This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

In this podcast, Motley Fool host Chris Hill talks with Motley Fool co-founder David Gardner about topics including:

• Maintaining a "net buyer mindset" during a downturn.
• Two books that can help you improve your investing mindset.
• Investing lessons from Zoom's "short strange trip."

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our investing for beginners Education Centre. A full transcript follows the video.

This podcast was recorded on August 27, 2022.

David Gardner: That's what I've been trying to say, especially through my podcast over the last year, I think a lot of us are going to look back at some of the prices we paid in the spring and the summer and go, wow I got a pretty good price on that stock that day, and yet, importantly, it didn't feel good at all to pick it.

Chris Hill: I'm Chris Hill and that's David Gardner, co-founder of The Motley Fool and host of the Rule Breaker Investing podcast. I caught up with him because 2022 has been a rough one for stocks in general and certainly for rule-breaking companies. We talked about two books that can help your investing mindset, what we can learn from Zoom Video's short strange trip, and what David is especially curious about right now.

Let's start with doing something that I know is not your favorite exercise, but it's looking backwards because the first half of this year was the roughest first half of the calendar year for investors that we've had in decades and it was particularly tough on growth stocks, Rule Breaker stocks. I'm curious if there was any point where you thought to yourself, you know what? The thesis on this company might be broken. Or did you just view it as, look, we haven't had a pullback like this in some time, maybe we were overdue and as we always have in the past as investors, we'll get through this as well.

David Gardner: Wow. Well, I would say all of the above. Let's just pull it apart for a sec. I would say first of all that I'm always investing, ABI, always be investing. Chris, I think everybody should always be investing if you are not in retirement. If you're not about to retire, you should be a net saver and you should just be adding that money to the market through thick and through thin. In this sense, let's go back to Finding Nemo. I know it's one of your favorite movies. It has to be Chris, right?

Chris Hill: It is.

David Gardner: Because it's the world's favorite. Yeah, top five. Just keep swimming. I found myself using that as a hashtag on Twitter throughout a lot this year. I spoke to it on my podcast. It's always true anyway. If you are earning a salary, you should be saving every two weeks and I think you should be adding it to the market in whatever way you prefer, whatever your orientation is. For a lot of Motley Fool Stock Advisor members, we have another good stock idea for you, a recommendation every couple of weeks. There are different rhythms and some people just want to do funds and that's fine too, but just keep swimming. I think the reason we need to say just keep swimming is not when the tide is coming in and/or the surfing feels good, I think that Dory starts saying just keep swimming because it's a time of stress. It underscores the times when it's hard, that's when we need to hear that phrase, even though we should always be doing that all the time anyway. Two other things I want to say quickly. One is that Zoom is really instructive here, just the stock. Ticker symbol Z-M.

Certainly a Rule Breaker like pick, one that many Fools own. Three years ago this month, Chris, it was at $100 a share, somewhere between three years and now in went up near $600 a share and today it's right around $100 a share. As I tweeted recently, what a short strange trip it's been. This is not just true of Zoom, it is instructive. It is true of many other Rule Breakers and Rule Breaker-like companies. I just think that you have to look at the company's results. This company has really grown substantially through these three years and while expectations were maybe that the pandemic lockdown would continue longer and/or that Zoom would take over the world, it didn't. I think we're all glad that the pandemic lockdown is slowly melting away. I like Zoom for the long term and we just have to recognize that stocks that go from 100-600-100, that's not usual. It's an unusual time.

It was really a one-off in history, at least in our lifetime. We haven't faced pandemic investing. It's a poster child for me about the craziness of the last couple of years. Then to close my long shaggy dog answer to your first good question, Chris, I wanted to say that I'm up 44 percent right now for my June lows. I spent most of 2022 talking about how far down I am from a year or two ago, but I do want to say at least for me, and I hope this isn't bragging out of turn because I hope it's true of a lot of other rule-breaker investors and a lot of other Motley Fool members, check it, you might be up pretty dramatically in just the last couple of months. I can't think of that many two-month periods where I'm up 44 percent, so sometimes we need to shock ourselves back into recognizing what's really happening and not spend so much time gawking in the rearview mirror. But since I'd like to briefly gawk in the rear view mirror, I have to admit I'm still down 34 percent from my all-time highs, which for me, were in November of last year. Still down a third from that, but up 44 percent in two months, that's more of the craziness that we're talking about.

Chris Hill: It's an important reminder, I think when you use Zoom as an example because so often the narrative, the conversation around stocks is about the stock price and not about the underlying business. Because I'm sure there are a lot of people who just looked at that and said, well, there you go. It's crashed back to Earth where it was at the start of the pandemic and I'm guessing fewer people took the time to say, well, wait a minute. What was the business like then, what is the business like now, even though at both points in time the stock is $100 a share, is the business stronger now? Is it better now than it was?

David Gardner: Yeah, I think that there's absolutely no question. No question that it is. Three years ago, this month was August of 2019, I don't think that the pandemic had even presented itself in China very demonstrably in August of 2019. I think the conventional wisdom is to look at, Zoom call it a broken stock, say it's gone from 500 to 100 and it was a joke, but we're not following the conventional wisdom at The Motley Fool, we're Fools. I look at Zoom and I'm thinking, wow, it's where it was before the pandemic. This company's substantially grown. It's also a ubiquitous, globally known brand name and I think it's probably a pretty good buy right here right now. But again, that takes looking forward. You have to be always looking forward as you just keep swimming not spend time crying in your soup looking backward.

