Another great month in the books! On this episode of Rule Breaker Investing: Mailbag, we hear a lot of love for Coach Reich, we get a little more airtime with our VC side swami Ollen, and we round it off with some stories that remind us of what is truly important in life.
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This video was recorded on July 27, 2021.
David Gardner: It started with three reviews of past five stock samplers, Five Stocks For America, Five Stocks That Pass The Snap Test. Five Stocks — four years later — Celebrating the 2018 World Cup. Spoiler alert, all three of those samplers are beating the market with those 15 stocks together, averaging beating the market by more than 30%, so eat your hearts out, Bogleheads. Well, from stocks we went to the National Football League. In week two, we learned from Frank Reich, one of the great coaches in sports today, who generously and also Foolishly shared his amazing life story and lessons, including the three key moments that make him the foolish investor he is today. Then from stock-picking and life lessons, we transitioned in week three to venture capital investing and I had my pal, Ollen Douglass, to demystify VC investing for you and convey even more lessons that will help out all of my fellow Rule Breakers. Now here we are, it’s the final week of July, and therefore, it is your mailbag. Based on the feedback this month, it seems to be in particular, you’d like to get even smarter about venture capital investing in particular. Let’s do it. Only on this week’s Rule Breaker investing.
Welcome back to Rule Breaker Investing, a delight to have you with me this week. Thank you for making some extra time. I feel like we took up a lot of your time this particular month because two of my longest podcasts in Rule Breaker Investing history occurred this month. In fact, they were the previous two podcasts. I was enjoying Frank Reich so much that I just kept going and let it run long and I hope it didn’t feel long to you. Sure, sure, it didn’t feel long to me and of course, my longtime producer, Rick Engdahl, he is the one with the hatchet. So if he feels like it’s too long, stuff starts to disappear and I think Rick left almost all of that in. It’s a delight to learn so much from Frank Reich. I’ll be sharing some of the feedback I got with you very shortly. But then last week we also went long, an hour-and-a-half on venture capital investing. As it turns out, we couldn’t possibly cover all of the corners or angles that we’d want to. I got a bunch of questions back. Ollen Douglass is going to rejoin me this week and we’re going to answer some of your really thoughtful questions about this form of investing. That will be a big part of this week’s mailbag.
Now, before I get started with some hot takes from Twitter, I want to mention a few things I do from time to time. How to write something to get you on the mailbag. Although actually, I’m going to be looking at the other side of the coin and just reminding some of my longtime listeners a few of the what I would call ground rules around the mailbag. I received and these are always flattering a number of applications. I would describe this as people who would like a job at either The Motley Fool or The Motley Fool Foundation. These are lovely notes and very flattering, but I’m not going to share that probably on the mailbag and those are better addressed to our hiring department. You can go to careers.fool.com to see any of our openings. Often, there is a great story that’s being told along with that application. That kind of sounds like it could be a mailbag, but really that is much better directed to our hiring team here at The Motley Fool. Another example of notes that don’t make it onto the mailbag, amazing, but too long notes and you may know who you are at this week, Bradley Larson, that was an amazing note, but it’s just too long for me to share within this format. Yes, I love hearing your stories, whoever you are, your investing stories, your business and life stories, how you connect with The Motley Fool, those will always be of enduring interest, not just to me I think, but to many people listening. But if it takes four or five pages to write out, chances are it’s not going to make the mailbag. It hurts, because a lot of effort was put into such a long note. Yet, along with Mark Twain, sometimes you have to spend extra time to make it shorter, and that is advisable if you want to appear on the mailbag.
Then, one more example of something that’s just not going to quite make the mailbag. We’ve got a great note in the past month from somebody who is giving a big gift to his high school. The high school he graduated from decades ago, and it’s in order to start as an investment club. But the request was basically how he should structure that to make it work best for his high school. Now, that is a really lovely question, but that’s not something that really fits on the mailbag here. Especially if you’re designing something on your own or it’s part of your wills and estates, probably that doesn’t quite fit the Rule Breaker Investing mailbag. Again, I appreciate all the notes and I read them all, but I can’t feature so many of them. The ones I do feature usually fit more with some form of storytelling or questions of broad interest, where a lot of people are listening, will be sitting on the edge of their seats wondering what the answer is to that question. You all know this. It takes you to make this mailbag happen. I want to thank each of you for more than 35 pages of notes this past month, always making my job hard to figure out what we should feature on the Rule Breaker Investing mailbag.
Let’s go to some hot takes from Twitter. A lot of these reacting in particular to Frank Reich. I want to read several of these. Jay Shah, you said, “I listened to every single Rule Breaker Investing podcast by @DavidGFool, but this one, in particular, is so good. I’m a huge fan of Frank Reich from his time with the Eagles. This podcast will teach you not only about good investing but also about good life lessons.” Jammy@Jammy_ […] with a three, that’s leet speak well done, Jammy. “What may seem a great spontaneity comes from discipline and practice. Great new perspective many more life lessons learned this week from the Rule Breaker Investing podcasts. Thank you Frank, and thank you David and Rick for another great episode. ” Jason Moore, “This is one of my favorite episodes of the year. The level of accomplishment Coach Reich has achieved across so many platforms is incredible. Mix that in with a modest upbringing and a humble attitude toward success, well, every corner of this podcast has a new lesson to learn, and that’s just how it felt to me as well.” Thank you, Jason.
