Rule Breaker Investing Mailbag: From Nvidia's Stock Split to the Power of Always Learning

Listeners — and what they have to say — are a big part of this podcast.

The fifth Wednesday of May brings us a mailbag to close out a remarkable month reflecting back on dividend stocks, Motley Fool co-founder David Gardner’s birthday learnings, and more.

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 May 29, 2024.

David Gardner: It’s the last Wednesday of May. We’ve had five Wednesdays in May. It always makes for a full month. I mean May’s 31 days every year, anyway, but for this podcast, this is our fifth Rule Breaker Investing podcast because there were five Wednesdays in May. A few special ones, especially my birthday podcast a couple of weeks ago. I want to thank each of you who took the time to write in and share what you’ve learned from this podcast. That really, in its own way, was a fantastic May mailbag. But as has been the case for 100+ Wednesday’s going back years now, it is the final Wednesday of May 2024, and therefore, it is once again, your mailbag only on this week’s Rule Breaker Investing.

Welcome back to Rule Breaker Investing. A delight to have you join me. Let’s get started with this month’s mailbag. As I often do, I like to start with tweets from Twitter X. Let’s go with tweet number one from Jason Moore, @JimminyJilickrz on Twitter. Jason you wrote, between the perfect storm of NVIDIA‘s looming stock split, Rule Breaker Investing podcasts, newest episodic series, I fought the law and the law won, and Wikipedia’s triumphant success, Jason you wrote, I’d be remiss not to bring up Moore’s Law. Because this was a month of laws on this podcast, I just wanted to remind listeners of course, Moore’s Law coming from Gordon Moore, the co-founder of Fairchild Semiconductor and later Intel, where he was CEO for many years. I know a lot of techno files will recognize Moore’s Law as stated by an English major in this case I would say, computers roughly double in speed and haven’t price every 18 months. That’s a shorthand way of saying that the number of transistors and integrated circuit doubles about every two years. That’s what Gordon Moore hypothesized.

We’re going to be talking a little bit later about whether there are actually any laws at all or maybe they’re all just rules. But Moore’s Law, certainly, one that I could’ve included on last week’s episode might show up in some future series. But I’m glad Jason, that you included Moore’s Law and given that Jason your own last name is Moore, that seems even more apropos. That was tweet number 1. The second tweet, thank you Martin Trigg’s. Right again @Trigg’s1Martin. Martin said, wow, incredible lessons and thoughts to ponder. This is again reacting to last week’s podcast, I fought the law and the law won volume 2. Will listen again. Martin wrote, the less you trade, the less you have to follow the markets. He’s quoting me from last week’s podcast and I do want to say, I really do think that’s true. I’m not going to say that’s Gardner’s Law because a, I am questioning whether there are any laws as you’ll hear shortly and be, if there were a Gardner’s Law, I probably wouldn’t make it that one. But the less you trade, the less you have to follow the markets. I do think that’s a truism. Thanks for calling that one back out.

Martin, you close by saying, rather use your time to study and understand the laws like these enlightenment. You also went on to say Martin, and I appreciate this. It’s worth reminding everyone that the United States is a nation of laws, especially in this election year. May the laws uphold as strong democracy and election and that the people except the legal transparent results. I do fully expect that to be the case. Once again, I appreciate that sentiment Martin Trigg’s. Thank you.

Now a third tweet. Thank you, Alberto. Alberto right again. I said on Twitter, which law was your favorite from last week? Alberto you said, has to be Newton’s first law. Winners, keep winning. I’ve thought a little bit more about that myself. I think my favorite law from last week was Cunningham’s Law. To quote it, verbatim once again, and I quote, ”The best way to get the right answer on the internet is not to ask a question. It’s supposed the wrong answer”. The reason that I keep going back to that one is, a, it makes me smile, and when you share that with a friend, there’s usually a chocolate you can share together. But b, when you think more about it and you remember that Ward Cunningham is credited as the computer programmer who created the first ever Wiki. We talked about this last week.

Wikipedia is essentially built on Cunningham’s law. People post stuff to the internet. Incorrect, citation. All of a sudden you can build an entire encyclopedia of all of human history based on people posting and correcting other people’s postings. The best way to get the right answer on the internet is not to ask a question. The human tendency to correct each other comes fairly naturally as my friend Shirzad Chamine has pointed out, we each have a judge in our minds. We’re constantly judging. You don’t have to be judgy. When you’re constantly judging, we’re constantly estimating what’s going on around us and what we think of it. It’s a lot easier to shoot down the things that we know to be wrong, than to clearly articulate or know the things that are right. Indeed, the most productive way to build Wikipedia is off the posting of wrong answers. That’s Cunningham’s Law. Anyway, Alberto I’m also a big fan of Newton’s first law of motion. I’m glad you called that out. Five mailbag items. A little bit lighter mailbag this May.

