9 Investing Lessons From “Breaking the Rules With David Gardner” Podcast

I recently listened to the “Breaking the Rules With David Gardner” podcast hosted by Trey Lockerbie of We Study Billionaires.

David Gardner is the co-founder of The Motley Fool, an organisation that I had the chance to be part of when it operated in Singapore from 2013 to 2019.

Here are some of my key takeaways from the interview with David Gardner.

Link to podcast on Apple Podcasts

(A huge thank you to The Investor’s Podcast for providing a transcript of the interview, which helped me in my note-taking.)

Six Attributes to Find a Rule-Breaking Company

David Gardner first touched on how he picks stocks.

He has six traits he looks out for in a rule-breaking company and they are listed below with Gardner’s explanations.

1. Be a top dog in an important emerging sector

“So the first attribute is probably the most important one, being a top dog and a first mover in an important emerging industry. So I love to find the companies that are the leaders, if you’re not the lead Husky, the view never changes. And so we’re always asking, who’s the leader? But not anywhere, not in big oil today or telecom, I love important emerging industries. That’s where most of the great stocks come from, the ones that make you money for 20-plus years.”

2. Have a sustainable competitive advantage

“Number two, we’re looking for a sustainable competitive advantage that takes many different forms. Examples would be, we’ve got Jeff Bezos, you’re down. So the founders, the human capital and companies. Certainly within the world of biotechnology, there’s patent protection for 20 years for your successful new drug, that’s an example of a competitive advantage. And others’ competitive advantages, if everybody else is inept and you’re not smartest guy in the room, kind of a thing.”

David Gardner went on to explain:

“Because truly, a sustainable competitive advantage means so much more to me than an attractive looking price to sales ratio. It’s so much deeper, it’s harder to earn, and it’s so much less ephemeral. It will stand the test of time in a time where people are memeing stocks up and down like silly, and it’s all so short term, and it’s not really going to create sustainable wealth for people playing short-term games.”

3. Have strong price appreciation

“Number three, strong past price appreciation. This one goes against a lot of people’s instincts, and even my own human instincts initially. We love stocks that have been amazing already.”

4. Have good management  

“Number four, we’re looking for good management and smart backing. It’s the people in the end, not the product, not the service, not the industry or the competitive set or whatever, it’s the people that are making the decisions.”

5. Have strong customer appeal

“Number five, we’re looking for companies with strong consumer appeal. I love to find the great brands. Turns out Starbucks, yeah, Apple, yeah. The great biggest brands of our time are also the greatest, biggest performing stocks if you really look at it over meaningful periods of time, and that is not luck, that’s a one-to-one. So the strength of creating a great brand, really a good thing to look for in your stocks.”

6. People saying stock’s overvalued

“And then number six, the final one, is we’re looking for companies that people think and call out as over valued. Again, that goes against our instinct, just like trait number three, which we talked about strong past price appreciation, we’re talking here about the stocks. A lot of those six attributes I just shared with you are about the company, not the stock, but number three, and number six are looking at the stock.”

In summary, if the company is a top dog and a first mover in an important emerging industry, has a sustainable competitive edge, and possesses strong past price appreciation, good management, smart backing, and strong consumer appeal, but people are saying that it’s crazy overvalued, it’s usually a great signal in David Gardner’s books.

He said the traits don’t work in isolation; they have to come together.

“Because the whole framework hangs together, if you just isolate one of those factors, like that last one you mentioned, it doesn’t work every time. There are things that are crazy over valued and that you wouldn’t want to buy, but when you’re seeing the full integration of the model and you’re saying, “Yes, yes, yes, yes, yes,” in those first five, and everybody’s saying it’s overvalued, that really does work.”

How David Gardner Discovers Stocks to Buy

David Gardner has never used a stock screener to look for stocks. His style is more inductive than deductive.

He went on to explain:

“So it’s grassroots, flip up a stone, look what’s underneath that stone. Oh, that’s interesting. And once you flip up enough stones, you start to get some pattern recognition about what’s working and what’s not, or what are the interesting companies or what’s not. So it’s just one stone after another that you’re flipping up because you’re learning, you talked about that earlier, you’re learning as you go. It’s so helpful always to be learning machines in this world. So you’re learning a lot, but I will say that it’s really important to me not to try to deduce or be the really smart guy, because it sounds so smart, Sherlock Holmes sounds so smart, but it’s not really a way to successfully invest, I don’t think.”