Finally, savior of humanity, Adam Nelson writes in, “Punning, smarter, happier, Reich with a smiley. Great interview, thoroughly enjoyed it.” Adam says, “I will be drafting Carson Wentz in my fantasy football league, betting on good management to help him reach new heights.” Thanks again. Well, thank you, Adam, and thank you all for the outpouring of support and interest that came from our interview with Frank Reich. Now that wasn’t all that Twitter was full up, we did get a number of nice notes about my friend Ollen Douglass’ appearance last week. One representative one from Neeraj Kapoor @Cricket99238 on Twitter @DavidGFool. “Absolutely amazing episodes on the insights into the workings of venture capitalists greatly enjoyed the anecdotes and wisdom shared on the podcast. Thanks for putting this little gem together.” Well, I couldn’t have put that little gem together if I didn’t have the head of Motley Fool Ventures as my sidekick and actually not my sidekick really the swami at whose feet we were all sitting. Speaking of swami, why not have Ollen Douglass back again? Because Ollen, I got a lot of great reactions and some more questions and some really good questions, a motley variety. I thought you and I should kick it around some of this week.
Ollen Douglass: Very good, David, I’m very happy to be back. Can I be your side swami?
Gardner: That I’m pretty sure side swami, that sounds great to me Ollen. In fact, I’m thinking maybe that phrase hasn’t been used very much in all of history. Why not? I just Googled side swami and the top hit is for Albert Einstein and it says Albert Einstein, this is from an Amazon book, His Human Side, colon swami, and then it goes on from there. So side swami, yes, those words occurred together but they weren’t even intended to be together. They are an Albert Einstein book title. All right, Ollen, welcome back. In fact, I have queued up the first four Rule Breaker Investing mailbag items for you this week sir, so you’re going to do some extra work. I bet you weren’t planning on this when we spent 90 minutes last week talking about all of this. You probably thought you said enough.
Douglass: No, this is going to be fun David, I’m looking forward to the questions.
Gardner: I am as well and thank you, Ollen. The first one comes from Eugene Inc. He is writing in from Singapore multiple mail bag appearances for Eugene, really nice note Eugene, let’s go through it here. Hi David. Hello again, I am Eugene Inc from Singapore, and it was truly insightful and refreshing to have Ollen Douglass on your latest RBI podcast to talk about venture capital. In addition to being a longtime Fool and a big fan of you, the Rule Breaker Investing podcast, which I listen to every week without fail, and The Motley Fool, I recently started angel and early stage investing in private start-ups as well over the last year. Got a couple of questions for Ollen. If you’d be willing to invite him back in less than seven years of course. Making a joke about what we said last week. Thank you, Eugene. Ollen, you’re back seven days later.
Douglass: David, we crushed it.
Gardner: He has three questions. Let’s take them one at a time, Ollen. Here is the first one. What were the reasons and considerations for Motley Fool Ventures choosing and specializing in Series A? Eugene wonders why not earlier? Why not like seed investing or pre-seed, or why not later stages like bigger money VC near IPO. Let me pause it there, he’s got a little bit more there, but what was your reasoning for Series A, Ollen?
Douglass: David, our first stop by just for those listeners who aren’t engrossed in venture capital, all those letters or seed in Series A, are basically the stages of a company and they tend to signify, even though the numbers may move around, they tend to signify a certain stage of development for a company, and that blends right into its answer. We picked Series A because that’s usually the point where companies and start-ups are tending to be ready to really professionalize their operations. They need to increase their staff. They need to care about things like accounting and finance and some of the operational infrastructure that you really need to grow a successful business. For us, and this is something that everyone should think about, we decided that this was where we thought we could add the most value as an investor. As someone who has been a CFO for a long time, it’s easy for me to help start-ups with some of those basic kinds of finance issues that they run into when they’re starting their company. We chose this stage because No. 1, it aligned with where we think our expertise is and where we can get the maximum value from the help that we can provide. But also, tactically speaking, the Series A is a little bit of a tricky investing period because you have the person with a great idea, they’ve created a product, they’re ready. They’ve sold it to a few people and now they need to go outside of their friends and family, outside of their network. They need a professional sales team, they need this infrastructure and being operators is what type of VC that we are. We saw that gap and where some people shy away from it, we thought that we could come in there and fill that gap really nicely.
Gardner: That makes a lot of sense Ollen, and I’ll tell you, we’ve heard people use this phrase before I know, it’s about to get real. That’s like how I think about seed round funding. But when you’re Series A, it’s now real. Is that fair Ollen?
Douglass: That is very fair.
Gardner: It’s now real.
Douglass: It’s now real and sometimes we can help companies get ready for that free […] a little bit early, but yes, investors are going to come in, they’re going to want to see your deal run. You’re no longer having coffee with someone and you have a conversation and they want to invest. Now, you’ve got to go and see the investment committee and you have to have your pitch book and pitch deck.
Gardner: One more numbers question for you here Ollen, and I know this is all a little bit relative, so we’re not going to hold you to this, but if I’m an entrepreneur listening right now, dreaming that one day, I might make Series A and have Motley Fool Ventures invest alongside me, and we’re going to dream about that with you dear listener as well. But if that’s me, what is the typical revenue level at the top line that I’m probably going to need to be hitting at a minimum to expect Series A interest.
Douglass: It used to be for a while there that $1 million in annualized revenue is the minimum and now, actually there have been the one to three range is what people are looking at. I tell you, what’s funny is we’re been accounted for. I never knew there were so many definitions of revenue until I ran into venture capital. I have never felt older, I feel like I’m running around kids. That’s not revenue, get off of my revenue. That’s not revenue.