I think in part that’s because we really already had an amazing mailbag two weeks ago, but there’s always more to talk about and Vince [inaudible], thanks for taking the time to write in. Hi David, I’m hoping that this year’s authors in August series will include one book about curing procrastination. Because I am obviously afflicted, Vince writes. As I listened to your April 3rd podcast with Bill Burke, subject was optimism. I was moved to contact you, but sadly procrastinated in so doing. I guess that’s why you’re now writing me in May about this. But that’s fine, Vince. He goes on as you predicted, I find myself going back to this one podcast, even though it’s relatively new. In fact, one of my life’s goals, is to write a book about the top ten quotes in my life. Bill Burke, quoting Kevin Kelly, has made it to my list of worthy candidates for that book. He said, and I quote, ”If you only read the news, you will think that it’s never been worse. But if you read history, you’ll realize the things have never been better”. Vince writes. Switching gears, the recently announced stock splits of NVIDIA, Chipotle, and others lead you to tweet that these are non-events, which certainly is conventional wisdom and passes the logic test. Insert the well worn pizza analogy about a pizza cut into eight slices or four slices matters not, as it doesn’t change the size of the pizza.

Then the joke about the customer who has asked whether he wants his pizza cut into six or eight slices, and he responds six because I couldn’t possibly eat eight. Therein lies the secret to my feeling Vince, goes on that maybe stock splits, especially those that turn a share of stock with a price over $1,000 into maybe ten worth $100 each are more than a non event notwithstanding the research that shows at least a short term performance bump for high dollar stocks that split, there is something that matters to me, as I near retirement and then looking for ways to boost the income part of my portfolio. Say there are some winners, let’s call them Mercado Libre, Chipotle, and Nvidia. Some, I own less than 100 shares, so I am unable to utilize a covered call strategy with them. Others, I have over 100 shares but could not stomach risking that larger share of my position being called away. Finally, others where, thanks to following the Motley Fool’s recommendation years ago, I have hundreds of shares, but still would not like to deal in 100 share lots. Once the split is enacted, I will be much more comfortable with this strategy. Additionally, despite some brokerages offering fractional shares, the split will allow more folks to start positions in these stalwarts. Take care David and Fool On Vince, Greenery.

Vince, on the Motley Fool discussion boards. You were full 4Z tribe, shared your work through these mailbags before I know you are a Cleveland Guardians fan, your baseball team is awfully good this year, Vince. Just a few reactions back, first of all, really appreciate you going back and listening to the Bill Burke Optimism Podcast. Yes, that one is worth listening to and relistening to in the years that come and that quote about reading the news versus reading history is so apt. As it regards stock splits, especially when I’m on social media, writing just short lines without long opportunity like this podcast to explain myself, I typically will say that stock splits are a non event as indeed I did end, I know a lot of people who think stock splits are very exciting because in their mind, value has been created, and, or they like low price, sometimes penny stock, so they’d like low priced stocks. Stock splits for that set are exciting and I don’t think that they should be exciting in that way but as a fellow Fool, I do want to say in years past, I’ve sometimes said and written that it’s not always true that stock splits are a non event. Now, Vince, you were highlighting that round lots help a covered call strategy.

Covered call strategy, I’m not going to speak to in this particular podcast. It’s not something I used, but I know many people who do and it’s a way of gaining income off of our long held positions. I know many of you are very familiar with the covered call strategy. Vince is pointing out stock splits can help in this regard. I wanted to start something else into the pot here. Something I’ve said in the past about stock splits and why they are beneficial if you want to click down a few clicks. When companies reduce their share price when they say, let’s go from $100 a share down to $20 a share in a five for one stock split, when companies do that, they’re now precariously low relative to where they once were with their share price, and there is, I think, a little bit of a bias against very low priced stocks. If you’re trying to be a big, well known legit company like Mercado Libre or Chipotle, or Nvidia, you probably don’t want your stock down there, let’s just go with one dollar and 37 cents a share, that’s not a great look to many stock market observers. We have to point out that companies don’t really want their shares going too low.

When a company does its five for one, split from 100 down to 20, it’s playing chicken a little bit with market expectations and market observations about that company. It’s saying, I don’t think we want to be below $10 a share. I’m going to call that out as a round number. I think most big companies don’t want their stocks below $10 a share. Therefore, one could argue that when companies intentionally decide to re price their stock much lower, they’re actually subtly exhibiting a little bit more confidence that they will continue to go up because they don’t want to go below $10 a share. I think that there is some reason to be a little bit bullish when companies’ stocks are split. I don’t cheer them on. As I mentioned, most people are misled about this. I think the key point is to make the pizza joke that you made Vince. But if we want to go a little deeper as Fools together, assuming a base level of understanding, I think stock splits are actually a little bit bullish, so thank you for sharing that. Let’s move on to mailbag item number two. This one is a doozy and I mean, in the best way.