The Rule-Breaker Approach to Investing Doesn’t Work Every Time

There’s no perfect way of investing as we all know. The rule-breaker way of investing is no exception.

David Gardner said:

“It doesn’t work every time, by the way, and when it doesn’t work, you can lose dramatically. And we’re going to talk, I know, about losing dramatically and what that really means. … But for me, the math of it is so wildly in our favor when we can find companies that have these great attributes and everybody is not believing in, because what happens on the market is as is often said, “Great stocks climb a wall of worry.” And so if everybody thinks in 1997 that Amazon is crazy overvalued, is near bankruptcy, is never going to make it, then those people don’t own the stock.”

It’s in the holding through the ups-and-downs that fortunes are made and lessons are learnt. Gardner went on to say:

“Because Amazon went from three when I first bought it, to 95, and then in the wreckage of 2001/2, it went back to seven. That hurt a lot. We had a 30 bagger, and then it basically lost almost all of that, but we kept holding, and we kept holding all the way through. So I’ve held all the way through and it has been an incredible front seat lesson into what really works if you take the rule breaker approach. I also want to just hasten to add that there are many approaches to investing. The one I’m giving you, that I’ve shared in many ways for 20-plus years is just mine.”

Being a Rule-Breaker Investor Is Not Easy Psychologically

The rule-breaking investing way is never easy and it goes against human’s instincts.

And there will be losers.

David Gardner said he’s very comfortable losing. And the beauty of losing in investing is the most you can ever lose is 100%. This is unless investors are doing something really silly like using margins (which Gardner has never done).

He went on to say:

“And then also, I want people to know that it’s okay to stomach volatility and to realize that you’ll have some losers alongside these kinds of companies. But as you said earlier, when you have a stock like this [referring to Nvidia], it powers your portfolio to market beating returns on its own. So this is really what investing is. And to me, this is Rule Breaker Investing, and this is often not taught and certainly not practiced by most of the institutional traders today. And it’s just one approach, but I can’t think of a better one.”

On Selling Stocks

David Gardner explained when he sells stocks:

“I do sell. I don’t do it very often, I don’t think I’ve sold a stock that wasn’t bought out that I had to sell out for a few years now. And I’m just talking here about my own personal portfolio. I basically do in public what I do privately, which is, I just find great companies to buy and hold them. When do I sell? I sell when thesis is broken, I sell when I love the company still, but somebody else came around with something better. There’s a better mouse trap or a new approach, there’s disruption happening. I’m a big Clayton Christensen fan, The Innovator’s Dilemma and that thinking.”

On Knowing the “Sleep Number”

If we are able to sleep well at night, we have won more than half the battle in investing.

David Gardner said:

“And so taking that different angle, you have to be comfortable winning and losing, and you have to recognize, especially, that loss is overrated if you’re willing to show resilience and if you aren’t doing silly things. And I earlier mentioned not trading on margin, a lot of people are doing crazy stuff or they have everything in one stock. I’ve often talked about the importance of knowing your sleep number, which I define as the percentage of your portfolio that you would put in your biggest holding, that you would allow your biggest holding to occupy as a percent of your allocation and still be able to sleep at night.”

On the Topic of Optionality 

David Gardner is looking for a company with infinite possible futures.

He went on to explain:

“Andy Cross, our longtime chief investment officer at The Motley Fool and firstly, a great friend Tom and to me, Andy once said about me. He said, “You know, David, what I realized is Buffett is looking for companies with one future and you know what it’s going to be. It’s still going to be car insurance, five, 15 years later. It’s still going to be chocolates, it’s still going to be The Washington Post back in the day. He loves the certainty that this company is going to do its thing. And you are looking for companies with infinite possible futures as a directly different approach.”

