaker stock picks of all time a couple of years back. Alphabet is Fitbit, the Android operating system, too, and Waymo, Nest, that’s all Alphabet and that’s optionality. Now, very few organizations are going to be like that, and very few stocks that you and I will pick have that kind of resilience. But all companies, to a greater or lesser extent, should aspire to optionality, the ability to transform or morph into something new, something bigger and better one hopes into some kind of crazy better butterfly. Just like in biology, business has cycles and they’re often driven by a change in external circumstances like, for instance, the ice age hits. It’s going to be important for companies to recognize, if so, that it’s getting cold, let us say, and they need to stop doing this and then start doing this other thing.
Then the ones that actually do that, that have the leadership, the vision, the strength to actually be able to implement those changes and, by the way, permission from the markets and customers and partners to evolve, those are the companies that you and I want to own. To conclude then, truths number 1 and number 2 have been about business itself and the businesses themselves. Next, we’re going to move on to the market. Foolish self-evident truth number 3, it’s straight data. On average, one year out of every three, the stock market drops. Significant bear markets where we would actually use that phrase as opposed to just a down year might sometimes bring those down years into a pair, maybe even three in a row, I suppose. Although very rarely anything like that. The average bear market, when it hits, is about 12-18 months. The good news is that two years out of every three, the stock market goes up. As I’ve been wanting to say in the past, the only market timing that I ever do, I’m somebody who will never predict the stock market, I don’t think I’d be good at it, I don’t think anybody else is, and I don’t think it’s worth your time or much thought, frankly, because it’s never going to be much more than a coin flip and that’s why whenever anybody asks me where the market’s headed over the next year, I always say it’s headed up. I think the market is headed up this year.
Now, I’ll be the first to say it might drop. It does, after all, one year in three. But by simply saying I think it’s headed up, I get it right 2/3 of the time, which if you look at your market timers who rarely get it right more often than a coin flip, well, you’ll see I have an enviable track record with my market predictions and you can, too. Feel free to copy me. Yeah, I think the market is headed up this year, and so far anyway I’ve been right once again this year. Let’s look at the downside of market drops because, yeah, markets drop one year in three. It doesn’t feel good to be an investor and you have to be ready for that. You need to understand that that’s how it works. It could be nasty. It could be rather mild. It might happen quickly. It might take a while. No matter what, always expect that the market can and will drop. You need to have as part of your own resilience, as an investor, which is going to be truth number 5, by the way, but we’ll get there in a second. You need to be able to recognize that market drops are going to happen and not be freaked out about it, which leads me to Foolish self-evident truth number 4. Now this is a lovely phrase. The rowboat syndrome, which I swiped from the late, truly great Jack Bogle, as I swiped many other lines and stories from the Vanguard founder, the investing master, great friend of the Motley Fool, Jack Bogle, and his phrase the rowboat syndrome. I always say don’t do this if you’re driving a car or a bike right now please. But raise your hand, in fact, raise both hands if you know what the rowboat syndrome is. I’m guessing a minority of us have both hands up right now.
Let’s make sure we can all get our hands up about three minutes from now, except the drivers, of course. Let me paraphrase Jack a little bit. As we’re paddling down the river of life as investors, which direction should we be looking? Do you want to be in a rowboat? Most of the rest of the world is, I think, because when you paddle a rowboat, you’re looking backwards. Many market commentators and our fellow human beings, forget about the stock market, are fixated on their rear view mirrors. They’re looking backward. As paddle, paddle, paddle, they go forward through time, down the river of life. I’ve always said toss away your rowboat. Take a canoe, at least. Because when you take a canoe, you’re facing forward and you recognize that all that really matters is what comes next around that bend in the river. as you paddle, paddle, paddle forward, looking the correct way. As an investor paddling your canoe, you’re not going to spend too much time looking backward. You’re asking where things are headed good on you and getting your money aligned right there. But I’ve also said, to close Foolish truth number 4, toss away your paddle and kick away that canoe because there’s a much more efficient way for you to navigate bodies of water, and that’s with a sailboat. The beauty of the stock market, as anybody who’s studied it knows, is that it tends to rise 8-11% annualized over long periods of time. That my fellow Fools is the wind at your back. What an absolutely awesome trip it is that you and I get to be on as investors.