Earlier, I was mentioning, are there any laws and it was Bart Hubbard’s note to Rule Breaker Investing this week that had me questioning just that. DG, this note starts, Bart writes, I’m a man of no particular wealth, and the jury is definitely out about my taste, so I’m told, but hopefully in my favorite on taste, I do thoroughly enjoy your podcasts. Your latest is no exception. I’ll accept your challenge to serve up a law or three. I did mention Bart would love to hear in the mailbag this week anybody who wants to add additional laws to my, I fought the law won lists from last week. Bart, you are providing three in this fantastic mailbag item and I’m really looking forward to digging into them and sharing them out. Let’s do it together. Bart, you said here’s my first which might be called Godel’s law, but maybe that’s a stretch. Law number 1, here it is, there are no laws except this one. He goes on as I understand your distinction between laws and rules. Laws are at least true most of the time, regardless of circumstances, in a way that rules or not. The consequences of breaking laws are thus likely to be harmful almost inevitably, whereas the consequences of breaking rules offer potential rewards and progress if done well.

I want to say, Bart, I would say you beautifully summarize what I was trying to convey. Took me an extra minute or two relative to the succinctness of your explanation there but yes, you’ve done a very nice job summarizing my viewpoint as asserted earlier this month. Bart goes on. I do appreciate the distinction but alas, as with anything in this world, nothing can be proven universally true so that there really is no hard line between laws and rules. The sun moves and the world’s flat were laws surely for thousands of years. More basically, even in Newton’s age, his understanding was that time was absolute and not relative. Then quotes, “Velocity was measured by a concept of “time” that was absolute.” “That,” again in quotes, “Law remained essentially unquestioned,” Bart goes on, “Until Einstein’s special relativity blew it away.” Even Newton’s first law of motion is no longer a law as it depends on time being an absolute. But physics is physics which may change as our understanding of the universe changes. I’m going to say that again because I think that’s such a great point, Bart. Physics is physics which may change as our understanding of the universe changes. You’ve already pointed out that’s been happening constantly throughout human history so far. He goes on, it’s hardly surprising that seemingly immutable laws relating to physics will change over time, nothing really new or particularly interesting in that. I think that’s sarcasm, but Bart since sarcasm is the wit of fools, it is very welcome on the show.

He goes on, but what about mathematics? Surely mathematics has laws that are indisputably true. The purity of mathematics as true goes back thousands of years. Kurt Godel’s indefiniteness theorems brilliantly blew that idea away. I want to pause for a sec because I mentioned last week. Again, if this has already striking the listener as heady, stay here in this heady space with me for a few minutes. It’s worth it but I want to point out, I’m a fish out of water in this heady space to mix metaphors because I’ve never read, even though I quoted Hofstadter’s law last week, I’ve never read Godel, Escher, Bach, an Eternal Golden Braid or Hofstadter’s other work, I just liked his law that I shared last week, but here we have, I think in part, Hubbard and Bart, your email address includes the word professor, so I’m guessing you’re maybe a professor of mathematics out there. I just want to mention that I stopped math at the end of high school. Calculus was enough for me.

A lot of Rule Breaker Investing is built on what I’ve always called fifth-grade mathematics. I don’t think we need to get really deep into the math, but I admire those who do. I hope you enjoyed my conversation in last year’s Authors in August with Jordan Elingburg, the brightest mathematician yet to appear on this podcast. Anyway, I want to now return to what Professor Hubbard is saying here. Kurt Godel’s indefiniteness, theorems, which brilliantly blew the idea a way that mathematics has laws. Now again, I’m not familiar with this work, but let’s keep going. The first theorem showed that one can use a mathematical system to construct a statement that can either be approved or disapproved within that system. The second theorem arrived at by proving the first, is that no consistent system can be used to prove its own consistency.

Bart Hubbard goes on, a shout out for me goes to Douglas Hofstadter not only for his book Godel, Escher, Bach, an Eternal Golden Braid, which by the way, won a Pulitzer prize decades ago, but his later book, I Am a Strange Loop. You may have already read both. I’ve read neither, but even better than he does in his first book in Strange Loop Hofstadter does a wonderful job of thoroughly explaining and exploring Godel’s theorem, among other great stuff, it’s by far the best thing I’ve ever read, says Bart Hubbard on Godel’s indefiniteness is theorems. We’re going to start settling back down from this heady place where Bart had us. We’re going to get back to the bottom line here and share two more fun laws which apply to investing.

Bart writes, ”Bottom-line, unfortunately from an investment standpoint, there are no laws, just rules, but there are rules and then there are rules”. He writes, ”Some rules are better than others, but none are infallible and all may fail”, so that was the first law that Bart wanted to share with the listeners of this week’s podcast. It was again, ”There are no laws except this one”, and he attributes that to Godel’s law, but we can call that Hubbard’s law for the purpose of this week’s podcast, let’s move on to your second contribution. ”My second law”, you write, ”Is from legendary investor and attorney Charlie Munger, who captures the essence of a behavioral investment perspective that I have found useful, here’s Munger’s law”, Bart explains, ”Most investment decisions are transactional for every asset buy there’s a corresponding sale; so if I’m making a directional investment choice, someone else, the person I’m transacting with his making the opposite choice.” Munger’s investment philosophy is largely driven by his understanding and application of human behavioral psychology.