Chris Hill: Certainly the underlying economy right now is significantly stronger than it was during the Great Recession. You had said that buying stocks for you during the great recession was tough because they were all going down, everything was going down. There were legitimate conversations happening about the strength of the US dollar, the strength of America's banking system. To the extent that you can go back in time 14 years or so, how did you maintain that net buyer mindset at a time that was even tougher than the recent drop we had here?

David Gardner: Well, in a lot of ways it was quite easy, and I don't mean psychologically easy, but operationally easy by our very nature at The Motley Fool, if you're working on a service like Motley Fool Stock Advisor or Motley Fool Rule-Breakers. I was working on both through 2008-2009. That means I was making three new stock picks every single month, two new Rule Breakers, one new stock advisor pick. By the way, also five best buys now for each of those services, so it was 13 independent stock recommendation decisions every single month. It wasn't just true of 2008-9, but also of 2005, '6, '7 and '18, '19, '20. That's just the rhythm that we are in. Especially if you're in a position as an analyst or an advisor at the Fool, it's also true of all of our members. You're listening to us, you're buying, I hope with a smile most years, you're buying our recommendations and you're using them to prosper in your own portfolio.

If you are being forced, Chris Hill, every single month to come up with 13 of your best ideas at the time, it's just operationally necessary for you to do so in December of 2008 or February of 2009, even though yes, it felt like I was walking through a minefield and half of the things that I would pick within 3-6 weeks would be halved. It was a remarkable time. I don't wish it on any one. It's felt a little bit like that over the last year-and-a-half or so but now we look back, of course, and we realize those were some of the best picks that we made in Stock Advisor and Rule Breakers' history. Not necessarily because we're geniuses or we picked the best stocks, although I think we picked some pretty good stocks, simply because the market was at such a low point that we now look at those cost bases and think, wow. That's what I've been trying to say, especially through my podcasts over the last year. I think a lot of us are going to look back at some of the prices we paid in the spring and the summer and go, "Wow, I got a pretty good price on that stock that day and yet, importantly, it didn't feel good at all to pick it." I don't want to hold myself up as an exemplar or particularly courageous person. It was simply business necessity, the delivery of the services that people had paid for that I just kept picking, just kept swimming through those two really, really tough years.

Chris Hill: One more question around mindset before we move on, and this is also going back a number of years, but David Allen's book, Getting Things Done. I know that's a book that had a positive impact on your work-life and I'm curious whether it's a book or an article, or maybe even just someone you follow on Twitter if what you've read that has helped your mindset as an investor.

David Gardner: Well, I read very few investment books so I'm not about to give an investment book per se. I do read a lot more business books because ultimately, as Foolish investors, we're investing in businesses, we're not playing games with the market or meme stocks. We're looking at the real hard blue glow of capitalism and saying, what's great, what's going to prosper, what's going to make the world better over the next 10 years? For me, the one that comes to mind first, I'll give two, is The Inevitable By Kevin Kelly. It's just a wonderful book. I'm going to guess a lot of our listeners have actually heard of Kevin Kelly who co-founded Wired and may well have read The Inevitable. It was actually recommended to me by Bernd Schmidt, one of our wonderful German Fools. He's like, "David, you would like this book," you're a rule-breaker. Bernd is also a rule-breaker. I read it, loved it, interviewed Kevin on my podcast.

Anybody who wants to skip it, not read the book, although I really think you should, we actually only talked about the first half of the book on the podcast, but you can definitely hear Kevin speak to it. The reason I think this is a valuable book, Chris, is because he has us thinking about the 12 technological forces that will shape the future. One of the best antidotes to not getting too caught up in the strum and drang of near-term market movements or sad market losses looking back over the last year is just to keep looking ahead and realize the amazing technologies that are already around us and that will only continue to proliferate and probably make themselves more awesome over the course of the next 20 years. For me, that's a mindset builder and reminder. Always be asking where are things headed next. Most of the time, a lot of people are bearish. They think things are going down, they think things are going to be worse for their kids than they've been for themselves. That's been consistently wrong throughout history. It's very evident that we take for granted today things that our grandparents would've dreamed of, and that's going to be true of our grandchildren.

So there's a wonderful positive future coming. People like Kevin Kelly know that and they speak to it, it's a great book. The one other book that I'll speak to is just, this has nothing to do with investing unless you start thinking about why are you investing and what are you going to do at the end of your life. All of our lives will end one day sadly and thinking about the legacy that you want and asking yourself, have I taken the necessary steps to position my money and my family to succeed when I'm not around? Reminds me of a wonderful book called Let's Talk About Death Over Dinner by Michael Hebb. I highly recommend this, not just to investors but to all humans. It's of course not an investment book nor is The Inevitable. These are both books about culture and life that deeply influence and shape how I act as an investor and as an entrepreneur, so The Inevitable and then Let's Talk About Death Over Dinner. Both of them kind of about inevitability.

Chris Hill: I liked the themes being tied together. When it comes to technology, business ideas, what do you find yourself curious about as you look around these days? Whether it's news that you read, conversations you have, what are the things that you find yourself looking at and considering, I wonder where that's going?

