"Rule Breaker Investing" Mailbag: Portfolio-Level Thinking

In this Rule Breaker Investing podcast, Motley Fool co-founder David Gardner highlights multigenerational money lessons and celebrates that it's never too late to start making smarter, happier, and richer choices.

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

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This video was recorded on Dec. 27, 2024.

David Gardner: Once you get to the end of things, it gives you a perspective you never could have had, because you needed to get to the end of the story in order to see what happened. Then to reflect more knowingly on what went before. That's what happens for me every year, right around this time. We made it to the end of another year, 2024. You can look back on it now. You saw all that happened, all the good, all the bad, all the fair to Midland. We now have the privilege of perspective, what you simply couldn't have had about 2024, 52 weeks ago. We can now all of us, see the whole thing. Zooming out one level, we can now engage in what I call Portfolio-Level Thinking. Here we are at the end of it all, 2024. This is the last Rule Breaker Investing Podcast of this year. Next week's episode appears as always Wednesday 4:00 PM. But next Wednesday is January 1st, 2025. Here's my question for you. What three lessons will you take away from 2024, personally, professionally, culturally? With whom will you share those three lessons? Here at the end of it, 2024, we will close things out as we do every month at this time. It's your Mailbag. Only on this week's Rule Breaker Investing.

Welcome back to Rule Breaker Investing and for those who celebrate Merry Christmas, Happy Hanukkah, happy Kwanzaa, I know I'm missing some others. It is a special time of the year for so many of us for a Motley number of reasons. Of course, religious celebrations often come to mind, but it's also the end of a year, and we're getting ready for the start of a new year. It is a momentous time. I was listening back to my Mailbag last year at this time, and I said, and I quote, "And maybe just maybe in 2024, the stock market will do as well as it did this year." Where it was a nice year of bounce-back. The S&P 500 was up 20% plus. I said I'll take that every year last year and concluded by saying, "Hey, I think the market's going up next year." Well, those who know my market timing challenge each year, where I make a prediction about where the market's headed for the year ahead will know that I get it right more often than not. Why? Because I say the same thing every year. I think the market's going up next year, which I do.

But I was certainly delighted to reflect back and think how strong the S&P 500 and really so many of our Rule Breaker stocks were in 2024, coming off of what was already a very good 2023, admittedly, coming off of what was a horrendously bad 2022. That was some payback in this bounce back. But as I record, this Mailbag, which is recorded on Monday, December 23rd, at this moment, the S&P 500 is up 23.7% for this year. It has been a phenomenal year for Rule Breaker investors, and I trust we'll have a happy new year. Looking back on the month that was, December 2024, we did three podcasts before this week.

The first was Games, Volume 6, where I brought you my annual Tabletop gift guide with 13 hand pick games ranging from light hearted party favorites like "That's Not a Hat" to immersive experiences like "Ticket to Ride Legacy." I'm always shooting for the right blend of accessibility and depth. I do hope and I do believe that Volume 6 a few weeks ago offered something for every gamer, while continuing a beloved, Foolish holiday tradition, well, beloved by me, at least the first week in December, every year, Games. Speaking of games, I'm excited to be welcoming game designer and game publisher Jamie Stegmeier of Stonemaier Games. Jamie will be joining me at some point early in the new year. We talked about how much fun it would be to do another podcast together. I had him on years ago to talk about how good he was at Kickstarter and how meaningful Kickstarter was becoming in many ways, but we were talking mainly about board games. Jamie has gone on to continue to be a fantastic entrepreneur in the board gaming space and a Fool fan, as well. I'm certainly a Stonemaier fan, so I'll be delighted to welcome Jamie Stegmeier to Rule Breaker Investing early in the new year.