What a delightful trip, too, to think that we could sit there in the boat and let the wind push us forward, occasionally tack when we need, enjoy the sights, have fun getting rich together as the winds push us forward. In fact, when I think about the paddlers in their canoes, that feels exhausting. That feels a lot like trading, to me. That feels a lot like day trading. A lot of effort, not nearly as much reward as just sitting there in our ship of Fools, which is a sailboat. Foolish truth number 4, the rowboat syndrome. Now raise your hands because I think we all know what the rowboat syndrome is. Foolish self-evident truth number 5, it’s simply a reminder, like most of these nine reminders, in this case to remember what the word investor means. Remember what investing is and means. It’s really not that remarkable a point, but it does introduce what I’ve called in the past my dead arm initiative. You have permission, dear listener, to give me a dead arm if you’re near me at an event or around Fool HQ. If we ever meet and you ever hear me use this phrase, please don’t dead arm me now because I’m actually just demonstrating this phrase. Long-term investor or long-term investing. You were allowed to give me a dead arm if you ever hear me say these because investing is, by its very nature, long term. Whenever anyone uses that phrase that I won’t use now, it’s a tautology, it’s a redundant restatement. It even confuses some people, I think, because they think that there are other forms of investing. Besides the long term, there are not. The opposite of investing is it’s actually not investing, which, by the way, is true of most of the world. Most of the world is not investing today and for a thousand reasons, a few of the more prominent ones are the people are in debt, or they don’t have capital, or they don’t have an understanding of how to invest. For that I think the Motley Fool was in part put on this Earth. While the opposite of investing is not investing, I’ll just say the antithesis of investing is trading. Trading, by its very nature, is done short term. There are two players in the market from my viewpoint, there are investors and traders. You know whom this podcast is for obviously. I’m not here to denigrate trading. It can be fun for some people, it’s a past time for others, some people do it very seriously full time.
They get paid a lot of money as traders on floors like bond traders, futures traders. But for you and me, anyway, if you’re like me, you have a lot more interesting ways to spend your time in life beyond staring at wiggles and waggles on charts, or looking at CNBC or following the markets, or your crypto all day, every day. There are just too many more interesting things in life. The good news is you fellow Fool can, with me, be an investor. The Latin root for the word invest is investere. That means to put on the clothes or to wear the clothes of. In my mental image, if you’re a sports fan, I hope you’ll get this. I hope you invest, too. You put on the jersey of your hometown team. You go to the stadium, you cheer your home team on. You love your team with your team’s jersey, with the clothes on. Even more than your sports teams. In most cases, I think you should love the companies that you’re invested in.
The consciously capitalistic, I hope, enterprises that you’re invested in, doing good things in this world. Purpose-driven, managing for the long term, resilient, maybe with optionality, but you keep that hometown jersey on. I’ve been watching a lot of football and playoff baseball in the last week or so. If you are, too, you see with me just how many people are wearing the shirt. It’s not just true of football or baseball, it’s also true of soccer, hockey the list goes on. People wear the jerseys. Why don’t we do that with our money? You know who does? Henrik Rosendahl. Henrik is a fellow Fool and Rule Breaker Investing podcast listener. Hey, there, Henrik, who connected with me on X, that’s the former Twitter, last year and proposed what we’ll call Henrik’s t-shirt test. Henrik was thinking about investere and clothes and clothing and asked himself a beautiful question. Would I proudly wear the logo of the company that I’m about to become an investor in, big and bold on a t-shirt, for everyone to see? Henrik went on and I quote, “If it’s a company that leaves the world in a better place than it was before it entered our common realm, if it promotes values that I think are important, equality, treating all stakeholders with dignity and so on, promotes conscious capitalism is a company that I believe can crush the market over the long term, then I would gladly and proudly wear that company’s logo on my chest.