David Gardner: Well, the first thing that comes to mind is space, just because we're going through a process of looking deeper into the galaxy with more clarity than ever before and we have more of a mindset to understand and appreciate the vastness of it. If you think I'm about to work this into a space stock, I'm probably not but I [laughs] do just want to share an anecdote that for me has been instructive and inspirational. At the University of North Carolina, Chapel Hill, I took one astronomy course to fulfill a requirement in my freshman year. Well, actually I remember a lot about that course because I'm a amateur astronomer, closet fan of astronomy. I just don't know enough even to be dangerous. But one thing I did note at the time, my textbook, circa 1985, my astronomy textbook said, "We can't yet prove the existence of planets outside of our solar system." Here in this astronomy textbook one generation ago, we can't tell you that there are planets outside of just Pluto, which by the way I guess is not a planet anymore. But looking farther out, we don't see any.

As scientists, we can't say there are any. Well, fast-forward to early days of The Motley Fool, I remember giving a speech in the mid 1990s and at that time talking some about space and the acceleration of technology, which is ultimately the point I was making. At that point, we believed that there were one billion galaxies and the average galaxy, including our Milky Way, had about a billion stars. Now those are remarkable numbers. It's hard for human beings, of course, to wrap our minds around what it would be like to have a billion galaxies that we found and our galaxy about on average a billion stars. But let's update the numbers, shall we? This is the end of my anecdote. These days, we would say that the Milky Way itself has 100-200 billion stars and we have now identified, I believe you can check it, two trillion galaxies. Just think about the mind expansion and the rapidity of improvement of our understanding of the universe at large and how it has massively enlarged over just the course of, you and I are the same age basically, since college.

That just humbles me and reminds me always to have an open mind and a mind alive to infinite possibilities and things you couldn't possibly dream up. I think it's kind of a rule-breaker's mindset. But space, when you say what am I curious about, and of course, the Web Telescope now returning images that are starkly beautiful and more detailed than we've ever seen before. I'm not about to recommend a company that I've heard that no one else has heard of that's going to be mining space minerals and making a bundle, and let's get in now. But I'm watching. I'm certainly respectful. I haven't been a big Virgin Space van. I've never recommended that stock or owned it, but I think even if it's just voyeurism over the last, I don't know, 30 years of our lives since we are in our mid 50s, even if we're just paying attention and just enjoying the eye candy of it, I think it's fascinating, but there might well be more investment and possibility emerging.

I think that there will be, so I'm fascinated by that. I guess one other quick thing is just conscious capitalism. I'm on the board of the national organization Conscious Capitalism, and I think that conscious capitalism is a way of doing business better that elevates humanity. It's the companies that people love to go to work for every day, it's the stocks that outperform the market, in my experience. The Motley Fool is certainly trying to do its best to be a conscious capitalist company and an exemplar. I'm sure in some ways we do it really well, in some ways we have a lot more to learn. But I truly believe that business is self-improving and that's because business is competitive. The only way to win is to be better than you were yesterday and, so the businesses that really are set up to get that, those are my stock picks, those always have been, those are the companies I love as an entrepreneur and the one we're trying to create, so space and conscious capitalism.

Chris Hill: I know you just got back from a vacation in Scotland and England. When I go on vacation, no matter how hard I try, I', never 100 percent successful at shutting off the investment part of my brain.

David Gardner: I've heard you say this over the years many times on Motley Fool Money. How often is it? Is it that Chris Hill comes back and he has a business insider thought, even though he was supposed to be with his kids?

Chris Hill: I'm trying to get better. I really am. But I'm curious if you share the same malady and if in fact there was anything in the investing realm or the business realm that you observed and piqued your interest when you were overseas?

David Gardner: I don't think I have a very good answer to this one. I'll say that while I was overseas, I think that Papa John's announced that it would have crust free pizza. I know that that has been much talked about at this point, but I'll just say that it was a non-entity a story for me. I don't care about that story, but that was a business thing that crossed my iPhone, I think somewhere in the highlands of Scotland at the time. But my experience of traveling this particular time, which was 10 days in the UK, I came across a bunch of people who know The Motley Fool. That was a real eye-opener for me. I often think it's just the Fool thing we've been doing, it's light, largely a US phenomenon and yet getting overseas and having so many people recognize our company and our brand was exciting for me and it was challenging too because one thing that came through a number of the voices, I had conversations with them, because they figured out who I was.

We were actually on a train together traveling around Scotland and so they figured out who I was, so each one wanted to have their Motley Fool conversation with me and I heard, on the one hand, encouraging news that we're simplifying our services. That's really what the Fool's done in a lot of ways. It's made investing accessible and simpler for people. But I also heard from people who said we need to simplify further and so I would just say as co-chairman of the company, I hear you on both counts. I think that it's really important for The Motley Fool to be making investing as accessible for as many people as possible. We have certainly, in some ways, simplified the services that we sell and that we offer but I think we probably have some more work to do there. So there's a thought.

Chris Hill: Always great talking to you. Thank you, sir.

David Gardner: Fool on.

Chris Hill: As always, people on the 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. I'm Chris Hill. Thanks for listening. We'll see you tomorrow.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Motley Fool Co-Founder David Gardner on investing during tough markets appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Chris Hill has no position in any of the stocks mentioned. David Gardner has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

In this weekend conversation, Tom and David Gardner, co-founders of The Motley Fool, talk about things including:

• How investing fits into the pursuit of becoming smarter, happier, and richer.
• The importance of being a lifelong learner and investor.
• Using index funds and how to approach buying individual stocks.
• Two core Motley Fool approaches -- Rule Breaker and Everlasting investing philosophies.
• Setting the right expectations for returns.
• Mastering the mindset of investing and managing volatility.