For Munger, avoiding being stupid is paramount to investment’s success. His basic premises that investors who avoid big mistakes have time on their side, so that the general growth of economies and markets up and to the right, will work to their advantage, at least when the investment is tied to the economy. To prevent stupidity he counsels that a key part in making an investment decision is to engage in seriously considering the very opposite of your investment thesis. You invert, always invert, you invert your premise. For example, if you believe that a particular business model is likely to be successful and that the business stock price will be able to benefit from that model, seriously consider the opposite premise, that the business model will fail and that the stock price will fall in response, what factors and conditions would cause your investment thesis to fail and for the opposite thesis to succeed’.

Bart says, ”Bottom-line here, considering all pros and cons to an investment thesis and it’s opposite are great habits of mind. This avoids getting mentally and emotionally stuck, but at the same time makes it easier to stay the course. Always invert.” Couple reactions back before we go to your third law Bart. The first is, I agree with you, and in fact that’s something we’ve always done at The Motley Fool, we always have encouraged our listeners, are members, our fellow Fools, to consider both the bull and the bare hypothesis for any stock. I’m bullish most of the time and the stock market’s tendency to go over time from lower left to upper right, I think justifies my bullishness.

I think there are very rational reasons why it goes that direction over time, so I’m bullish most of the time. Not in every company though, we’re choiceful with the stocks that we pick, and part of our process is to ask, what’s the downside? What might I be missing? Do I have blind spots? Forget about the company itself where is my mind and my mindset? That’s always been such an important part of our work here at The Motley Fool. You’re probably familiar with this concept, it’s used in business a lot as well, people talk about not postmortems, which is what we do to bodies after we try to figure out, oh, that that one died, what happened? We do a postmortem. I bet you’ve heard this phrase before, what about premortems? A process of discussing ahead of time before the next project or product or services launched before the next initiative is taken by groups of us in our lives, we can convene with each other and say, ”Let’s do a premortem here, how did it fail?” Of course, you hope it didn’t fail, but ahead of time you imagine what are reasons that this might fail? Always invert as you’re, quoting Munger, so I wanted to say double underline, I completely agree with what you’re sharing. You even use the phrase ”Habits of mind”, and I want to reference Deborah Myers’, Five Habits of Mind, I did a podcast on this.

Anybody can google this and find it again, I see it’s March 15th of 2017. Seven years ago I shared Deborah Myers, Five Habits of Mind, and just to summarize them very briefly, they are in order. Evidence, how do you know what’s true or false? The second one is Viewpoint, how might this look if you stepped into other shoes? The third habit of mind she suggests we all cultivate and teach in our kids is Connection, is there a pattern here? Have you whoever you are seen something like this before, Connection? The fourth Conjecture, after Evidence and Viewpoint and Connection those were the first three, number four is Conjecture. What if it were different? Whatever this thing is that we’re thinking about or studying or exploring what if it were different? Can you play things forward? Imagine how things might play out differently from here, Conjecture. The fifth and final habit of mind, Relevance, that might be my favorite of all personally, Relevance, why does this thing, whatever it is we’re talking about, why does this matter? Why is it relevant?

So again, Five Habits of Mind, Evidence, Viewpoint, Connection, Conjecture, and Relevance. Of course, I’m summarizing what was a 28 minute podcast seven years ago, so anybody who’d like a little bit more can listen in once again, for Deborah Myers, Five Habits of Mind. But habits of mind matter greatly to me as a person, certainly as an investor and especially as a giver of advice or perspective through this podcast and many other channels about the investing that we do, and of course I deeply respect Munger, I like always invert. Let’s go to Bart’s third and final law. He says, ”I’d like to switch it up and just have some fun, the originator is reputed to be Wee Willie Keeler an early baseball star who often led the major leagues with the highest batting average, here’s Keeler’s law”. I’ve heard this one before, haven’t heard it phrased as a law, but we’re having fun with laws this week.

Bart, you wrote quoting, Wee Willie Keeler quote, ‘Hit em where they ain’t gonna be’. Wee Willie Keeler reputedly was asked the secret of his success in leading Major League Baseball in hitting in the years he did, Bart says,” He said simply”, ‘He hit em where they ain’t’. Willie Sutton, you’re referencing Sutton’s law last week. A bank robber, Willie Sutton, a Willie of a different flavor, Willie Sutton may have been wildly more successful in his life had he been more guided by, Wee Willie Keeler’s law than his own. Of course, Sutton’s law, go where the money is, he robbed banks. ”Yes, Willie Sutton’s, right”, Bart continues, ”That banks are where the money is, but banks are also where law enforcement knows the money is, banks ain’t where the law ain’t, combining the two Willie’s laws together is much more likely to be successful. As your podcasts noted, investing in winners is likely to work partly because winners are winners for reasons that are long term and structural. A seven-foot basketball player is likely to get more rebounds than a five foot basketball player. Most investors really distrust just cloning a successful strategy instead they tend to think that the current situation is destined to fundamentally change and reverse course, it’s just a matter of time. I believe this is partly out of our inherent desire to challenge ourselves, we get restless with success and root for the underdog. It just seems too easy to just sit on our hands. Bottom line, in closing, Bart Hubbard writes, ”Hitting them where they ain’t means that we shouldn’t expect superior investment results just by following what everybody else does, but hitting them where they ain’t, doesn’t mean avoiding investment strategies that are current winners, it’s actually quite the opposite. When Willie Keeler was at bat awaiting the pitch, he had to anticipate not only where the fielders we’re positioned before the pitch, but where they would likely move when he made contact with the ball, he had to hit them where they ain’t going to be. Investment decisions are a continuous process, not just onetime buy and sell points, time horizons are a key to applying the hit them where they ain’t law”. Thanks.