Hence, it would be a company I could see myself investing in. If the company that I am evaluating a part ownership in, however, does not fulfill these criteria, then I would not proudly clothe myself in its logo, nor would I invest in said company. I came to think of an addendum as well. To my test, Henrik said, let’s say as a part of the t-shirt test, I need, every Wednesday, every week of the year, to wear a t-shirt with the logo of one of the companies I am invested in.” That’s what turns a t-shirt test into a t-shirt challenge. Thank you for that, Henrik, and the Rule Breaker investor should have no problem with this. We put on the jerseys. We buy our stocks. We keep those jerseys on. We keep holding our stocks, even if sometimes we have a bad day or even a bad year or two. Again, your team is not always going to win every year, nor will your stocks. But if you found a great team, stick with it. Now you know the Latin root, investere. Now you know what you as an investor are doing. Now you know my dead arm initiative. You may dead arm me if you ever hear me say, well, I’m not going to say that thing that I was going to say.
Now you also know Henrik’s t-shirt test. Use it. Those are the first five; two from business, three from the markets. Now let’s get away from just business and away from the general markets for a sec, general investing. Let’s go very specifically into our space now, and that’s Rule Breaker Investing. Let’s think about why it works, why eight years worth of five stock samplers picked in broad daylight right here on this podcast with you, and why 29 years of Rule Breaker Investing for me have so badly beaten the markets, and why it’s so much fun and what we’re all about here as Rule Breakers. Foolish self-evident truth number 6, here it is. We’re Fools. Fools don’t like wisdom. I don’t like conventional wisdom. Well, I do like conventional wisdom when it works. By the way, sometimes conventional wisdom works, and that’s why it’s become a convention. But many other times, especially as humans, sometimes we like to play tricks in our minds. We think that there’s a certain way of thinking about something. Often we were taught to think in such and such a way. Sometimes it’s just the stories that we tell ourselves in our heads that start to set up that conventional wisdom. That then becomes even more conventional as other people start listening to us and thinking the same thing, too. So what I would think of as suboptimal thoughts sometimes become shared or shared broadly. That’s what’s so great about Foolishness.
That’s why it’s so much fun to break the rules. I’m a board gamer. That’s become clear to anybody who’s listening to this podcast any length of time that exceeds maybe, I don’t know, two months or so. As a tabletop board gamer, I recognize that often the best approach to take to a good strategy board game is to look around and see what others are doing, see how they’re all competing, maybe for the same resources, or maybe in this area of the map or the game board. By not doing what everybody else is doing, often you put yourself in a better position to win the game. Well, the same is true of the game of business, where new businesses pop up trying things in different ways, breaking the rules of how things are done in their industries, and sometimes succeeding. Well, the best ones do anyway. I also think it’s true of investing, an investment strategy. So part of what I love about Rule Breaker Investing is we’re taking a highly contrary approach. None of it is taught in schools other than maybe Fool school. A lot of it is self-learned and it continues to evolve as an approach and as a strategy. It’s very contrary, as I’ll be mentioning shortly in another self-evident truth to come. That’s part of the reason I think that it works.
Truth number 6 is just about the beauty of fighting against conventional wisdom. Something that the Motley Fool has done across many fronts and contexts in our first 30 years on this planet. As a fellow Fool, a fellow Rule Breaker, maybe you’ve listened to this podcast for a couple of months or a couple of years. Maybe you’ve been a member of Motley Fool Stock Advisor and or Motley Fool Rule Breakers. You know that we constantly challenge conventional wisdom. Most of our great stocks seem outrageous when we first picked them. That’s what makes investing even more fun. Sounds like maybe a bumper sticker, a t-shirt, or a mug. Someone should make Fools have more fun. So yeah, self-evident truth number 6, we’re Fools. I hope you’re one, too. Foolish self-evident truth number 7, lucky seven. This is a brief restatement of the Rule Breaker six traits, the six things that I’m looking for in my favorite stocks. There will be a tendency or temptation for me right now to attempt to illustrate each one of them here. But no, that results in far too long of a podcast.
Good news, that material is regularly spoken to from one month to the next here at Rule Breaker Investing. So let me just briefly restate the six traits so that I look for when picking stocks. Number 1, I love to find top dogs and first movers in important emerging industries. If you’re not the lead husky, the view never changes and I love to find the lead huskies, especially in emerging industries and technologies, world changers. Number 2, we’re looking for a sustainable competitive advantage. After all, when you’re investing, which you now know is by definition, over the long term, when you’re investing, you’d better find sustainable, competitive advantages because you’re going to be around for a while. Those advantages can often be gained through, well, how about just sheer business momentum? Think about big players like Amazon.com and its industry, or in a very different industry, Intuitive Surgical. Business momentum. Another thing that can help us patent protection for some companies, especially some of the medical companies that we invest in another form of sustainable, competitive advantage. How about visionary leadership? That’s a great form. For instance, we have Jeff Bezos. You don’t try to beat us.