You can follow Tom and David on Twitter @TomGardnerFool and @davidgfool.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on Jan. 08, 2022.

David Gardner: There's no substitute for being invested with skin in the game in the world at large, and it does have you, once you do that, paying attention far more than if you weren't.

Chris Hill: I'm Chris Hill and that was David Gardner. Today on Motley Fool Money we're stepping back from news of the day to have a broader conversation about the pillars of investing success, and how to set yourself up to be a lifelong learner and investor. Who better to do that than the co-founders of The Motley Fool Tom and David Gardner. They share lessons they learned from people like Warren Buffett and Peter Lynch, key elements of core Foolish investing styles, and some of the things they look for in companies before they invest in them. Think of this as the greatest investing class you never got the chance to take in school.

Tom Gardner: I'm Tom Gardner with my brother David, co-founders of The Motley Fool spending the first half-hour class of this series talking about why we invest and how we invest, and really the Motley Fool way of investing. David, thank you so much for spending the half-hour here.

David Gardner: You bet looks do it.

Tom Gardner: Why do you invest?

David Gardner: Well, I think the most obvious reason to invest is that you are hoping to make some money in order to do something in life. A lot of people think of it in terms of retirement. They think they'd like at some point to not have to go to their data job, whatever that is. They imagine that if they invest well, they can in fact achieve that independence, and it's happened. It's happened for me. It's happened for you I know Tom, it's having, for now, our 29th year at the company. It's happened for tens of thousands, maybe hundreds of thousands of people that they've joined our services and have gotten that financial independence. I think the number one reason it's not the only reason, but to invest is because you're wanted to do something with the money that you're going to make. A lot of us are trying to buy time and buy freedom.

Tom Gardner: Our companywide mission is to make the world smarter, happier, and richer. You've highlighted the richer component of it. I think you've included some of the others as well. But what makes you happier as an investor?

David Gardner: Well, I think one of the important things that you and I have always felt we want to teach the world is that stocks are not just ticker symbols. Stocks are actually just the ownership in a company, and it's the company, and it's the product and services, the humanity. It's all of the good stuff that happens behind the stock. You and I get to be part-owners of companies through the miracle of the stock market but really for you and for me Tom, we want to have fun following the companies we are invested in. A big part of the reason why the Motley Fool is we're here to educate and enrich and amuse. We've always thought about the core jesters of your, and how they made things fun for everybody else around them. So I think it's not just about mechanically following some plan to achieve financial independence at some point. That does work, and it's a worthy goal. But I think for us, it's so much about what the companies themselves do, whether they're making the world better, and whether we enjoy following them.

Tom Gardner: I've observed in our family over many decades that really thinking about our father and then his brother, both, I think, began investing before the age of 10. Just observing some of their conversations, I remember a few years ago where they were debating who had made the worst investment between the two of them. That enjoy the competitive fun of investing and also just the humility the journey that we're all on testing and learning our way through understanding businesses and how to assemble a portfolio and how to make money sustainably over a long period of time. How about smarter? How does investing make you or any stock investor or your fund or ETF investor smarter?

David Gardner: I think there's no substitute for being invested with skit in the game in the world at large. It does have you once you do that, paying attention far more than if you weren't. That's a big reason why the Motley Fool Foundation and The Motley Fool are going to work so hard for the next 25 years to get people thinking that they can be part of the system, that they are an investor. In fact, they've always been investor. They just didn't realize that that was the word they should use. But anytime we spend a dollar we've made an investment, whether it's in the stick of bubblegum or a 401(k) plan. I think a big part of that Tom is that we're switching people onto realizing they are included, they are part of the system and the companies that are going to help them achieve financial independence while we want them to care about those companies. I think it makes you a lot smarter when you're starting to ask those of new questions. Just think about a company like Twitter. I think Twitter makes me smarter every day. The active investing in Twitter, it's not been a great stock pick has been up and down over the years. But it's maybe pay more attention to social media. Then I think about meeting an author for the first time as book you love just because you can direct message them via Twitter, which would've been a dream when you and I were 15 years old. I think just the act of being in the game makes you smarter assuming you're trying to play to win.

Tom Gardner: Before we now move out into how we invest, we've got a few sections that we will be discussing here in these 30 minutes. I just want to close with what do you think are the one, two, or three things somebody needs to have in place before they invest and whether those are based on age or experience or an amount of money you have. Can a 12-year-old be investing in stocks as readily as a 67-year-old? Where do you see as the one, two, or three things you think somebody should have in place to begin investing?

David Gardner: I think the first thing that comes to mind, and it doesn't matter what age you are, is to be a lifetime investor. I think that's what really separates people who are truly investors versus traders. So if you're making a lifetime commitment, as you and I have, Tom, to being an investor, in my case, the stock market, yours too, but there are other approaches. Real estate, we have some great advice at Millionacres at The Motley Fool venture capital, we do that too. There are lots of different ways to invest, but it's really taking that lifetime mentality. For me, whenever the stock market starts to sell off, I stay invested. I don't enjoy watching the stock market drop. Just that I don't enjoy watching my sports teams lose from time to time. But if you are just as you are a lifetime sports fan, if you're a lifetime investor that will make huge difference in your mindset, your mentality, and your results. That's probably the number one thing that comes to mind. It's something that is available to us all.