Thanks Bart Hubbard. Well Bart, again, I said at the start, this one’s a doozy. I think this one Mailbag item might almost be the majority of this week’s podcast and yet it was completely deserving of that. I so enjoyed your look through, your three laws. The first one in particular was an eye-opener for me, the idea that maybe the only laws that there are no laws and you went on to explain why in mathematical terms. Then you rocked monger and especially for Fools, I hope we get it. We’re calling ourselves Fools after all, not the wise. Always invert and then hit them where they ain’t going to be. I do want to say in closing, that part of the reason I think Rule Breaker Investing works is because even though many of our members have mimicked it and we get wonderful notes from people years later saying, this has worked for me. Thank you. What they were doing is they were following what we were telling them to do. Nevertheless, most people don’t listen to this podcast. Most people don’t subscribe to Motley Fool services. The vast majority of the world is not at all listening to these things or behaving in the contrary ways that we behave. A quick example for me, I think I mentioned this last week, but the idea that the third trait of Rule Breaker stocks is that they exhibit outstanding past price appreciation. That on its own is so counter-intuitive for most people that we would specifically be looking for stocks that have already gone up. Not only does it make much sense to most of the world today, I don’t think it ever will make sense to the majority. I think we’re always going to be in the minority with that and that’s why, in a lot of ways I think we hit them where they ain’t going to be with our approach to investing and I speak specifically of Rule Breaker Investing, but I would say so much of what we do across the Motley Fool. Anyway, one Fool to another, Bart Hubbard, thank you so much for writing in. I was saying offline to my producer Des earlier, I was saying, what I’m really after in life is the good opinion of good people. It’s steadied me pretty well through life. I’m not saying that’s the only way to behave or the only thing that should drive in this world, but it’s not a bad way to go throughout one’s adult life and therefore, I count it especially worthy when I get wonderful thoughts and notes from people who are clearly very bright and very fun to be around and Bart, despite being, in your own words, a man of no particular wealth and the jury’s definitely out, about your taste. You fit in very well on this podcast and among Fools. Alright, Rule Breaker Mailbag, item number 3. David, I’ve just listened to your I Fought the Law episode. I think the law that you attributed to Amara or one very similar to it was coined a lot earlier, about 180 years ago by Ada Lovelace. Now this note by the way is from George Roe. George, a long time Motley Fool, contributor and employee and now he writes at the end, long retired. First of all, it’s great to hear again from you, George Roe and let me continue with your note. Ada Lovelace is generally acknowledged as the world’s first computer programmer.

She worked alongside Charles Babbage, contracting programs for his mechanical computation machines, the Difference Engine and the Analytical Engine. Sometime in the 1840s, she said, and I quote, “In considering any new subject, there is frequently a tendency first to overrate what we find to be already interesting or remarkable and secondly, by a natural reaction to undervalue the true state of the case, when we do discover that are notions have surpassed those that were really tenable”. Just to review Amara’s law, one of those shared last week, “We tend to overestimate the effect of the technology in the short run and underestimate the effect in the long run” and George, you’re pointing out a very similar sentiment from Ada Lovelace, a century or so before. She said that about the public reaction to the mechanical computers of her era, you write. I used to site her rule when I was lecturing and the 1980s in the introductory lectures to a course, I taught on AI when I was reviewing the history of artificial intelligence. AI is a subject that is topical at present, George asserts, I agree with that. Many talk about AI as the overnight success of the last year or two as the place where the money is, at the moment, but the expectations of AI have [inaudible], flowed since the first conference on the subject in the summer of 1956. There have been many so-called AI winters when it’s been dismissed as overhyped whimsy and many metaphorical AI summers, when it has been seen as about to deliver human level intelligence and flexibility, it has repeatedly been subjected to what I think is, George says in conclusion, Lovelace’s law, all the best George Roe. TMF, grow g row. Well, thank you again George for writing and it’s great to hear from you again and I’ll just say that I think you’ve hit upon truth for the most part. As best as I can tell, that is a direct quote from Ada Lovelace, as you mentioned in the 1840s. The only difference I can really see between what she’s saying and what Amara said more recently, I guess I would say there are two differences. The first is that Amara is focused more on technology, whereas Ada Lovelace is speaking to, I think is more general. She’s talking about an overall tendency, a human tendency to overrate what we find to be already interesting or remarkable. I think Amara, in a sense, focused our attention on just that within the realm of technology. Lovelace spoke much more generally. I think they both speak truthfully. I really appreciate you pointing that out.