Gardner used the example of the technology company Alphabet:

“And I was like, “You’re right, I am looking for companies that have lots of possible futures.” That means they have usually lots of irons in the fire, you think about Alphabet. It was initially Google, but these days, it’s Alphabet partly showing the optionality of one powerful business idea and what else it can lead to. But you see companies morph over time when they have possibilities. It takes two things primarily to have this kind of optionality, which is the word that we use, I use a lot for describing this. The first thing it takes is capital. You don’t have a lot of optionality even if you have a cool new app or a cool business idea, and you don’t have any money in the bank, you don’t have cash on the balance sheet or you’re beholden to lots of debt.”

He went on to say how the internet provides an excellent platform for optionality to happen:

“So the number one thing you really need to be optional and to have new possibilities is you have to be able to screw up a bunch because that’s what we do as innovators and humans, we screw up a bunch. You need to be able to spend the money through that, to get to the right idea or the next hill to take for your business. And so that’s the first thing you need. Of course, the second thing you need is you need an open-ended context. The internet is an incredible platform for optionality.”

What Is “Risk” in Investing?

Risk is not equal to the volatility of a stock as many would perceive it to be. Risk is about having a permanent loss of capital.

David Gardner said:

“I define risk as the chances that holding this instrument over a long period of time, you would suffer in the end a dramatic loss. That’s the risk that I try to avoid. If it’s just beta, like how much does the stock bump up and down, I don’t think that’s a very satisfying approach to risk. That’s like using batting average, going back to baseball, to evaluate who’s a really good valuable hitter in baseball. It’s intuitive, in some ways understandable, but how much does stock bounces around, is not really, to me, what risk is about.”

Gardner has a 25-point checklist for risk that he uses when picking stocks.

Every time the answer to a question is “Yes”, that’s good. But every time you say “No” to the question, that’s bad, and you add a point.

If there are 25 “No”s, that’s 25 points, giving the riskiest imaginable investment. Therefore, the higher the rating, higher the risk.

Here are some examples of what the 25-point checklist contains:

  • “Was the company profitable during the previous quarter and past 12 months?” 
  • “Does the company maintain a high standard of disclosure consistent with SEC guidelines in the US?”
  • “Would an intermediate level investor find the company’s financial statements and management ownership disclosures relatively easy to sift through and understand?” 
  • “Would potential new competitors face high economic technological or regulatory barriers to entry?” 

What is Conscious Capitalism?

David Gardner touched on the important topic of conscious capitalism and why it’s important as an investor.

He said:

“For me, it’s just a better way to practice capitalism. Capitalism is much maligned and there are all kinds of examples of excess and failure and greed that have been part of the American story. And the worldwide story of capitalism run a mock in years past. And Enron, which was a stock that I had in one of my portfolios at one point would be a good example of poster child a lot of us can relate to, but there are many examples of failed humans who are running businesses or failed enterprises. And that’s not what we’re talking about when we talk about conscious capitalism, because most of those failed enterprises were either really short-term oriented, which tragically Enron really was, just trying to look great for a little while.”

Gardner went on to explain:

“And the ones that really get that and do that well, I would say the conscious capitalism enterprises out there, the employees know that and feel that. It’s authentic, it’s not green washed or pasted on by a CEO or a private equity firm that bought the company. It’s why it was started, it’s why you started your business, Trey, out of a vision of making the world better, a product or service, a guy who had a light bulb and the guts to start something.”

As investors, we have to consider whether the company is making the world a better place to live in.

Because at the end of the day, we would want to invest in companies that take care of the world.  

As David Gardner famously says:

“Make your portfolio reflect your best vision for our future.”

Why You Shouldn’t Fret Market Volatility

Market volatility is a common occurrence when it comes to investing.

Over the past 10 years, the S&P 500 index has seen drawdowns of between 5% to 10% almost every year. Some years way more, like in 2020.

But during those drawdowns are where opportunities lie.

Because over the long term, the stock market has gone on to march up higher, despite all the headwinds.

And those short-term drawdowns seem like a non-event if you zoom waaaay out.

So, as long-term investors, we should embrace market volatility instead of fearing it.

Staying Connected Despite the Distractions

Today, I just decided to take the morning time off to spend time with myself. So after sending my son to school, I went to the nearby park to take a walk and decided to meditate using the Calm app.