Tom Gardner: There's such a temptation to think short-term, to fear of missing out, to speculate, and to have high expectations. Those three factors together can destroy a lot of the opportunity to get smarter, happier, and richer. Everything that we do at The Motley Fool is about that lifelong set of goals and building rather than crossing your fingers and hoping something appears in the next six months. Now we're going to go out into how to invest, and they're going to be five segments of this classroom. The first is going to be talking a little bit about index investing versus stock investing. The second is, what are the core principles of our stock investing approach? A little bit about rule breaker investing and Everlasting investing. Then what type of returns are reasonable for someone to expect over time. Then how to handle the volatility and the emotional journey of being an investor. Let's start now with index investing versus stock investing. What do we see as a few of the strong supporting points behind being an index investor?

David Gardner: Well, I will give one, but I'm going to ask you back because I want to make sure it's not just you interviewing me. I think an important thing to recognize is if you're going to be an index fund investor, obviously you need to know the definition of that. A lot of people hearing us right now already know what that is, but I guess in the interest of making sure everybody does, it simply means that you are putting your money toward a manager. You're handling your money over to somebody else or a computer, and they are allocating you into the components of an index. A common example would be the Standard & Poor's 500. 

There are 500 really big companies that make up the building blocks of American business. If you give your money over to that human/computer managing you, they're going to put your money into 500 little pieces. If you have $500, they're going to put you one dollar in each of those 500 companies, and now you are in an S&P 500 index fund. You could have selected a Russell 2000 Index fund, which is 2,000 small companies. You could have selected a restaurant index fund or ETF, and then you'd just be invested in all the restaurants. So the concept of being an index fund investor means, number 1, you're giving your money over to have it mechanically allocated. Then number 2, it's all about what is the index that you are invested in.

Tom Gardner: Because of that mechanical allocation, and this was really popularized and created by Vanguard and Jack Bogle who we were able to spend so much time with over the last 20 plus years at The Motley Fool that mechanical approach means that the fee structure is very low. It undermines a lot of the fee-based models and financial services because that automated methodology and that distributing the capital and in the S&P 500 often capitalization, where it says you're actually getting more of the larger and less of the smaller although there are many different flavors of index funds, that it is essentially free just about, and very tax-efficient because you're not doing a lot of transaction.

Tom Taulli: It also allows you to budget because there are historical returns for the S&P and you can loosely make some estimates, and drop some expectations about how the market would perform over a 10-year period or a 20-year period. Any given year obviously going to be a lot of volatility, but when you buy an index fund, you know what you own, it's automated. It's essentially borderline free, very tax efficient, and you can budget around it and those are very advantageous. Now, what would be the reason, David, that you would choose not to invest? Why are we not primarily index investing at The Motley Fool?

David Gardner: Yeah, it's funny because I first booked out The Motley Fool investment guide. You were the one who really set this up, but we put it forward as something worth doing and then the very next chapter, we yank the rug out from the reader and say, but why would you do that when you can actually buy directly individual companies? I think a big reason for us is that you can outperform the index. I believe you can do so with confidence, even though a lot of academia still believes that that's not true, and that's one of the reasons we love being Fools. We will have challenging conventional wisdom, but I think our records will show that we have consistently outperformed the indices. 

Therefore, why wouldn't you want to do that? Why wouldn't you want to buy stocks directly? I think the whole secret is simply buying the good ones. I'm not trying to be facetious there. I'm not talking about the good stock last year or the good stock that you think will be good the next quarter. We're talking about the great companies of our time and just being invested in those companies, so those are in the indexes. But so we're all the mediocre ones and some downright bad businesses as well. When people buy an S&P 500 index fund, I might like 50 of those companies. I am not sure I want the other 450. I think a big part of it is discernment as to what really wins in business and therefore what you want to be invested in. Now, you and I both know that not everybody is going to want to go through that journey, spend that time. In fact, Tom, I think it's fair to say a minority of people in the world today actually want to spend time buying stocks directly. But that's what I see. What else do you see there?

Tom Taulli: I think we've talked about index plus a few as a great way to invest. If you had $50,000 to invest, you could take $35,000 of it and put it into one, two or three index funds, and then take the remaining 15,000 and divide across a dozen or two dozen different stocks. We're in a wonderful world now where the transactional costs of investing in stocks is essentially free, very close to free. Obviously there are some hidden costs in there, but very, very inexpensive relative to when the Motley Fool started 1993 and you'd be paying $59 or $99 per trade. It wasn't unusual to actually have those prices. Now it's easy to distribute your capital across a number of stocks, and so maybe having an index fund for some people or collection of them and stocks, that's definitely part of the Motley Fool way of investing, but I want to transition now toward the stock investing portion of your portfolio. We know for us in our family growing up, nobody bought index funds. We're in all stock family, but we're a diversified stock family and we're looking for the great companies, not looking for the trading and stock price momentum, price movements in the short-term. I'd love to hear Dave, what do you see as a few of the key Motley Fool principles that are distinct from what somebody might encounter looking elsewhere for investment guidance?