The other thing I’d say that distinguishes Amara’s law from Lovelace’s law is, it’s a little easier to say. We tend to overestimate the effect of the technology in the short run and underestimate the effect in the long run, it’s a little bit longer to say what Lovelace said and it’s a little bit ponderance language from almost 200 years ago. But with all that said, hashtag truth and I really appreciate you writing in George Roe. Great to hear from you. I also want to say some of my favorite Fools are the ones who list themselves as long retired. That’s what we’re trying to do for so many people worldwide. That’s what we’ve been trying to do for 30 years. We’re trying to accelerate financial freedom. The word retired itself can mean many things. Often I’ve said I don’t ever want to retire, if retirement means stepping away from the world or not being relevant, one of my favorite habits of mind, I think we should stay in the game, whatever the game is, our whole lives long, keep trying to add value to the lives of others. I think that’s the retirement you’re speaking to and George, you’re demonstrating that by taking the time to write in even though you’re retired and help us learn a little bit more about thought and history so thank you again, long retired Fool. If retirements simply means financial freedom, I want everyone to be retired. It’s not easy. We’re doing our best to help, but it’s the decisions and choices, often discipline that come from each of our listeners and members that will get you there far more than any other factor. Two more Mailbag items. Let’s go onto Mailbag item number 4, this one from my biggest fan Jam. Jam writing in about dividends. Hello David and the Rule Breaker Investing and family. I just finished listening to a fun episode of dividend investing, this is weeks back. Leave it to the Rule Breaker Investing podcast to break it’s own rule and talk about dividends. I love the dividends, Jam rights, who doesn’t? I have a portfolio dedicated to dividend paying stocks and REITs, real estate investment trusts. I really enjoyed the history of dividends and stock buybacks that Matt Argersinger provided. Also really appreciate the distinction between stock buybacks and dividend-paying companies.

Of course, this was the first Wednesday of the month of May. We kicked it all off with Dividend Fools Volume 2, with Buck Hartzell and Matt Argersinger. The episode, Jam goes on, is full of coincidences. Coincidentally, the property REITe EPR, that Matt referenced was the first stock I did some research on and picked on my own. I’ve held this company since 2015, enjoyed somewhat consistent monthly dividends. The company did withhold their dividend, paying for a period of time during the pandemic, but eventually resumed their regular monthly dividends, so my hand was up in the air, Jam says, when Matt said, anybody raise your hand, no one’s ever heard of this company. I have to say, Jam went on, I’m very surprised Matt didn’t know what EPR stood for. That’s the snarky question I asked Matt on the podcast. What does that actually stand for? Jam says, after looking at its website today, I now understand why. If memory serves, back then EPR stood for entertainment property REIT. I have a feeling they’re trying to rebrand though, because now on their website, nowadays they call themselves The Diversified Experiential REIT. I went to their website, EPR and sure enough, I think it’s got a trademark next to it, it’s The Diversified Experiential REIT. That’s maybe why Matt was saying experimental as his guess, at the time. Let me pause for a sec there, you know, experiential REIT, what is indicated, what is meant by the choice of that word experiential? Our hotels, amusement parks, hospitality experiences, businesses that operate in and around giving humans, consumers experiences, onsite experiences. For those like me who are scratching their head at what the heck a diversified experiential REIT might be, TM, that’s what we’re talking about. Jam goes on to close, I looked into Burke’s recommendation of Brookfield Infrastructure, BIPC and I have a question about that. According to Schwab, the price to earnings ratio of BIPC is 2,840.

This number is really high if we use traditional math. Could you speak a bit about that? I’m quite certain that must be using some different calculation. Could it be that P/E ratio doesn’t really apply to this type of company’s valuation? I’ve had the same question for another read a commercial one. I don’t really know the answer. All-in-all, I loved the episode. I hope we won’t have to wait another four years for Dividend Fools Volume 3. Well, thank you again for reading in [inaudible]. It was fun to talk dividends, I think without looking deeply into Brookfield Infrastructure myself, often companies that have staggeringly high P/E ratios of triple or quadruple digits usually have faced a point in their history where they are investing a lot of their earnings or cash flow into growth, and so all of a sudden, what was a steady standard amount of income, declines drastically. This can also happen for cyclical companies, and so all of a sudden, if a company used to have regular annual earnings of 80 cents per share and all of a sudden they just had two cents in that off-year, cyclically or were they were reinvesting, all of a sudden that P/E ratio will look sky high. The stock is not going to lose 40 times in value just because its earnings went from 80 cents to two cents. There’s a lot more going on with company valuations and balance sheets than just whatever the latest quarterly or annual earnings figure was. But it can throw those price-to-earnings ratios off and so it’s worth paying attention. I guess I would just say one of the habits of mind we can develop as investors is not being single-factor investors. Where you’re just looking at a single number. I know you’re not [inaudible] because you’re looking at the price-to-earnings ratio of Cummings with dividend yields, which is another way of valuing stocks. In the end, we should be looking at the top line and the bottom line and lots of other factors as we think about what Stock we want to buy next, whether it’s a Rule Breaker’s stock or a Dividend Fool stock.