Week 2 was, of course, The Besties of 2024. A heartfelt look back at the year through some of the I'd say, the most meaningful and memorable moments from this podcast, Rule Breaker Investing. We revisited conversations that sparked optimism. We celebrated the Foolish values of learning and growth. I even got to update my review of Palooza Ultima podcast, which I did earlier this year in 10.5 chapters. I got to update the performance numbers of all my five stock samplers, as well. The timely and the timeless all came together in that one. The stars were aligned. They were all back, and I had so much fun with The Besties. Then, of course, last week, speaking of fun, the Market Cap Game Show, December 2024 edition, a festive holiday mix of Foolish Fun and Friendly Competition. Emily Flippen delivering a dominant victory over Mac Greer.

But forget the 9:1 score. By the way, did you dear listener outscore Emily? Did anyone? What I'll primarily remember was the combination of sharp insights and lively banter. I had so much fun last week. I hope you did too. Emily, by the way, by winning, took the fourth and final seat of our final four for the coming March Market Cap Madness. All Market Cap Game Show all month long as we determine our next world champion, our final four, our fix now Andy Cross, the returning world champion. Then Bill Burke, Matt Argasinger, and Emily Flippen. I don't do a lot of betting. I don't recommend most people spend any money at all on sports betting, which is zero sum. You'll always lose over time if you put a lot of money down on sports betting. But if you're going to bet on one thing, one competition next year, it might be worth, I don't know, maybe a Las Vegas line on Andy's chances of repeating next year as world champion. It's all coming to you in the month of March. I'm already looking forward to it.

A few hot takes from social media for this month that was, we got three for you at this time. The first is from my friend Jum @Jummy_b3ar, bear spelled with the Number 3. Lit speak, Jum tweeted out, "Wow. What an honor to be a part of this amazing community. Great to hear updates from our good company." Jum was referring, of course, to our look back at the year that was through the Besties of 2024. One of my favorite parts of that episode a couple of weeks ago. It's a long episode every year. It's like the Oscars. It's a grand show, and it always goes over an hour. I dedicate the last 10 minutes or so to checking back with each of my 100th Mailbag Podcast guest stars, Jum being one of them, and that's what she's reacting to.

She also calls out Eric Devor for his theme music. Jum, you said, "@ericdavor, your theme music gave me chills. None of these can happen without you and @DavidGFool and the @RBIPodcast team, my producer Dez." Thank you, Jum. I really appreciate that. It was an honor to be part of that good company myself and to show it off in our Besties of 2024. Tweet Number 2, this one comes from @semverbeekNL. Sem, a long time Fool. I've had him on this podcast. He's the first professional tennis player I've ever had on this podcast telling his story as an athlete and as an investor. Sem, I appreciate you reflecting on last week's Market Cap Game Show with this tweet. Sem said, "Have been looking forward to these Market Cap Game Shows," he means every three months for four years now, "manifesting being a contestant one day." Market Cap Game Show, he said, "Analyst versus listener." I think Sem is suggesting that it might be fun to have somebody who's not a Motley Fool employee.

Last week we had somebody who wasn't a Motley Fool analyst for the first time, longtime radio producer for us, Mac Greer who I've known for 25 plus years, such a joy to work with, but Mac does not study stocks every day for a living. He does production stuff around the Fool. Sem is suggesting it might be fun to have somebody who's a listener compete in the Market Cap Game Show. I think Sem is self nominating. Now, Sem just won the Dutch National Championship as a doubles player just days ago, I think. First of all, congratulations to you @semverbeekNL. I think it might be fun to see if we can work it so that you're traveling to Alexandria, Virginia, where Fool HQ is the very same week, we record a Market Cap Game Show. If we can make this happen, I'm in on it on my side as well. Sem, let's manifest, perhaps our first ever analyst versus listener. Maybe we make that happen next year.

The final tweet, I'll mention is from my friend Jason Newman @JNew4. "Hard to imagine having more fun with numbers than this." He's referring to last week's Market Cap Game Show. "Best wishes @flippen_emily and @RBIPodcast, please, get more Mac Greer in our lives. That is all." Thank you for that, Jason. In fact, I tweeted out a picture of Emily, Mac, and me just minutes after we finished that podcast, blowing bubbles, celebrating Emily's impending marriage. She got married, went down to the courthouse just an hour or two later then the Market Cap Game Show last week. A special moment and a fun pick tweet it out.