I found a bench, played today’s Daily Calm – Bubbles, closed my eyes, and started meditating.

View from where I was seated

It was my first meditating in a public space so it’s a totally brand new experience for me.

Upon closing my eyes and meditating, I realised there were lots of distractions, especially with fellow parkgoers doing their morning jogs and walks.

My mind wandered every now and then.

I also thought to myself — “What would the park goers think I was doing?”

But each time the mind wandered, I told the mind the come back to the moment and concentrate on my breath.

Soon thereafter, the meditation ended and I felt refreshed after that.

From this experience, I realised that even with the eyes open as I go about my daily life, my mind gets distracted. So it’s no different with closing my eyes and hearing the world go by in the park.

I felt more in control of my mind after the meditation exercise.

Lessons From the COVID-19 Stock Market Crash One Year On


Exactly a year ago, on 23 March 2020, the S&P 500 index bottomed at 2,237 points.

Since then, the US-centric index has risen 76% to 3,941.

Looking back, here are three main lessons investors can take away from the stock market crash and the subsequent recovery.

1. Timing the Market Is Futile

I still remember during the depths of the crash that investors were talking about waiting to enter the market since the pandemic was still raging and the world economy was in shambles.

While it sounds logical to just wait out and invest when things are better, it’s not so clear-cut.

We can never know for sure when the recovery will happen.

And when recovery takes place, it can be swift. That’s what exactly happened last year, taking many investors by surprise.

What we can learn from this is that market timing is a fool’s errand.

Various studies have shown that being out of the market and missing the best market days can significantly reduce long-term returns.

For instance, a research by Morningstar shows that for a 20-year period from 1996 to 2016, the S&P 500 index averaged an annual return of around 8%.

A $10,000 initial investment would have given around $44,000 at the end of 2016.

However, if an investor had missed out on just the 10 best days of the 20 years, the average return would have halved to about $22,000.

What investors should do is to continually invest through the market falls. As Warren Buffett once said, “If you wait for the robins, spring will be over.”

2. Volatility Is Normal

“The stock market is the story of cycles and of the human behaviour that is responsible for overreactions in both directions.”

Seth Klarman

Since closing at a then-record high of 3,386 points on 19 February 2020, the S&P 500 index plummeted 34% through to 23 March.

It sounds scary, but we should understand that stocks are inherently volatile.

From 1950 to 2019, the average drawdown of the S&P 500 was 13%, with the maximum drawdown at close to 50%.

Source: First Trust

The next time such volatility happens again, we have an understanding that it’s not unusual and is part and parcel of investing.

3. Always Have the Long-Term In Mind

Time and again, the stock market has shown that it recovers after a crash.

Over the past 69 years, from 1950 to 2019, despite all the market crashes and volatility, the S&P 500 has gone up and to the right (as seen from the chart earlier).

During the time frame, the index produced a return of around 7.8% per annum. Including dividends, it has increased by some 11% annually.

What this shows is that when it comes to investing, we should always focus on the long-term and use short-term volatility to our advantage.

Fiverr (FVRR) Q4 2020 Earnings Call Notes

Fiverr (FVRR) posted strong 2020 results. Summary below:

Fiverr 2020 financial highlights
Source: Fiverr Q4 2020 shareholder letter

Here are some outstanding points mentioned during Fiverr’s latest earnings call that would be useful for an investor (points made over the same topic are grouped together with a “/”):