They deserve us using that second habit of mind from Deborah Myers, viewpoint. How might this look if you look at different numbers or a different view of a company? This is an investing podcast a lot of the time, and even though Deborah Myers comes from the world of education and those five habits of mind are what she thinks our schools should be teaching our kids, I love taking frameworks like that and applying them directly to our topic, stock market investing. I think, in this case, viewpoint, is a really helpful one to have. Thanks for writing in [inaudible]. Good on you. Onto our final Mailbag item for this May 2024 Mailbag from Steve Hostetter. Dear David, this is the fourth year I have written you. For reference, you read a letter I wrote in your February 2021 Mailbag titled, “Tinker Tailor, Soldier, Sailor” and I’ve been drafting an annual lessons learned portfolio update ever since, Steve writes. Now for longtime listeners you might remember that Tinker Tailor Soldier, Sailor podcast, and if you do, one of the characters I introduced on that Mailbag was a firefighter and that’s exactly who Steve Hostetter was and is, although he’s now, like I like my Fools, he’s now retired. Steve goes on in this month’s note, this year, I don’t have any share-worthy lessons regarding my investment decisions, but I read some books that have had a profound impact on the way I think and should I hope improve my investment decision-making process. The books are as follows. Here comes a short reading list.

I’m familiar with a few of these. Steve, in part, I’m delighted to share this near the end of this May podcast because I’m thinking about authors in August 2024 and who I might want to have on to talk about their book two months from now. But almost anytime we share reading lists on this podcast or through the Motley Fool, a lot of you appreciate this and because I respect Steve Hostetter, I think for any of you haven’t read these books, you’ll enjoy these as much as Steve has. Here’s his shortlist. Thinking, Fast and Slow by Daniel Kahneman. Everybody Lies by Seth Stephens-Davidowitz. Thinking in Bets by Annie Duke. Mistakes Were Made (But Not by Me) by Carol Tavris and Elliot Aronson, and Fooled by Randomness by Nassim Taleb. “I’m a 61-year-old retiree,” Steve writes, “and near the top of the long list of things I love to do with my time, is read.” This comes as a surprise to my parents, my brothers, sons, and me, as I wasn’t a big reader outside of school-required texts until I retired. But now I’m into it. There are so many interesting things to learn about. From the titles of the books just listed, it’s not too difficult to figure out that I’m interested in understanding how people think. How I think, and why I think what I think, and how I came to think it. As opposed to simply studying psychology as I did in my undergraduate days, the books I’ve listed have practically helped me to be more self-aware of my biases and recognize when I might be wrong about something. Each of these books articulates why this is so difficult from a unique perspective, but a common theme is that our biases are primarily subconscious, influencing what we believe and what we want to be true. This is often very different from what is factual.

Admitting we might be wrong is hard. Being intellectually honest is hard. Annie Duke states in her book, ‘Thinking in Bets’ that ‘Motivated reasoning and self-serving bias, are two habits of mind that are deeply rooted in how our brains work.’ We just aren’t wired to be objective. Sometimes our ego is the problem, but it’s our subconscious biases that are difficult to recognize. Changing our biased behaviors.” Steve goes on, “and being aware of other people’s biased behaviors requires us to be constantly conscious that they’re lurking about. But the benefits are worth it, in my opinion. It can give us an edge in life because we’ll be open to information that we normally wouldn’t be. This has the potential to make us smarter, wiser, more humble, and more empathetic. When we communicate with people in a way that lets them know we’re open to their ideas, it can only improve our relationships.”

Related to investing, being constantly and intensely aware of our biases is our only hope of ever controlling emotions like the Fear Of Missing Out, FOMO, in my opinion. We can’t be counter-intuitive if we don’t know what our intuitive looks like. Steve asserts intuitive going with one’s first instinct, and reaching decisions quickly based on automatic cognitive processes. I could go down the rabbit hole writing about all the things I’ve learned from these books, but I’ll leave it at that. They have already made me smarter and happier, and I think they’ll make me richer. I hope they can do the same for others on Team Rule Breaker. It’s possible, but I originally heard about one or more of these books from you or one of your guests. If so, I apologize for not giving credit where it’s due my best to you and all of the Rule Breakers tribe. Steve Hostetter, well Steve, thank you very much.