By the way, you can follow me on Twitter X @DavidGFool. This podcast is @RBIPodcast. Enough for Twitter X. Let's move on to six Mailbag items for December of 2024. Rule Breaker Investing Mailbag Item Number 1. I just mentioned Jason Newman featured his tweet, also featured him as part of our very good company, one of my favorite longtime Fools. This is, I think, the first time we've ever gotten a Mailbag item written by a good friend's aunt. Phyllis Hoffman, thank you for this beautiful note. "Dear, David, I just finished listening to your latest podcast The Besties and was so pleasantly surprised to hear you read a letter from my wonderful nephew Jason Newman. As you know, Jason has been an avid Motley Fool fan for a long time, and I wanted to share some history. I don't recall all the details," Phyllis writes, "But I do recall the highlights and lessons learned. I began either listening to you or reading a newsletter or some such publication of the Motley Fool at least 25-30 years ago. I was quite impressed and excited to learn about financial issues, as I was then a youngish adult.

Sadly, I was not myself disciplined or wise in future planning, financial or otherwise. But I was smart enough to know that your book, The Motley Fools, You Have More Than You Think, would be a great college graduation gift, or perhaps it was a birthday present for my nephew, Jason. Jason being a wise one, did read your book and followed it wholeheartedly. What was the outcome of that? Jason is now my financial advisor. He's doing well, and I'm still working full time as a preschool special education teacher at the age of 73. I know that working is not bad, and teaching these children does keep me moving and often smiling. But I continue primarily because I did not save or invest for retirement.

Almost every financial move I made, few as they were was not a good one until I recently started talking about my finances with Jason. Though late in life to start, I'm finally investing the little I can each month, and I am out of debt. I have you and Jason to thank for that. I just recently started listening to your podcast Rule Breaker Investing, and I'm thoroughly enjoying it. You're such a good communicator and conversationalist. Your advice, perspectives, and insights are unique. Always welcome. Next up, for me, after listening to Games, I'll be buying a new game for my sister, Jason's mom and me to play. Thank you for this and what you've done for my family. Sincerely, Phyllis Hoffman." What a lovely note, Phyllis. Heartfelt, authentic.

What a good thing you did to make that gift as you did years ago. But I really want to highlight one part of your note and just think together about it briefly. You said, "Almost every financial move I made few as they were was not a good one until I recently started talking about my finances with Jason." It reminds me, Phyllis, that we are our choices. That includes the conversations we have and who we spend time with. I've often thought about what social creatures we are as human beings and that you would socialize with Jason, your finances and where you were is such a great sign for your future financially, that you reached out to the person that you had helped that you'd given a hand up to 30 years ago with the gift of a book. Boy, I'm so glad for all of our Motley Fool books, I'm so glad that they've reached people and helped over the years. One really fun thing now at the age of 58 is to be here 30 years later with you and see what seeds were planted and what's happened in the world as a consequence of our book, "You Have More Than You Think," as an example. But that you shared it with Jason reminds me of how best to succeed in life, and that includes our New Year's resolutions. You want to lose weight? I would say hang out with people who are losing weight. You want to see the bright side of life, surround yourself with people who radiate positivity and intelligence. You want to be better with money, spend time with people who save more than they spend as one example.

There's this phrase, dog eat dog world, which I've never liked, because by the way dogs don't eat dogs. Dogs by nature are social animals that exhibit pack behavior. Cooperation and social bonds are essential for survival. Dogs show aggression in disputes over territory or social rank or even food, but the idea of dogs eating each other misrepresents their natural behavior, and that same misrepresentation occurs in viewing life and business for those who do so thinking it's zero-sum. Stick with me just a bit further on this point because humans like dogs. We're such social animals. We thrive on cooperation, social hierarchy, and bonds.