  • Looking back, we have now delivered 7 straight quarters of accelerating revenue growth since Fiverr went public in June 2019. This speaks to the resilience of our business model, the consistent execution of our team as well as the tremendous opportunity in the freelancing space we operate in.
  • Revenue retention from buyers across all of our mature cohorts from 2018 and earlier increased significantly in 2020 as compared to 2019. They contributed more than just consistent streams of revenue, as they have done previously. Instead, spend level from these cohorts increased, on average, 15% in 2020 compared to 2019.
  • In 2020, we saw more buyers from these existing cohorts coming back to Fiverr, ordering more frequently and purchasing more expensive Gigs as their needs to strengthen their online presence intensified during the pandemic.
  • The 2019 cohort also showed strong revenue retention of over 70%, higher than a typical cohort from Year 1 to Year 2.
  • A study by Qualtrics shows that the impact of COVID-19 has driven small and medium businesses to increase their freelance hiring budget by 56%, and Fiverr was able to capture a meaningful share of that spend.
  • Looking ahead, the impact of COVID-19 should drive a long-term and sustainable tailwind for our business that lasts far beyond the pandemic itself. Businesses of all sizes across all industries are undergoing a paradigm shift as they adopt remote work and optimize workforce distribution.
  • 2021 got off to an excellent start. We saw record level of traffic and buyer registration in January as the strong momentum of 2020 continued into the new year.
  • We hope you had a chance to see our first Super Bowl commercial a few weeks ago. The ad was viewed by nearly 100 million people on game day and has received extensive media coverage and continues to draw strong engagement on social media. We are extremely excited to bring the Fiverr brand to the forefront of the global stage, and we will continue investing in our brand throughout the rest of this year. / So on the Super Bowl, I think that as a company that said that we’re trying to build a household brand, the Super Bowl is a very important event. It’s definitely a “we have arrived” event in terms of brand marketing. (“According to a 2018 study published in Marketing Science, “the benefits from Super Bowl ads persist well into the year with increased sales during other sporting events.” – from https://medium.com/better-marketing/are-super-bowl-ads-worth-it-5841e4620e4f)
  • The strong momentum that we’ve seen so far and the continued strength of our cohorts gives us the confidence to provide strong full year 2021 guidance amid continued uncertainty of COVID-19.
  • We believe that the accelerated adoption of digital transformation and remote work will allow us to exit the pandemic stronger than before, and this is reflected in our 2021 revenue growth rate guidance of 46% to 50%, compared to our pre-pandemic 2019 revenue growth rate of 42%.
  • I’m also extremely excited about our road map ahead of us. We have many new initiatives, new products and new opportunities heading into the new year.
  • For the first time in the history of Fiverr, we expect to surpass $2 billion in freelance earnings delivered to our seller community. It is a great and fulfilling achievement for all of us at Fiverr. It is what continues to motivate us and drive us to do more, build better products and create more opportunities for our community.
  • Regarding our priorities for 2021, we are focused on continuing to execute on our strategic initiatives, that is, going upmarket, international expansion, and building more value-added products and services, as well as continuing to invest in our brand and marketing.
  • You can expect us to continue to expand our upmarket coverage on both demand and supply fronts.
  • On the demand front, we will focus on Fiverr Business and our integration with WordPress, continuing to roll out milestones and our subscription features. / Going upmarket continues to be a top priority across Fiverr, and Fiverr Business continues to evolve with additional product features and marketing investments. / We do think that the potential of shifting some of our more established, larger types of customers to Fiverr Business is still untapped. There’s a lot of potential there.
  • And on the supply front, we will focus on the continued improvement of our catalog infrastructure and the expansion of top creative talents through the acquisition of Working Not Working.
  • International expansion is another key priority for 2021. We will focus on deepening the penetration in existing markets by providing local buyers and sellers with a more culturally integrated experience, catalog and content. / We are also deepening our efforts around international expansion, with an expanding product team as well as a new linguist team to bring our local offerings to the next level.
  • And last but not least, Promoted Gigs continued to grow and expand nicely, and we will continue to grow additional value-added services for our sellers on the marketplace. / Lastly, Promoted Gigs are progressing really well. While still very small in terms of revenue contribution, it is growing at a strong pace. We are also exploring opportunities for additional advertising products on our marketplace. / Then in terms of Promoted Gigs, we actually just opened Promoted Gigs for more than 500 categories today. So up until recently, it was open to a certain number of categories. I think it was 60 categories until recently. Then we expanded the exposure into the entire set of categories. Yet to be said, it’s only on the first 4 rows. So that there is a lot of expansion ahead.
  • We are incubating additional projects to unlock the synergies with the acquisitions we made with SLT Consulting and Working Not Working. Leveraging Fiverr’s technology, we have the vision to build a platform that will allow Fiverr to be an indispensable resource for the marketing teams of large companies.
  • Our marketplace also continues to enjoy a healthy take rate of 27.1%, reflecting the excellent value we create on our platform and our ability to monetize our products and services. / We expect our take rate to continue to be strong and steady, with potential for modest upside as we continue to grow value-added services on the platform. / So the plan, our expectation to increase take rates modestly over time is based on the road map of product releases that we believe are chargeable and will contribute additional line of revenue. So behind that assumption, there is a full stack of products that we plan to launch over time, both on the buyer and the seller side, that we’ll be able to monetize against and create or increase take rate, modestly, as said.
  • With the significant growth of the scale of our marketplace, we achieved a key milestone of reaching positive adjusted EBITDA on a full year basis. The significant revenue growth in the past year, together with the continued efficiency in sales and marketing and discipline in operating expenses, is what enabled us to reach this important milestone 2 years ahead of our expectations.
  • We will continue to prioritize growth, and at the same time, we expect to make continued progress towards our long-term target model.
  • As Micha mentioned, we are very encouraged by the strong trends we see so far this year, both in terms of new buyer acquisition as well as strong cohort behavior for our existing cohorts. Our cohort behavior gives us excellent visibility into 2021 and speaks to the underlying strength of our model.
  • As we lap the COVID-19 impact in the second quarter, we expect both active buyers and spend per buyer to become more normalized.
  • The resilience and visibility of our business model forms a strong foundation that allows us to aggressively invest in many longer-term initiatives.
  • We always guide based on what we know. We do not factor wishful thinking or a new business model that we don’t feel comfortable and have enough data to support guidance. Having said that, new features or recently initiated features are not included in the guidance. We base guidance based on cohort behavior over the long term.
  • We also feel that the new cohort that we were able to acquire into 2021 is stronger in terms of spend, in terms of frequency and ASPs. So this all goes into the guidance of 2021.
  • And lastly, the organic channel performed very well, as well. So all in all, I think that we feel that there will be some normalization in terms of growth as we lap for COVID-19. But yet to be said, the growth rate is anticipated to be higher than pre-COVID.
  • Again, if you look at — the efficiency of our marketing has been improving over quarters, despite the fact that we’ve been investing more in marketing every quarter. And we don’t plan to stop. As long as we see the opportunity, as long as the unit economy justify continued investment, we will continue to invest more.