Gardner: Can you give me an example? You don’t have to name names here, but I am still naive enough to think that revenue is revenue, that would be you sold me something in your lemonade stand. I paid you $3 for a cup, you took three bucks in revenues. What are other forms of revenue?
Douglass: First of all, let me say David, I love lemonade, so this is a very exciting question, but let’s say someone, an entrepreneur, sells $30 of lemonade in one weekend.
Douglass: That’s very nice, yes, it’s great, very refreshing. They may then say that they have annualized revenue of $1,500.
Gardner: Every weekend in their minds, they’re going to sell $30 of lemonade.
Douglass: Winter, spring, summer, fall. Yeah, they may do that, or they may have someone who tells them that they are going to come and buy lemonade this weekend and next weekend, and so, “Hey, I have $60 of revenue because someone promised me they are coming next weekend.”
Gardner: Right. So big time accounts receivable being counted on the top line as if it’s just locked down. Ironclad cash money.
Douglass: Yes, exactly.
Douglass: All right.
Douglass: Back to the original question. When you think about the Series A, people are looking for you to have annualized recurring revenue, which is basically your last quarter times four, that number is somewhere between at least in median, sometimes that maybe even 3 million and they are expecting you to be growing close to 100% a year, if not more, and that’s the floor.
Gardner: Yeah. That’s really great to be reminded of so that anybody listening right now who’s hoping to get to that stage understands really where they need to be to garner serious looks from Series A funds. Well, thank you for that, Ollen. Now, Eugene has the second question of his three. The second one is for individual angel investors, for example, like himself or I’m sure many others who are listening. What are your thoughts around investing via syndicates or just direct in the start-ups? I take Eugene to be asking basically, should I operate as a lone wolf here, and just invest directly? Or should I be pulling my money with other so-called angels and be a syndicate? Thoughts?
Douglass: There are lots of angel groups where people come together to look at investments and then invest together. I think that like individual public company investing, sometimes it’s better, especially if you’re starting to do it together. To share learnings, to get exposure to accelerate your learnings. The camaraderie to increase your deal flow. Because the more people that are out there seeing deals, the more they can come together. The other thing that people do not think about that is a pro for a syndicate is that the amount of money you invest matters. After you take your $30 from the limited standing and you try to do that in a company, you’re not going to get as much attention as you would if you and ten of your limited friends make a limited syndicate and come in with $300.
Douglass: Then you can get a cookie with limited.
Gardner: Actually, I’m glad you mentioned that because that does in fact connect with Eugene’s final question which is about deal flow. A phrase you just used. In layman’s terms, we’re just talking about how many different companies a potential angel investor or venture capital fund gets to come across, how many deals do they get looked at and presumably more flow is better, especially anything more than a drip. I can imagine sometimes the flow could be too much or too high and you have to start dialing your filters in a little bit. But the question Eugene asked basically is, because it’s different from public market investing. Because the only investments you can make are the deals that you see. Any tips on building up deal flow for the venture capitalists out there?
Douglass: Great, great question, David. Eugene is actually worse than you said. Because you have to find a deal first of all, you have to decide that you’d like it as you said, and then you have to be invited in to invest. Then, depending on how you then negotiate the terms of it, because there are no posted prices and there’s a kind of an ask sometimes, then once you go through all that you invest. There are quite a few steps that make it difficult in deal flow is the idea of going out and meeting founders and investors. That you may potentially like so that you can have a chance to talk to them about the likelihood of investing in their company at that infrequent time that they invest, which is only once or twice a year.
Gardner: Is that ever different from the public markets? Because I never have to ask Google [Alphabet] or The Trade Desk or Lululemon for permission to buy its stock. I don’t have to ask my broker, could I buy that, but it’s totally different for this form of investing.
Douglass: I guess I would say that Tim Cook never came to you and said, hey David, I’m just wondering, how come you don’t call me anymore? Like, why did you sell my stock?
Gardner: There’s a human dynamic here that’s completely missing from the public markets.
Douglass: Yeah. It’s very much a relationship business, but getting attached to the network, being in a syndicate or an angel never helps, but just attending venture capital ecosystems events especially at the earlier stages, just to see depreciate, as you say, when you have ideas and products. There are opportunities for individuals who are not known in the industry, say to find great entrepreneurs that they want to back.
Gardner: Well, thank you for that, Ollen. It does strike me that your reputation in being a good person, being somebody who has a reputation for helping out the entrepreneurs that you’re investing in, these kinds of things stand up and count for a lot more, I would assume, in that world than we’re used to as just mom-and-pop individual investors in public market companies.
Douglass: The next question, why in the world are you doing this, Ollen?
Gardner: That’s definitely not. But let me thank Eugene for his questions. He concludes thank you once again David for being the mentor that I’ve had for the past seven years. But you never knew for teaching me weekly about life and investing every week sharing your wisdom and humor endlessly with a solo, that’s very kind of you. Eugene, you’re reminding me this is the seventh year of this podcast. That’s right. In July of 2021, we concluded our sixth full year, and here we are in the seventh year of the Rule Breaker Investing podcast. A delight to have you tuning in, Eugene.
Let’s move onto Rule Breaker mailbag item No. 2 this month. This one’s from Niraj Kapoor, whose tweet I earlier read out in praise of your appearance last week, and this was his question for you, Ollen. He said, “Hi, David. Greatly enjoyed the discussion with Ollen as I am,” says Niraj, “in the biotech industry. I was just wondering, how does the full venture capital fund value early stage biotechs and what kind of percent stake would you be comfortable taking in a new biotech with a revolutionary idea but no data?” Niraj says, “Look forward to your insights.” I think I know where this one is headed because I know a thing or two about Motley Fool Ventures. Ollen, what is your answer right off the top for Niraj here?