Even than just business itself, people often say business is greedy or it's when at all costs. Business itself is much more cooperative than competitive. Many companies regularly cooperate with their competitors in order to deliver the products and services that they serve up. Companies are using an amazing amount of collaboration. It's very evident to anybody who works in business to get you that avocado on your dish at the restaurant. Hundreds of hands are usually involved. I just want to call out the benefit of having conversations with people about money. I love that you gave him that hand up 30 years ago, then you reached out and he's giving you a hand back up now, and I congratulate you on where you are. It's never too late to start investing. Small consistent actions can still make a big difference. To Jason's aunt, to Jason himself, but mainly to Phyllis Hoffman, I say, Fool on and game on. Love it.

Onto Mailbag item number 2. This one, two stock questions from Matt Cohen. Thanks for writing in Matt greetings. David, I have a couple of questions for this month's Mailbag edition. Number 1, how much of a mistake was your sell recommendation for Royal Caribbean Cruise Line, ticker symbol RCL in Motley Fool Stock Advisor, which you made on December 18 of 2008? That was Matt writes three months after the financial crisis really three months into, well, somewhat well into it at that point of the financial crisis.

Anyway, was that one of those instances where you couldn't see much beyond the dark clouds of the great recession, Matt writes? From what I can see, RCL's share price has 6x since you recommended it, that first day in Stock Advisor, September 21, 2007. Matt's pointing out, I sold it disconsolately a year later having lost quite a bit in that one year, and yet, had we just held from the original price, it would be up six times in value today? Yeah, let me just tackle your first question, Matt. Let's briefly review Royal Caribbean. It was at 40 in 2007, when I recommended it. By 2009, it had dropped below $5 a share. In 2020, so this is 11 years later. It was at 130 to start the year, the COVID year of 2020. Yeah, as everything shut down, including cruise lines, just in that year alone, Royal Caribbean went from 130-25 two months later. Fast forward to this year. It started this year at 120 and right now as we close the year, it's somewhere around 240. Those are simple round numbers because having picked up first at 40 in 2007, we can see with it around 240 today, it is up six times in value.

By the way, the S&P 500 over those same 17 years up four times in value. Royal Caribbean up six times in value, well beating the market. To answer your question, Matt, yes, I do regret my sell recommendation for Royal Caribbean Cruise line at the bottom of the financial Great Recession December 2008. It isn't the only sell decision mistake that I've made as an investor, ARM Holdings for longtime stock advisor members, they'll remember that one, as well, stock I sold, and then it went up seven times in value. I think the key takeaway here is, I try not to make this mistake too often. Part of the reason I can I think count on one hand the number of times I've done this in Stock Advisor is because I mainly hold, and it's only rare moments where I decide something is just not going to work out and I decide to sell it. I'm not a never-sell investor.

I don't think anybody should be a never-sell investor, but Matt and Fools everywhere, we're much more rewarded by holding onto things and while Royal Caribbean experienced incredible stress for its business, especially during 2020, we can see even the benefits of just holding out. Again, it started 2020 at 130. Today, it's 240. That includes COVID, which is a shocking system shock shutdown for an entire industry, actually for many industries, cruise lines involved. Again, we see the strength and resilience of great companies and also of the stock market and the S&P 500 and conscious capitalism in this country and worldwide. I think that's what I'd want to underline, Matt, is it worked out. I'm sorry to say I took Stock Advisor members' money out of it.