David Gardner: Well, this might just recapitulate something said earlier, but let's make sure we double underline it. I think if you're going to be buying stocks, please be buying businesses not the tickers. There's a lot to unpack there and we only have limited time, but really, so many people are just thinking about what's the ticker symbol, and then some people are looking at the chart or the graph of the stock and looking for patterns. As soon as they buy, they often are thinking what's my target price where I'm going to sell? You have people who are really not, I think using the beauty of the tailwind that the stock market provides you as something that consistently rises over time. Instead, people are jumping in and jumping out. So I think, number 1, just be a business-focused investor and I really think that Tom, that's something that you and I mean, certainly reading Peter Lynch or Buffett. I mean, there are some great exemplars that predate us, but I think the Fool when we launched 30 years ago from Day 1, we were basically talking about businesses and buying the businesses and not getting caught up in stock market talk. That's at least number 1 that comes to mind right away from me. What's one for you?

Tom Taulli: Well, I think also on that point about Buffett saying at one point, he was asked, well, why doesn't everyone just copy what you're doing? He said, well, I put all my principals out there, but there's just something that causes people to approach investing in the markets differently and to not think about business. I think a lot of that has reinforced with headlines, and short-term news, and just the way that our brains are wired. It can cause us to think, and a lot of people still think the stock market is closer to a gambling casino than a system for funding innovation, a business, employment, opportunity growth. I really love that first point. When you're investing the Motley Fool way, you're definitely looking at the companies that you're invested in and that is more important than the price of the stock as you're evaluating that investment. I'd say a second one which you started our conversation off with is to be a lifelong investor. That is a Motley Fool principle to the core, we would never think I'm going to drop into the market here for the next two years and hope that I can make enough money to accelerated a payment on my mortgage or be able to pay for some travel around the world. 

We would always be deploying our capital and thinking, this is going to this Visa process that I'll be following for the rest of my life. That's part of the reason that our mission statement uses comparative words. We're not trying to be the best, the smartest, the happiest, and the richest person that we know. We're not just trying to get smart, happy, and rich. We're trying to constantly get smarter, happier, and richer together from our work, and so that's a lifelong journey. I'd say principle number 1, please be an investor in businesses if you're investing in the Motley Fool. Number 2, please make it part of your lifelong journey and you're always adding capital and always trying to learn more. Let's have a third and a fourth principal and then we'll move a little bit to Rule Breaker Everlasting. We've got business focus and lifelong investor. What's your principal number 3?

David Gardner: Well, I guess diversify. Again, we've already spoken to, but we're going to go in circles on some of the really key points because we need to make sure everybody is bought in, everybody hears it, maybe rehears it and then starts to make sure that they act in accordance with it. For me, and I know for you and for our company, everybody making sure that you are not pinning your hopes on one stock, one type of investment, one NFT, one, fill in the blank. But that you instead are taking a comprehensive approach. One thing we love about index funds, of course, is that you are almost by definition diversified. Although if you're just buying an ETF, that's a genomics ETF. You're diversified within that, but you're not really diversified, are you? I think, that that's why for years now we've talked about having anywhere from 15, 10, 25, 25 investments even at the start, and 100 's maybe before you're done. We have members who have done wonderfully well, well beating the averages and they own more than 100 different investments. I think for a lot of people, especially when they're starting, they think they just need to find what's that one stock, that one idea. Since we hear that we're like, OK, yeah, and what are your other 24?

Tom Taulli: The data shows across Motley Fool services, and this is past performance, so we don't know what it means about the future, but you have a high likelihood of profitability with the Motley Fool style of investing if you buy 25 or more investments in companies and hold them for five years or more on average. That really puts you into the data set of that long-term compounding, looking for high-quality companies, as David said. So there we go. There are three principles and I'll add the fourth. Let's restate the three to be a lifelong investor that's business-focused, that's diversified. I would say the fourth is about you and about all of us, and that is to be inquisitive. One of the things we've been working on at The Motley Fool is to truly be always on as a company. We want to be a place, a digital home for you where 24/7 you can come and ask questions and keep poking around to learn more and figure out how to manage your capital more effectively, but also how to learn more about the individual companies. Every one of us has a competitive advantage in the zone of our areas of greatest interest in life. 

That maybe cooking for you, that maybe exercise, that may be genomics, you maybe an engineer, you may be a software developer. Each of us has a circle of competence, and if we continue to en-quire and study that area of our lives, it presents a lot of investment opportunities as well. So I love those four principles and those are core Motley Fool investment principles. Now we're going to talk just a little bit about two styles of investing inside the Motley Fool. Their many different styles, but like to hear Dave, what you would identify as a couple of the top principles of Rule Breaker Investing, then I will share a couple of principles of everlasting investing. Enlighten us, for anyone who hasn't yet encountered the Rule Breaker investment principles, and you talked about them in the Rule Breaker podcast that you do. What are some of the key guiding themes of being a successful Rule Breaking investor?

David Kretzmann: Well, I think for me, number 1 is that you're looking at companies that are, the phrase I've used is top dogs and first movers in important emerging industries. So you're very focused on who is the best innovator, and it's not just the best innovator of all it's in every industry. In every industry there are innovators and often they're upstarts and a lot of the time they're disrupting the status quo in some way, shape, or form. That's why I selected phrase rule breakers because the rules out there are being set by the businesses that already exist. Some of them great big Goliath companies. They are the rule makers, they are setting the way that business happens, but when all of a sudden you say, hey, actually, we're going to try something new. What if you bought something by clicking something online and they got mailed to you, that's a very disruptive thing, and Amazon did that about 28 years ago. That's about how long we've held the stock, and it's a great example of the rewards of finding top dogs and first movers in important emerging industry. 