Douglass: Our preferred stake in biotechs is zero, largely because that whole industry seems insane to me. I tend to ball up in the corner and hide under a blanket and totally go away. That’s how I […] biotech investors.
Gardner: Well, I love the answer and it’s authentic. You said your preference is zero and I think in fact our de facto investment in biotech so far at Motley Fool Ventures is zero, Ollen, following right through with what you said. It is a reminder to me that we don’t all have to feel like we need to know something about everything. We truly can say that’s in, as Warren Buffett sometimes said “the too hard to figure out pile” or maybe that’s Charlie Munger. But there are whole aspects of the world of technology that can just be too hard to determine or we’re just not confident enough. It’s not in our wheelhouse, Ollen, I suppose if you’d come to us instead of coming from the industry of finance where you did come to us from. If you’d come from biotechnology, I’m sure we’d probably have a little bit more of a slant there. Is the Series A biotech investing at the same kinds of levels or does it need to be a bigger deal because they need to raise so much money to actually get FDA approval? How does that work?
Douglass: From what I know and obviously outside of my Senior Vice owner’s confidence but yes, there are Series A biotechs and sometimes they go public.
Douglass: It’s an entirely different world. What I would say to Nil Raj, for biotech investing in a little more seriousness, a lot of investing whether it’s Rule Breaker investing or investing in biotech, so value investing, it’s about finding your comfort level and understanding your expertise. Biotech investing from my understanding, tends to be very binary, so that would imply, without any knowledge of biotech at all, just understanding the numbers in math, if you’re investing into an area that has lots of binary outcomes, then you need to take more bits, so probably more frequent and smaller bits to spread your risk across multiple companies.
Gardner: That makes a lot of sense, Ollen, and it is an all or nothing thing. When you say binary it’s all or nothing. Because most companies that get a Series A, probably don’t end up hitting it big, I think it’s fair to say the majority won’t, that’s a lot of nothings and so you’re right, you have to take a volume approach and we’re just not going to do that with this fund.
Let’s move onto, I’d like this one from Karl Sven Nyca. “Hello David and all,” and this is Rule Breaker mailbag item No. 3, “I want to start by saying I am a […] in the wall Fool.” Well, glad to know that, Karl. Thank you, Karl with a K by the way, for those keeping score at home. “I’m not questioning the benefits of investing in the stock market. I’m in for the long term. I do wonder, however, do either of you think the amount of venture capital available today limits opportunity for investors in public companies?” Karl gives some examples. Recent IPOs like Roblox or Unity, Airbnb, these are the types of companies Karl says that, “Rule Breaker investing would have scored 100-baggers on, except they came public at valuations in the 10s and even sometimes near $100 billion ranges. It seems to me an opportunity to buy world changing businesses like Amazon or Netflix at small market capitalizations. It’s not possible anymore for those of us who aren’t well-heeled enough to invest in seed rounds. Thanks for everything and Fool on.” Ollen, what’s your take?
Douglass: Karl, a great question and you are correct, companies are staying private longer. One of the things to keep in mind is that these great public companies weren’t necessarily great private companies. I think the most common story you hear from public company investors of these large fantastic companies is a story of when they could not give away shares of their company when they were small and they had to talk to 100 people before they could have someone to invest in, and the times when they would have taken money from anyone who would have listened to them. What it would point to is that the journey starts early. There are more and more opportunities for people to invest in private companies. When they’re early, you won’t know what’s going to be the next roadblocks. That’s part of the challenge.
Gardner: I bet you.
Douglass: But it is getting easier to invest in early stage companies than private. There’s some crowdfunding sites that have been around for a while. There is a group called Angeles, Wee. Motley Fool Ventures has invested in the company called Republic, which does equity crowdfunding, and there are other options out there. But more and more opportunities are opening up for people to invest in private companies early.
Gardner: Well, I appreciate that answer, Ollen, and I agree with it. There are more opportunities than ever before. I want to point out to Karl and really all of us, that while it is true and somewhat to my frustration, that great companies these days, I’m maybe going to say The Motley Fool is an example, stay private indefinitely in some cases or for very long periods of time, and it means that we as Rule Breaker investors don’t get a shot. On owning Airbnb, when we first rented on Airbnb and thought, this is a great idea, I wondered if I could buy the stock. Those opportunities in many cases, have been taken away by the venture capital industry in a way that I don’t really like it much for. But I would also like to point this out, that the almost unbounded size of the market caps that these companies can still grow into is still inspiring to me. For example, with Airbnb, I think that could be a trillion-dollar company one day, that would be more than a 10-bagger from where it came public. Just because the numbers are bigger, as companies often come public these days, don’t forget the numbers get even bigger than that as we go forward.
I remember a time when people thought there could never be a company with a trillion-dollar market cap, then Apple did it first, then Apple became a $2 trillion market cap just a few years after that. I think it’s worth remembering that all of this is relative and you can definitely still get in early. But to close on this one, Ollen, Karl’s right, you do need to be an accredited investor or a little bit better heeled often to get into these kinds of deals. Although pointing out Republic, and some other examples, I feel like that’s also in the process of being democratized.