Visionary leadership or another form of sustainable competitive advantage would be inept competition. When you find it, that’s an amazing advantage when all of the players in your industry aren’t serving customers like, for example, the cable industry at various points in the past. So if you enter with a new model in these kinds of situations, you can start to win over not just customers, but shareholders, too. If you, for example, Reed Hastings at Netflix, because you’ve got some inept competition that you’re now streaming against, that’s sustainable advantage. Number 3, number 3 of the six Rule Breaker traits is strong past price appreciation. Yes, very contrarily, we’re looking for stocks that are doing very well. They may already well have doubled over the last six or 12 months. Most of the world, in my experience, I submit to you, is looking at the list of 52-week lows, asking which one they want to buy low. We’re looking at 52-week highs. Rule breaker trait number 4, good management and smart backing. The value of visionary leadership is always underestimated by the markets. Smart backing, looking for which venture capitalists are funding these enterprises. Some VCs, just like some CEOs, are better than others. So keep an eye on that.
Trait number 5, I love to find companies with strong consumer appeal, that have a brand name, that know how to market well and speak well truthfully, authentically to customers winningly, often with some humor. Strong consumer appeal of great brands is number 5. Finally, number 6, the ultimate secret sauce of Rule Breaker Investing. We want to hear that our stocks are, and I’m going to put this in “overvalued” according to the financial media. The more prominent the voice calling our stock overvalued, often the better it will be for us as investors. When you have those first five traits in place, restating quickly, top dog and first mover in an important emerging industry with a sustainable advantage, strong past price appreciation, good management and smart backing, strong consumer appeal, and somebody at Barron’s or Seeking Alpha or the inevitable short attacks show up saying it’s so overvalued, I’m pretty sure I know which way things are going to go over. The only term that counts, which is, by definition for investors, the long term. Now, it doesn’t always work, of course. Like venture capitalists, we know some of our hope for Rule Breakers will end up looking more like faker breakers, which I guess transitions me to number 8. It doesn’t always work, but when it does, it works wonderfully. Foolish self-evident truth number 8, this might be my favorite. Get ready to lose. That’s right. Foolish self-evident truth number 8 is that you will lose, and you will lose a lot as a Rule Breaker investor.
Now, I did an entire podcast on this a few years ago. That podcast was called Losing to Win. It came to you on November 18th, 2020. Go back and check it. It was one of my favorites to do. The numbers will have changed somewhat inevitably over three years, but they’ll read mostly the same and the truth itself will never change. I said on that podcast that I had now picked in Motley Fool Rule Breaker’s history 389 stocks, two every month for years and years, from October 2004 forward into that first half of November 2020, 389 stocks and fully 63 of them had lost 50% or more. I hate that. It’s shameful. I don’t like to think about it. People follow my advice. I’ve followed my advice, and a lot of the time, not all the time, we’re going to get to that in a second, but a lot of the time we lose and we can lose dramatically. You need to be ready for that, if you’re a Rule Breaker. Otherwise, you’re not a Rule Breaker. You need to be willing to lose. Here’s why. Even though I had 63% minus 50% plus losers in the 389 stocks that I had picked over the course of 16 years to that point, 63% minus 50% losers. Good news. The 63rd best stock that I’d picked for Rule Breakers was Hubspot, up 401.8% at that point. The 63rd best performer. By the way, it’s now up further than that because another Rule Breaker Investing maxim is that winners tend to keep on winning. What do winners do, dear listeners? They win and Hubspot is one such. Anyway, can you hold both these two key stats in your mind just for a second? The 63% minus 50% losers and the 63rd best winner up 402%. You got it? Exactly, you got it.