Donation Appeal to Bridge of Life School That Provides Free Education in Cambodia

Bridge of Life School is a not-for-profit organisation providing free educational and community-based programming at rural sites in the Cambodian countryside.

I came to know about Bridge of Life School when my wife and I were in Siem Reap and went on a tour to the Kompong Khleang floating village.

More details on the tour can be found below:

What we saw during the tour was a true eye-opener.

The houses in the village were built on stilts and there were no proper living conditions for the people. It was a sharp contrast to the high-quality of life we have in Singapore.

Below are some photos of how the place looks like:

The profits from the tour are channelled towards Bridge of Life School, which in turn helps the people of Kompong Khleang floating village. 

As you may have already guessed, the Covid-19 pandemic has really hit the tourism industry in Cambodia, which Bridge of Life relies on to sustain its programmes. For instance, Angkor Archaeological Park, which houses the world-famous Temple of Angkor Wat, saw its April 2020 revenue drop a massive 99.5%.

Furthermore, 2,865 tourism businesses in the country have been suspended or closed, affecting 46,369 employees. A report by the ADB estimates that Cambodia will suffer a US$850 million loss in its tourism sector. 

Unfortunately, Siem Reap does not have a diverse economy — it is almost wholly tourism driven — and it has affected everyone in unexpected ways. Its residents, therefore, bear the brunt of the Covid-19 hurt. 

Tour participation at Kompong Khleang Floating Village Tours declined 68% in March and 100% in April. The management doesn’t expect that there will be a recovery in the near-term. 

As a result, it is experiencing a critical funding shortfall that is impacting the lives of so many vulnerable staff and their families. 

Here is an official emergency appeal for financial support from Bridge of Life School.

If you would like to donate to Bridge of Life School amid this trying situation, you can donate via the link below:

Donate to Bridge of Life 

Thank you for your attention and your kind donation. Any amount will help towards sustaining the humanitarian efforts in Kompong Khleang.