So we’ll continue watching and hoping for all of us. Well, let’s go to the final one. This one comes from Amit Somani. Amit is writing from Bangalore, India. He is the managing partner of Prime Venture Partners, and here is Rule Breaker mailbag item No. 4. “Hi, David. I’m a practicing early stage venture capitalist myself, and we’re now investing in our third fund. I’ve also been a public market investor and a big fan of the Rule Breaker philosophy for longer than I’ve been at VC,” writes Amit. “I found the podcast with Ollen quite interesting since I often reflect on this myself. I have found myself applying lessons learned from public market investing to private markets and vice versa. I wanted to share a few examples.” Ollen, I’ll just read these out and then pick your favorite or anything you like here and give us some wisdom. Here are some of Amit’s examples. “When one is investing at the seed or Series A stage, you develop a lot of intuition for evaluating the founding teams and of the total addressable market. Both come in quite handy when evaluating public market investments as well. Again, looking that founding team in the eye, even if it’s through your internet camera, and the total addressable market,” which is something we probably haven’t talked that much about in these two weeks we’ve shared together Ollen. On the other hand, Amit says, “Portfolio construction in public markets can easily inform your private market start-up investing. Three of my favorite tenets,” that would be me, David, of Rule Breaker Investing, which are, he lists, “Letting your winners run high and add up, don’t double down, and aim for a 60% win rate. Aim for it anyway, apply,” says Amit, “As is to VC portfolio construction. A few dominant winners define most venture capital fund returns. This is a rich topic. I hope you can explore this more in future podcasts.” Here we are doing it right here in this one. Amit concludes with this lovely line, Ollen. He says, “I wish one or more of your venture portfolio companies someday become a Rule Breaker Motley Fool recommendation.” Well, thank you again, Amit Somani, for writing in. Ollen, thoughts back?
Douglass: First of all, that final thought is an awesome one and I’d love to come back to that. It’s a dream of mine, too, Amit. You mentioned a lot of things there. One of the things I will talk about is we talk about the addressable market for people. What I tell people sometimes is, I’m really trying to simplify venture capital for myself to make sure that I can understand. It’s ultimately about three things, people, the business model and the market opportunity. So people, business, and market, different VCs will weigh them differently. I’ve found it largely along, what their areas of expertise are and their experiences. Yes, that’s one of the things that we have translated from the Motley Fool philosophy, is we do focus on people. We want to bag great entrepreneurs trying to do great things. We don’t necessarily measure people in the same ways that others do. We know what school you went to but we don’t really care, it’s probably so we can talk sports.
Douglass: But what we found is that we just want to invest in people who can demonstrate a history of doing great things, a history of accomplishments.
Gardner: Yeah, and I don’t want to put words into your mouth in this one, Ollen, but I think you put it to me, something like this a while back. You said, I’m going to make this phrase up, let’s call it your Saturday afternoon call. It’s the Saturday afternoon test. Your phone rings, these days, we could look at our smartphone and see who’s calling, and you want to feel like you’re excited and happy and looking forward to talking to that young person that we’ve invested in because you truly enjoy them and you’re looking forward to that Saturday afternoon call with them versus, Ollen, failing the Saturday afternoon test where you are dreading, maybe you’re sending that London voice mail. But Ollen, Saturday afternoon test, did I get that somewhat right?
Douglass: No, you got it exactly right, David. The conclusion of that test is that if you’re looking at potentially investing in a company and you’re dreading picking up the phone, then how about not investing […]. I will tell you, David, I’ve had investors that we did not invest in that I’d love to continue to talk to. There have been some companies, and were founders, where I feel like I will pay to not have to talk to them again.
Gardner: Wow. So if we did not invest in you and you’re listening to us right now, it doesn’t mean we didn’t think you were a great guy or girl.
Gardner: We probably did, but there are a lot of other considerations, but I love the Saturday afternoon test, Ollen. It’s a great reminder to really where we should be putting our money, and we’re putting behind the people more than anything else, probably at Series A. Although to Amit’s point, certainly, the total addressable market that business opportunity you’ve been speaking of, Ollen, is important as well. Well, I want to let you go, I want to thank you for four great answers to four great mailbag items. You did want to say something at the end, Ollen, about the idea of one day, might the Motley Fool fund at Series A company that ends up going public. I mean, we would obviously disclose this, and if we ended up making it a Motley Fool Rule Breaker service recommendation to alpha and omega complete the loop, that would be pretty awesome. Thoughts?
Douglass: I think that that would be great, David. In fact, what’s in Motley Fool Ventures, we have a portfolio company, this is all public information, of course, called Affectiva that was bought by a Swedish public company called Smart Eye. Affectiva is in the emotion AI space, which is very cutting edge, helping our computers and machines work nicely with human beings. Smart Eye is developing the technology, along with their own, and is using it in autonomous vehicles and even driver-led vehicles to manage what’s happening inside the car. I have no insider knowledge about Smart Eye’s activities, but I would love for them to one day be on the New York Stock Exchange. The venture fund continues to hold shares in that company, and it has the makings of a Rule Breaker.
Gardner: You’ve mentioned it is a public company. Did you say it’s in Sweden?
Douglass: It’s a Swedish public company. It is S-E-Y-E.
Gardner: All right. Well, I don’t pick stocks for Motley Fool Rule Breakers anymore, so I don’t know whether they will go to Sweden for any pick, but that’s pretty cool. Yeah, I can imagine if your smartphone is propped up on the dashboard of your car and starts noticing that you’re going to sleep, it could be awfully helpful in that regard because I’m sure that happens a fair amount out there, sadly, every day on the roadways, so I can see how Affectiva was of interest to Smart Eye. Thank you very much for sharing that as well. Ollen, in conclusion, you’ve been very generous with your time, Ollen. I’m curious, did you get any notes from your parents on Rule Breaker Investing last week?