The value of winning far wipes out the cost of losing. This is such a critical psychological point. It’s probably the best way to figure out whether you’re truly a Rule Breaker investor and can have and own that mentality. If you don’t, maybe you shouldn’t, and if you shouldn’t, I’d be the first to say there are many other styles to adopt. But these are my Foolish Rule Breaker truths this week, and psychologists tell us that the pain of loss is three times the joy of gain. Think about that. It hurts to lose far more than it feels good to win, and that’s just true of human psychology. But look at the math that you and I just threw down together. Quick quiz. What’s the pain of loss at its maximum for an investor assuming she isn’t using any leverage? The answer is, of course, losing 100% on a stock market investment minus 100%. But what is the joy of gain by contrast for investors? The answer is that joy is unlimited. The five 100-plus baggers I’ve picked for Motley Fool members has each on its own wiped out all of the losses of all of my minus 50% losers, all of them, and then leaves profit on the table on top of that. In fact, take Tesla from our Motley Fool Rule Breaker service. It’s up 129 times in value since November 23rd, 2011 when I’m really glad I picked it. That on its own, those gains exceed all of the losses of all of those 63% minus 50% stocks taken together.
In fact, those gains from that one stock are more than three times all of those losses combined. That’s to say nothing of the second best performer, which is MercadoLibre, up 87 times in value. Just recognize the math here. The math of investing directly reverses the psychology that all of us are bound to, the pain of loss maybe three times the joy of gain for most contexts in life. But for you and me, as a Rule Breaker investors, it’s quite the opposite. The joy of gain is infinite times the pain of loss if you’re doing it right. A lot of people just don’t realize that they live in fear of ever having a single stock that would lose 50% or more of its value. Foolish self-evident truth number 9. This is the definition of a term that I’ve taken on as my own screen name over the years in our community at Fool.com, TMFSpiffyPop. I want to make sure everybody who’s still listening to me this week knows that that’s me. Here’s what a spiffy pop is. Let’s pretend you paid $63.37 for a stock that you bought eight years ago. I don’t know how many shares you bought, but it was a good buy. Good job because you bought at $63.37. Now, let’s pretend that tomorrow that stock goes up $65 in one day. Maybe it’s $700 a share these days. When it goes up 65, let’s see, after a good earnings report, that’s about a 10% gain for you these days, which might sound like a pop. I’d say most people say the stock popped if it jumped around 10%, but you and I now know that something even more impressive happened because you just got a spiffy pop because you made more in a single day than the cost basis you paid way back then. You made $65 a share in one day and you’ve only paid $63.37 for that stock in the first place.
That’s not just a pop, ladies, gentlemen, and Fools, that is a spiffy pop. I invented the concept for investors, people who, by definition, I think you know this by now, act long term. We investors don’t usually get a lot of rah-rah. We’re not often invited on CNBC to make short-term market calls. The tortoise didn’t get much press coverage at all the whole race against the hare, unless maybe we’re talking about at the finish line. For us tortoises, I want to have some kind of a concept, a rallying cry. A thing that could be a goal for any new investor that we could do together. I’m really happy to say we’ve had hundreds and hundreds of spiffy pops across our services over the years. We’ve had years in which we’ve had, in just one year, more than 100 across our different Motley Fool services, prominently Motley Fool Stock Advisor and Motley Fool Rule Breakers, two of our longest running services, real results for real people. Without bragging here, I should mention that once the stock does, it’s 13th spiffy pop. It hits its baker’s dozen. Once it happens for a 13th time for let’s say Netflix, we stop counting. I’m not including the stats. I just gave you the spiffy pops across Motley Fool services. The dozens and dozens that happen from Netflix, or Booking, or Amazon.com, which when they make 1% moves these days generate spiffy pops that are no longer even interesting. That’s why we call that 13th and final spiffy pop for any single stock, it’s forget me pop. We just don’t pay attention anymore. It’s boring. Now you know. You stuck with me all the way through this podcast. Now you know what a spiffy pop is and what I think you should make a laudable goal that you surely will achieve if you purpose toward the Foolish, self-evident truths that I tried to lay down for you this week. That’s it. Nine Foolish truths about business and the markets and Rule Breaker Investing that I and now I hope we hold to be self-evident. I look forward to sharing this with you again in another two years from this week, where once again these probably will not have changed. In the meantime, Fool on.