We didn't get to enjoy that unless somebody went back in, and if you did, good on you, because I think it is a company that's worth being invested in for a long period of time, certainly more than one really horrific GFC year. Your other question, Matt, is about a relatively new company. Matt writes, one of the stocks which has been recommended in Rule Breakers since I retired from stock picking is TransMedics, ticker symbol TMDX. What do you think about TransMedics? Have you ever considered taking a start-up position? The business is definitely seeking to solve a migraine-level problem. Matt writes in the field of organ donations. Well, thank you for asking about that. Well, I haven't studied TransMedics very closely at all. I'm lightly aware of where it is. Many people listening to us right now have probably never heard of the company, but Avid Rule Breaker investors will probably recognize Ticker symbol TMDX in this company, which, by the way, leads the cutting-edge organ preservation and transport space. In a world where organ donations mercifully and blessedly are made, companies, this company, anyway, is a leader in making it possible for you to store that organ that you've donated and then make sure it's transported safely and effectively to the hospital where it's going to be reimplanted in somebody else.

TransMedics is a leader, and it's obviously a good thing that I esteem for the world, and that's often where I start with investments. But I'm not going to fully analyze this one, Matt, because it wouldn't be fair. I haven't spent a lot of time with it. I will remind you, though, of the six traits of the Rule Breaker investor and maybe a sentence as to each just reminding you that that's how I look at the world. I look at stock market investing through the six traits.

The first one I've already spoken to top dog and first mover in an important emerging industry, and I would say TransMedics is certainly a top dog and first mover. A question might be, how important is this industry? What is the total addressable market? I'll leave that for others to answer, but that's an important question that I would ask. The second trait of Rule Breakers is that they have a sustainable advantage. This company does have a proprietary technology. It has FDA approvals around it. I think that's a defensible mode in a growing niche. I think that's a good sign for TransMedics. The third is strong past price appreciation. I'd have to say, while this stock has had quite a run-up in recent years, it isn't exhibiting strong past price appreciation right now. It has after a very tough fall, it has lost two thirds of its value in just the last few months, and I think that's probably in part why you're asking about this company, Matt. It is just a two billion dollar market cap at this point. That's a small cap company. Just pointing out, strong past price appreciation is something I like to see, and right now, I don't see it there. Number 4, good management and smart backing. I don't know much about founder and CEO Waleed Hassanein, but I think he does have deep medical expertise, and I would be focused very much on assessing what I thought of that individual and the team around him. I think that behind every great stock is a great company and behind every great company are great people. That is always my question for any company I'm looking at. Is this somebody that I have high esteem for that I think will lead a winning company and win on the stock market, as well? The last two traits are, of course, strong consumer appeal. Does it have raving fans.

Then the last one is, is it widely perceived as overvalued by the media or by people who like to say, that's a nosebleed valuation on that company. I want to see that. That's a good sign for Rule Breaker investing. Again, I'll leave it to you to think about those questions and answer them yourself. But in closing, that's how I continue to look at companies, even though I'm not spending as much time these days researching one company to the next. I use the exact same framework that I've used for 30 plus years that has helped me find so many great stocks and hold them over long periods of time. If you are a shareholder, I wish you the best. I think our Motley Fool Rule Breakers team does esteem this company, but I'm not active on the team, so I can't speak to that.

On to Rule Breaker Investing Mailbag item number 3. This one writing in from Germany, again, Andreas Ham, Andreas, great to hear from you. Hi, David. I listened to the November Mailbag and wanted to share thoughts on how "never rebalancing could leave gains on the table and test our ability to think exponentially. Andreas goes on, Let's have some fun with math. If stock A is a 100 bagger, how likely is it to become a 200 or 300 bagger in five years?" What you're essentially asking with that question, Andreas, is you're asking, how likely is that stock to double or triple in the next five years? I would say, most stocks are not likely to double or triple in a five year period. Although, obviously, we found some that do, and those are some of my favorite companies, you go on. Is it less likely than stock B becoming a 10 bagger over those same five years? Of course, since we're speaking in terms of stock A and stock B, we're not filling in any corporate names or ideas here, we're just talking mathematically. Andreas goes on, if so, if stock B were to become a 10 bagger, shouldn't I invest more in stock B? For example, if I sold half of my stock A and invested it in stock B and stock B became a 10 bagger, that's a compounded 500 bagger. Meanwhile, stock A might double or triple, giving a combined 600 to 650 bagger.