Douglass: David, I’m glad that you asked that. There was a question that I wished I would have been asked, but I didn’t, so now, I’m going to ask myself.
Gardner: Let’s do it. I’ve done that on this podcast before. That’s fine.
Douglass: Here’s a question from Ollen to Ollen. “Hey, Ollen, can you tell us a David Gardner story?”
Douglass: Absolutely. I would love to tell you the —
Gardner: All right. Keep it short then. Keep it short.
Douglass: I’ll keep it short. So I won’t tell the story about David Gardner going hunting in Oxfords and a buttoned-down shirt, which is a […] story. This is a story I will tell. How old is Rule Breakers, David?
Gardner: Motley Fool Rule Breakers as an investment service started in October of 2004. Our book, Rule Breakers, Rule Makers was 1998. The Rule Breaker portfolio back in the days on AOL, we really started that and rebranded it somewhere around 1996 or so. Rule Breaking has been going on for 20+.
Douglass: Right. That’s an important part of the story. Around 2005, 2006, I remember being in a board meeting, and we were talking about the Rule Breaker service, and whether we could really do one, and though we had done it […] of it, and I remember at the time looking around the room and thinking, for all of us, including myself, Rule Breaker Investing is almost indistinguishable from magic. We could see the results, but no one really understood how you did it, David. What I have seen over the years is how you have taken what you do in Rule Breaking, which is special and unique, and turned it from a mystery into an art in part size, and you’ve created a franchise. You’ve taught so many people how to do it. You’ve explained your thought process, you put structure around it. You’ve gotten to the point where now, there’s a whole podcast, a whole universe of people who subscribe to Rule Breaking, not as something that they worship of you, but something that they can practice themselves. I consider myself one of those, and I just wanted to thank you for all the time and effort and energy that you’ve put into creating this great style of investing, and just making it available to everyone.
Gardner: Well, thank you, Ollen. I will say that this podcast has been a great vehicle for that. I do feel as if I was writing about it back in 1998 in a book published by Simon and Schuster. It’s not that it was ever that obscure, I don’t think, but I think something about being here every week and doing that for years and years, and answering questions and putting forward five-stock samples, I think it made it more real for maybe more people. It’s my delight to share it. I think if the whole world were Rule Breakers, it would be a better world. I’m delighted, Ollen, to count you among our number. I know that thinking is a lot of time infused, not just in you, but the other members of the team with whom we’ve worked over the years at Motley Fool Ventures, so it’s very kind, and I appreciate you saying that.
Douglass: Great, David. I think as you think about that history, as we all know, it’s to show someone is, one thing to teach them is another level altogether, and I think that’s part of the transition, writing a book and actually teaching someone to do it without you is a whole different level of understanding.
Gardner: Thank you very much. Well, Ollen, I say we call each other then, side swamis.
Douglass: Side swami.
Gardner: Thank you, side swami.
Douglass: All righty, side swami. Be easy.
Gardner: Let’s go to a story, Rule Breaker mailbag item No. 5. Thank you for these lovely notes, Sue Evers. Sue writes, “To Dave and Tom. I currently live in San Francisco and I am 58 years old. I’m sending you both a heartfelt thank you for making it impossible for me to retire well off at 65. If it weren’t for you guys, this would never have happened. I grew up homeless as a child until I was 14 years old, when I left the car. It was me and my brother and just my mother. Unfortunately, she had a gambling addiction and most of our Social Security check money was gone soon after receiving it, which would leave us hard up for the entire month. Mom would be left to shoplift and steal gas to get us through to the next month. I never remember much of an education or even being in school or graduating from high school, but yet I enrolled in a city college at the age of 22. I ended up going to the City College of San Francisco and studying photography. I would spend long hours in the dark room on the weekends listening to NPR, and that’s when I would listen to you, Motley Fools, in the 1990s. I believe the show was on Sundays around one o’clock, but I can’t be positive about that. I listened to you both talk about Vanguard and index funds and about investing in what you know and love and maxing out a Roth. I supported myself through college, working as a bartender and at 27 started to invest in the Vanguard 500 index fund, and any extra money I put into VTSAX.” Just check that. Yeah, that’s the ticker symbol for the Vanguard total market index fund, which owns even more than just the 500 in the S&P 500. It owns, “the whole market,” the Vanguard total market index fund.
Sue continues, “Photography ended up becoming a pretty great career for me. I loved what I did. I’m now a caregiver as well as an artist. I never really paid attention to my money’s growth until recently. I never touched it and just kept adding to it. No matter what. As long as the market doesn’t do anything crazy, recently, I realized I will retire at 65, a millionaire. I remember listening to you guys and fully trusting these two crazy brothers coming through my radio, and I’m so glad I did. I love you both, and I’m glad you two have each other and have also done so well. You were both a part of my morning gratitude meditation. Why aren’t you guys teaching more courses on investing in junior and high school? Peace out, Sue Evers.”
Well, Sue first of all, I wanted to share that note because it’s just a reminder of what a motley world we live in. We’re all from different walks of life. Even if you grew up in the same zip code to somebody, you might look completely different from them, or at least act or think completely different from them. One of the true joys I take in doing this podcast every week, but especially the mailbags, is being able to share a story like yours, which for me is just beautiful. It’s inspirational to think about the odds that were against you from the earliest days in your life and your childhood, which must have been so difficult, so much more difficult than mine and I’m sure most of those who are listening to me, and to think that you made the best of it. I’ve often used this analogy because hey, I’m a gamer. Each of us has dealt a hand of cards and they are all different. Some of them are easy to play and some of them are hard. But the goal is to play the hand of cards you’re dealt the best you possibly can and Sue Evers it seems to me you have done just that.