That was your reading list, I’ve not had those authors. We certainly had Nicholas Nassim Taleb, and probably each of those authors on podcasts or at member events over the years. I think the reason of your avid interest here is, and is it the theme for this whole mailbag? The habits of mind that we cultivate over the course of our lives affect everything that we do. It starts with our own perception, and often it’s what we’re telling ourselves in our head. Of course, she said that because she’s so this way or I think this will happen and then when it doesn’t, we sometimes forget that we were saying ahead of time, I think this will happen. There are lots of habits of mind that involve us tricking ourselves, highly ironic. It’s very helpful to gain self-awareness as you’re pointing out to have people point out to us through their books, through their talks, the biases often subconscious. The more that we can make the subconscious more a part of our conscious, I think the better off will be. It definitely works toward smarter. Pretty sure it works toward happier. Steve, you pointed to the benefits in our relationships of not being judgy. Of coming across authentically as someone who’s open-minded, who doesn’t think they have everything licked, who’s willing to take in new information, even if it goes against what we want to be true. These are powerful reasons that we can be smarter and happier, and as you mentioned, of course, richer too.

Fitting the Motley Fool’s purpose to make you smarter, happier, and richer. I appreciate you rocking that. As a final gift, and as we close out May of 2024 in this podcast, I want to share again from what Steve Hostetter shared three years ago as a firefighter in Tinker, Tailor, Soldier, Sailor. It was February 24 of 2021. You can go back and listen to it, but I just want to excerpt one paragraph from the transcript from what he shared as a final going-away gift for all of us in our habits of mind as we close out May of 2024. I quote you, Steve, my hope for your listeners and the people in my circle is that they become true capital-F Fools as soon as possible, and avoid the investing mistakes that I made for so many years. I’ve made many, but the three mistakes that have been most devastating to my net worth can be summed up easily and they are simple to avoid. They are as follows, number one, by several recommendations, when you start investing in just a company or two increases the probability of hit-and-miss returns. It will deteriorate your confidence, thus decreasing your interest and your commitment to investing.

Conversely, investing in several companies will increase the probability of high returns, and your confidence resulting in more investing and compounding into significant wealth. Here Steve is just pointing to the importance of diversification. One thing we’ve often said at the Motley Fool, don’t just buy your first stock, buy your first 15 stocks. In fact, it’s easier than ever before to do that today because yes, many brokerages do now have fractional shares where you can buy just parts of shares. You can take $100 these days and spread it into 15 different stocks if you like. That’s something that was completely impossible to do one generation ago. Anyway, back to Steve’s number two mistake to avoid. Number two, don’t sell without a Foolish capital-F well-thought-out reason. This mistake has cost me dearly. I have a handful of companies on my list that weren’t interesting for a while, so I sold a list that went on later to Multi-bag. I bought Tesla at 31, I sold it at 90. Need I say more? Fortunately, I also have a longer list of multi-bagging rule-breaking companies that I didn’t sell, and I plan on holding for a long time. Before we go to his investing mistake number three, most of you would probably be familiar with the language of multi-bagging. But what we mean, rocking Peter Lynch’s 10-bagger language, which is drawn from baseball, we’re talking about a stock that doubles in value we say is a two-bagger. A stock that goes up 10 times in value is a 10-bagger.

A multi-bagger is a stock that has made you multiple times your initial investment. That’s what Steve is speaking to. Finally, he says, number three, get started. If you’re listening to this podcast, and you aren’t a Motley Fool investor, just do it. Buy a subscription to Stock Advisor or Rule Breakers. Open a brokerage account. Fund it. Invest in 20 or so companies. Start with a small portion of your portfolio if necessary until you get comfortable. If I’d been a true Fool capital-F at the age of 40 instead of 50, I would be significantly more wealthy. If I got onboard even earlier than that, I can’t imagine what fortune I would’ve amassed by now. Please, however old you are, get started. The capital-F Foolish way now. In closing, I’d like to say, thank you for the Motley Fool service. It’s made investing about so much more than which stock ticker to buy. I love learning about new innovations, business, then bigger world that I knew was out there. It is most certainly made me and indirectly my family and friends smarter, happier, and richer, take care and fool on. Steve Hostetter.

Now, returning to the present day again, that written three years ago. Steve, it’s great to see you learning, learning, and then learning some more. I love that you send me an annual write-up. This fourth one, this fourth year included some of your favorite books. I know many people have heard a title or two that they’re going to read in the months and years ahead and benefit from you sharing out your wisdom. I really appreciate you sharing your investing mistakes as well. Cunningham reminds us, putting stuff that’s mistaken out there is much more likely to provoke others to act than things that are perfect. The more we admit our vulnerabilities in our mistakes, one thing we’ve always done at The Motley Fool is talk about all our bad investments. Something I’ve done a lot on this podcast, losing to win, one of my big themes. In evidence in your note this year and in your note years ago.

Well, from a month that featured Dividend Fools, and then some blast from the past points. What you’ve learned from me on my birthday week. Then last week, I fought the law and the law won. Well, I think this was a most worthy mailbag to conclude and deepen our thinking of the past weeks. That’s really in the end, what I want from our mailbags. It’s my opportunity to learn back from you whatever arose as you listened and learned and shared in this podcast. As I said a couple of weeks ago, I think I’ve learned more than anyone because I had the great privilege and fortune of hearing back from you what you taught me all the way through. That’s May, looking forward to June. Fool on.

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