So that's obviously a really big one for me, Tom, and I think that you have to be willing to lose. That's the second one. Because just like a venture capitalist, you're going to be wrong a lot and so you have to be OK with that. That's part of the reason we diversify and don't pin all our hopes on one company. But it's also just worth remembering in life that sometimes your expectations simply won't be met and sometimes, by the way, you're pleasantly surprised. I've had stocks like Priceline, it's now Booking.com, that I recommended thinking it wouldn't do that great, and it ended up being one of the best picks I've ever made. It completely shocked me, but it didn't fulfill my own thesis for the company. I think that again, top dogs and first movers in important emerging industries, is that's a stocked pond where if you just fish in the pond, you're going to have probably some of the best stocks of your generation. And if you just even have one of them, they can float an entire portfolio even though we stay diversified. But that second one is being willing to lose.

Tom Taulli: On that first one, I think of just the mind and the approach of deciding, let's create an electric car. There were attempt set before it. Let's have a supercharger network. Let's start developing software that could maybe allow these cars to drive themselves. There's so many disruptive breakthroughs in that style and you often. This would lead a little bit into the Everlasting style, and these are obviously such complementary styles of investing. The core Motley Fool principles are more important really than the individual styles I think, to get people business focus, lifelong, focused on adding capital and diversified and being inquisitive. Then we get to a little the stylistic things and I would just say in Everlasting, I might start to add in, who are the decision-makers at the company? How are the decisions made at the business? There have been some companies where I loved everything about it and then really found that big financial institution had the voting rights are owned more than half of the company. 

So you might end up with a very disruptive, great team that's working toward an amazing mission, but ultimately they're beholden to a large bank that is trying to harvest that company and sell their shares in the next couple of years. So the decision-making structure at the business, the ownership, and it does communicate skin in the game. Warren Buffett has said that his favorite investments, are investments in people who are running a business that they view as the only asset their family will have for the next 100 years. So there's a very long-term mindset to that ownership style. And then the second factor I'd mentioned would be tilting a little bit more toward smaller companies. It's not a necessary thing to succeed, but small-caps historically are under-followed in the public markets. They aren't the companies that are discussed on the daily financial news coverage of the markets and so looking where others aren't can be a wonderful way to invest in. 

We've learned so much from other great investors who have outlined principles like these. But I think the Rule Breaker breakthrough investment style is a game changer for a lot of individual investors in Everlasting release, bringing some of that ownership, long-term, five-year old, and maybe looking at smaller cap companies as well. Those are just a couple of flavors of Motley Fool style. We have so many great analysts and so many great community investors out on our CAPS platform at caps.fool.com that you can learn from. But thank you for that, Dave, now, what about what types of returns should an investor somewhere between expect and hope for over the long term? So let's say somebody who is listening right now, they're I'm buying into the Motley Fool way. I'm going to follow these principles. Now tell me what I can expect from this.

David Kretzmann: Well, I think the first thing you should know is that the stock market traditionally return somewhere between nine and 11 percent annually, depending on which country we're talking about over which meaningful long-term period. Some countries don't have developed or strong economy, so they're not going to be racking up 10 percent returns every year, but at least the United States stock market, the biggest and best one of the world has done that for decades. So for that reason, it's really good to remember that because that's your tailwind and you can get that with the index fund as we mentioned earlier and you can be done with your day in your investing life if you like, by just saving every two weeks and putting it into the index fund, which is what a lot of people do through their 401K retirement plans and that works. 

That's why a lot of Americans do end up retiring and getting some of that financial freedom they're shooting for. So I think that ten percent is probably the best expectation anybody should have. By the way, that's a lot better than bonds which are typically percent. Well, bank accounts have been paying one percent or so until recently, with inflation up, it's probably going to need to rise a little bit. Of course, the state lottery is minus 50 percent everyday for people who are invested in that. So it's helpful to know these big box, big picture return expectations. I'm happy to say that Motley Fool stock advisor and some of our services have racked up returns closer to 20 percent annualized. That's a really profound difference than just 10 percent.

David Gardner: It feels good to be in the market in any given year, but if you keep doing that year after year after year, you can really roll up some outstanding performance. We would never promise that, that's never anything. We always shoot for it. You should know that in our services, at least the ones that have those stated goals, we're trying to beat the market as badly as we possibly can and we have a pretty good record for doing so, but I've never Tom, and you tell me whether you have, I've never put a number expectation on what I'm going to do with my investing portfolio, or investment approach, or over any short-term at least, but maybe even over any period at all. I'm just not somebody who puts a number in the air and tries to hit it. I just try to exceed. How about you?

Tom Gardener: I sometimes mark out goals of a 6X return from an individual stock over 10 years would be 20 percent per year. I'd say the only reason that I do that is to try and provide context to everyone for what we're aspiring toward because I do think a lot of investors come in to the markets and have no idea when they first arrive. Particularly when markets are performing very well, I'm hoping for a 30-40 percent a year. There's not an investor, really, outside of venture capital in the public markets that's consistently gotten any return like that. Conversely, at the other end of the continuum, yes, the investors that say this is just a great being gambling machine and most people are going to lose money. That's actually not true. Most people should be making money, most people should be getting close to at least around 10 percent a year over long periods of time. I'd say in Motley Fool history, to hope, aspire to be in somewhere in the 10-20 percent annualized returns zone, that's probably just loosely. 