To answer your question, The Motley Fool has made inroads at different points into trying to get this material into classrooms. One thing we did is we wrote a book called The Motley Fool Investing Guide for Teens, which has a lot of five-star reviews on Amazon. It’s a little outdated these days, probably in need of a new edition, but I hope it still reads helpfully and somewhat freshly for teens of today. We have found it hard to figure out how to crack the school system. There are lots of different districts, lots of different states. In the end, I think we’ve relied on teachers, and that’s not just formal professional teachers. Sometimes it’s an aunt or an uncle, or somebody who takes the time at a church group, somebody who takes the time to spread the word of long-term investing, the benefits of being a Fool. I can’t say we’ve figured it out Sue, but through The Motley Fool Foundation as well, I think we have better and better odds of reaching more and more people. I’m going to say these last three mailbags I got, including yours, mentioned parents. I want to say something about your mother. I’m sure she was in such a difficult position, and boy, gambling addiction on top of things really makes life incredibly difficult. But I hope that you have learned to appreciate what she did for you, trying to help you survive, even though she made so many mistakes along the way.
Anyway, parents are a little bit the theme of the latter portion of this month’s mailbag and Sue, you just kicked it off with Rule Breaker mailbag item No. 5. Thank you for sharing your story. There are two more mailbag items this week, No. 6 and No. 7. Again, parents are the theme for the latter half of this podcast. This is a hard one to read, but it’s a beautiful note as well, and it’s from a friend of mine. His name is Eric Eason. Eric has volunteered and helped out around The Motley Fool, he’s done some contracting with us. I once had him on a previous version of this podcast, before the Rule Breaker Investing podcasts launched in July of 2015. I did something called the Supernova Podcast back when The Motley Fool had a service that I headed up called Motley Fool Supernova. I used to do a podcast for just those members, joined by my friend and sidekick, Max Keeler of Investor Island fame. I enjoyed doing that podcast, although it was for a much smaller group of people, just the members of that service. I’m delighted that Rule Breaker Investing today is free and can reach everybody.
But back when I did that podcast, I had Eric on because he has a professional career in astrophysics, some flavor anyway of astronomy. Eric, I can’t exactly remember your professional calling, but I remember this. You and I had a great conversation about our mutual high confidence that not only are human beings on planet Earth, not only probably not the only censored species in the universe, but Eric, you and I talked back and forth with each other. The odds are that the universe is teeming with life in a way we couldn’t possibly even comprehend. If you think about just one galaxy alone, the Milky Way has somewhere between 100 billion and 400 billion stars. So our sun is one of the 100 billion at least stars in the Milky Way and a bunch of those have planets revolving around them as well. Then the Milky Way is just one of approximately 100 billion galaxies that we have identified thus far. Yeah, the odds that there’s a heck of a lot of life out there in my mind, extremely high.
Anyway, let’s leave deep outer space for now and get right back to your note, which is a really hard note to read, Eric, and a beautiful note and I’m going to share it because I think it’s going to make all of us better. You’ve entitled this note, “Great expectations are a cruel mistress. Hi, David. I know I’m mixing metaphors with my letter’s title, but the month of May was momentous to me and my family. For me, it began well with my second COVID vaccination, which enabled me to travel again, followed shortly by my 65th birthday, and the initiation of Medicare, which appears to work well enough. My brother John, his wife, and I soon travel to Montana to visit a friend of theirs to celebrate their joint birthdays, born two hours apart. As COVID restrictions were to be lifted at my parents’ retirement community, John and I also bought airfare to visit our folks in Austin, in early June. Then the foreshadowing began. The first was on my birthday when I listened to the Practicing Human podcast by Cory Muscara, in which he read the brief poem “Otherwise” by Jane Kenyon. It begins with the stanza and I quote, “I got out of bed on two strong legs, it could have been otherwise.” The poem continues with mundane moments in a typical day in which she realizes the profound gifts of what she has, for it could have been otherwise. I began doing so myself acknowledging each morning my health and the health and love of my family members still living. Next came you, speaking on your Rule Breakers podcast. You reiterated one of your quotes that happiness equals reality divided by expectations that has long resonated with me. I began to contemplate it anew and then came the extra podcast to your A Road Less Traveled in 10-and-a-Half Chapters, in which you encourage your listeners to lead a more interesting life. Since retiring,” Eric writes, “I have felt the same unease within me that I suspect you are increasingly feeling, that persistent question emerging from within asking how I now wish to bring meaning and fulfillment to my life going forward. The last foreshadowing arrived in the last week of May, as I watched Episode 8 of Disney’s show WandaVision.” Now, I suppose I have to insert a little bit of a spoiler here. If you are in the middle of WandaVision and haven’t reached Episode 8 or think one day you’d like to watch WandaVision, which is a very worthy Marvel show on the Disney+ Network, hit “Skip Forward” about 60 seconds in this podcast. Spoiler alert. Here we go. By the way, I should mention, I’m at about Episode 5 of WandaVision. This is a spoiler for me, but I’m OK with it. Here we go. “In a pointed scene in which Wanda is immersed, deeply in grief, her husband Vision so gently says to her, what is grief but love, persevering?”
That arrow found its mark. Eric writes, “In my soul, I immediately paused the show to absorb and feel.” What he just said. We have all felt it. We’re feeling in time, the grief of loss of a loved one. For me, it’s been grandparents, aunts, uncles, many friends, and my sister. Each day thereafter became imbued. Therefore, with these foreshadowings. First, I wake into good health and the good health of a loving family, it did not have to be so. Second, I strive to lower expectations to live a happier life. Third, I contemplate what it means to me to lead a more interesting life. Four, I recall past grief as love persevering. While three days later, I woke to good health and to a text message that my healthy, vibrant, joyful, loving mom was dying and was to die within half an hour. I was in shock, barely able to pack my bags as John and I took the next plane to Austin, upon our arrival after midnight, we found daddy in shock and heartbroken so much so that a week later we took him to the emergency room for what the doctors diagnosed as, ‘Heartbreak syndrome,’ that was affecting his heart. Everyone in their retirement community from friends, neighbors, and the staff were in shock as well as everyone expected her to outlive daddy and to easily live to 100. It was an expectation so implicit in our lives since daddy’s heart attack when he was 42 and bypass surgery at 54. That none of us was aware that our beliefs were nothing more than an expectation of my parents and their best friends so close that their aunt and uncle to me, they all understood that daddy would be the first to go. Well, he is now the last one.
Three things have made losing momma in this way so very difficult. The first is that we were not afforded the chance to say goodbye. With all that was going on in May, we hadn’t spoken with her in a couple of weeks. Then there is a heartbreak that after 18 months of pandemic and due separation, John and I were about 12 days from seeing her again. But the biggest contributor of all was the implicit expectation that since she was so healthy and vibrant, she would live to 100. Great expectations are a cruel mistress, David, as they are deeply ingrained to the point of being implicit in our world view and yet have nothing to do with reality. Happiness is indeed reality divided by expectations. But after experiencing the month of May 2021 and its aftermath, I would like to offer an addendum. In closing, joy is the grace we bring to the outcome. Your friend, Eric Eason.” When I say your friend, I think he was writing that to me, but I think he’s describing that to you as well, dear listener, because we’re all friends here, we learn from each other. That is an absolutely heartbreaking note to read. So much of me sees life as a glass half-full. I think that’s well documented and I bet a lot of you who are listening to me feel the same way. Yet, it doesn’t mean that every outcome is as we would wish it to be.
I really appreciate Eric’s point about how sometimes implicitly in our minds we make such assumptions about reality that they become real for us. We couldn’t imagine those assumptions not playing out. Yet when they don’t, especially in an intimate context, that can be absolutely heartbreaking. In addition to Eric’s beautiful line at the end, joy is the grace, we bring to the outcome maybe conclude this. Let’s you and I take nothing for granted.
Well, Rule Breaker mailbag item No. 7 is coming up continuing our parents’ theme. But before I close to that, I do want to mention quickly that next month is Authors in August. Next week we’re going to be covering the book Positive Intelligence by Shirzad Chamine. Can’t wait to have Shirzad back for a return of periods. We’ll be talking about his book. If you’ve not already read Positive Intelligence, you don’t have to read it by next week, but I highly suggest you start it. I think you’re going to benefit from it as I have. Week two of August, by the way, features another book that I think you will love and benefit from and why would I not tell you about it now, so you can get started. It’s called Do More Great Work by Michael Bungay Stanier. Rule Breaker Mailbag item No. 7, continuing the theme of parents and making sure we appreciate them. Maybe this is on my mind today because my dad turned a new birthday this month and my mother’s mother did, and they’re both in their mid-80s. That’s probably why this is on my mind more so than usual and yet these are the notes that showed up in the mailbag. I think that they’re so worthy and I love the somatic thrust that they have to them. Let’s go to Miguel Garza to close out this week’s Rule Breaker Investing podcast. You’ll see why this one follows in a lovely way from Eric Eason’s story that I just shared with you. “Hi David, my dad passed away in February 2020, just before the pandemic. He was a firm believer of investing in the stock market for better and extraordinary returns. Well, I’m currently a Fool, Motley Fool Stock Advisor. I found The Motley Fool after my dad passed away. The Rule Breaker Investing podcast, the Fool philosophy, reminds me so much of my dad that I quickly became interested and started to follow your principles. I have also had the fortune of having my dad teach me about stocks since I was a teenager as well. We both went to Wharton business school for our MBA. Even though we have good knowledge about finance, the philosophy of saving, investing and most importantly, waiting is not something that is learned in business school. Thank you so much for what you do. I will leave you a small PowerPoint about how the Mexican stock market has also been doing great over the long term. Or as my father calls it, ‘the million-dollar secret.’ Hope you have time to go over it all the best, Miguel Garza.”
I’m so happy to hear what your dad did for you and like you, I also had a parent in this case, my dad who coaches kids about the stock market and that coaching went on, as I said, to dad on the phone once again this week for his birthday, that his coaching is why The Motley Fool exists today. No Paul Gardner, no Motley Fool. Tom and I have always known and appreciated that and perhaps we can never really thank our parents enough. We heard a little while ago, the parent who stole for her children. It is just truly desperate and sad, yet at the heart of it, we can see something of love, love and survival. Your dad, Miguel, who raised you to learn what you couldn’t have learned in business school, how to invest Foolishly. His spirit is implicit in many ways for you in this podcast. I hope I will continue to deliver for you. Thank you for writing in. I’m sure you spoke of some interest among listeners in the long-term performance of the Mexican stock market. By the way, but more than anything, along with Eric Eason and Sue Evers, you’re reminding us to make sure we appreciate it. Well, this is this week’s eye-opener, fellow Fools, to take care of these parents and to take nothing for granted.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
View more information: https://www.fool.com/investing/2021/08/17/july-mailbag-love-persevering/