I think it's helpful just to provide a little bit of context for how we've performed over our 25 plus year period and what we aspire too. But I also agree, there's not really a scoreboard where if we don't get to that number, that was a real loss for us. We're really aspiring to do better than the average market return, but David, in getting those returns to close out our Saturday classroom, there is a lot of volatility in the equity markets. For somebody who's arriving to the Motley Fool style investing now and listening, how do you face volatility? Some of our favorite companies at any point in time, you'll look and see oh, it's down 25 percent, this one stock or my overall portfolio is down 17 percent right now. Or I've had three great years and I don't know what to expect is. At three up years in the market, should I expect the next three years to be up? Just talk a little bit about how you approach the volatility of pricing in the market. That 10 percent annualized as you said, it's certainly not that every single year.

David Gardner: I think that if you've made a lifetime commitment as an investor, and we talked about that earlier, if you're doing that, then the only thing that really makes sense is to expect that you will have one year in three, where your stocks will drop in value, two years in three, they will rise. You're going to be invested in all three years, and then three after that, and then three decades after that. From my standpoint, it's not very hard to work with volatility because as a lifetime investor, I know we're going to have drops. We've had dramatic drops in Motley Fool history 2001, we all remember that, 2008 and '09. The fourth quarter of 2021 for a lot of Fool stocks was a tough quarter. It was 2018, the final quarter there or check 2016. 

Even though a lot of people think in terms of, this bull market, when will it ever end? I think we've seen together that the stocks that we follow anyway, have gotten crushed at different points down 25 percent in a month at different points in just the last five years. I think you have to be going in eyes wide open recognizing that, and if that's not for you, there are certainly ways to mitigate against that or invest more conservatively. This kind of volatility that, let's say, I'm willing to accept as a Rule Breaker is much more than the average person would or should. You don't need to have that kind of volatility to feel great about your investing. I guess it's knowing what color your parachute is, as the old book said, and then making sure you're flying appropriately with your parachute. You got to have a soft landing if you're looking for one, or maybe a little bit of a reckless landing, if you're willing to really go forward out there. So knowing yourself is a big part of this as well.

Tom Gardener: Closing with a restatement of our first Saturday classroom, we talked about why we invest the pursuit of a smarter, happier, and richer life for ourselves and our families and for the world. Then as we go out to invest in the equity markets, seeing the opportunity to be an index fund investor, stock investor, an individual stock investor, or a blend of the two, are the beauty of the index fund being that it's very low cost, very tax efficient, you know what you own, you can just add money to it regularly and almost setup budgets around long-term returns. The beauty of stock investing as you learn a lot more about the world and you can really put your capital behind the things you believe in and that can include your personal ethics, as well as the things that you think are going to win over the coming years and decades. 

Then we talked about some Motley Fool core investment principles like being a lifelong investor, investing in businesses, having a diversified investment portfolio, and really being inquisitive. We then talked about the Rule Breakers style of looking for the disruptive innovators of our time. It's an important thing to remember that innovation is always coming. We sometimes think, oh, I missed that one, oh too bad. There will never be something so exciting as what we've just been through and of course, that is not the case in the market system that we get to enjoy. In this world, there are entrepreneurs coming thinking of the next great opportunities to serve the world. Then to take maybe that everlasting style of really those long-term ownership periods and thinking about who's making the decisions and what are the small companies that are rising in the marketplace that present opportunities. Then we talked about, what type of returns are reasonable. 

The equity markets delivering about 10 percent annualized over the last century and we try and beat that at The Motley Fool, and we closed with a little conversation about the volatility, the natural ups and downs to the market. On average, the market falls 10 percent once a year, 20 percent every four years or so, 30 percent once a decade. When that happens, a lot of growth investments can go down more than that. Just accepting that as part of a lifelong journey that they're going to be ups and downs in any given year and ups and downs within your portfolio, you are going to have losing stocks in your portfolio, but when we blend it together and take these principles and build around them. We've got a couple of decades of success that we're excited to build on at The Motley Fool with you over the next couple of decades. David, thank you for being here on the grand debut of Saturday classroom in Motley Fool Money.

David Gardner: Thank you for the invite and it's been a lot of fun. Thanks, Tom. Fool on.

Tom Gardner: Fool on.

Chris Hill: You can follow Tom and David Gardner on Twitter. We've included their Twitter handles in the show notes for this episode. That's all for today, but coming up tomorrow, a one-on-one conversation with the co-host with CNBC's signature show, Squawk Box, the one and only Becky Quick. As always people on the 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. I'm Chris Hill, thanks for listening, we'll see you tomorrow. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post How to invest — and why — with Tom and David Gardner appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Chris Hill owns Amazon. David Gardner owns Amazon and Booking Holdings. Tom Gardner has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends the following options: long January 2022 $1,920 calls on Amazon, long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2022 $1,940 calls on Amazon, short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool Australia has recommended Amazon, Berkshire Hathaway (B shares), and Booking Holdings. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.