Andreas goes on continuing his math. Should I prioritize the odds of stock A doubling versus stock B becoming a 10 bagger? He concludes no company dominates forever. There are strategic misalignments, monopoly accusations, competition can dethrone leaders. It happened with Intel in CPUs. It could happen in NVIDIA, one day in GPUs. This is why we should neither fully avoid rebalancing nor always rebalance.

Instead, decisions should have context, balancing past performance with future opportunities. Mistakes happen by CEOs and investors alike, we should react to errors and act on opportunities. Doing nothing Andreas says doesn't feel Foolish to me. I hope this adds a negative value for the Fool community as we start 2025. Fool on. Andreas, well, first of all, Andreas, thank you for writing in, and I agree that always, by the way, words like always and never don't make for great outcomes. I'll talk about rebalancing a little bit later, but I'm not an always investor or a never investor. I think we should have our minds open. I can certainly see your point about how a huge winner with a huge market cap, because after all, when a company goes up 100 or more times in value, usually it's going to be a large CAP, at least, if not a mega-cap company. That company at that time, after that big of a run, could begin to offer less potential for future growth than, let's say, a promising mid-cap or small-cap stock. As an investor, I'm always looking not just at an individual company, but I'm doing what you're doing here in this note. I'm looking at my portfolio because we can use our Rule Breaker stock traits to find stocks, and we can use our habits as investors to do things like hold on to them. Let your winners run high, add up. Don't double down. Those habits that I talk about. But ultimately, when you use your habits and multiply them times your stocks, you end up with what? You end up with a portfolio.

This portfolio level thinking, I talked about that at the top of the show. It's appropriate at the end of the year to start looking back on the whole year. It's always appropriate also to look at your whole portfolio, and that's part of what you're doing here. At least for me, principle number 4 of my six Rule Breaker portfolio principles, principle number 4, where you establish your sleep number is going to be very instructive for how to manage a portfolio that has 100 bagger. Because what I'm saying with that one is very simply don't allow any stock to grow to such a large percentage of your portfolio that you're losing sleep at night.

Establishing your sleep number means what is the number that I would allow my largest holding to become as a percentage of my overall pie of my whole portfolio? How large would I let that slice become and still be able to sleep? I've used examples of this in the past. I'm not going to go too deep on it here, but let's just give a quick one. If that number were 10 for you, for example, you wouldn't want your portfolio to ever allow a single stock to be worth more than 10% of your portfolio, then if you have 100 bagger, assuredly, you will be selling that multiple times in a later Mailbag, this podcast. I'll speak to this a little bit more because it comes back up. But basically, we're probably selling portions of huge winners anyway if they're going to go up 100 or more times in value. Maybe you're donating the shares. It's a nice thing to do this time of year. People often think charitably as we near the end of the year. That's a great way to donate. Give shares of appreciated stock. I've leaned on that a lot over the years. While I appreciate the math that you're taking us through, I think that there are a bunch of contextual questions each of us has to ask looking uniquely at our unique portfolio.

That's why it's hard for me to speak prescriptively around something like this. As I close this one out, I want to remind all of us about the tax consequences of selling. If you do have a big winner, you're going to be paying a big tax bill. By leaving that money invested instead, at least in our country, you have 100% of your money instead of getting a 20% or so capital gains tax, which causes you to be reinvesting less money in that stock B in your example. If you really stick hard to the math, you have to think through the tax consequences. I also want to say that when you've let a company go up 100 times in value, you probably know it really well, probably a lot better stock A in your example than you would know stock B.

I do want to remind you that familiarity can be a real strength. You get to know companies much better when you're holding them, than when you're thinking about buying them at earlier stages. There's a measure of safety there. Also, when a company gets very large, it becomes safer. It has a larger balance sheet. It's recognized as very important to its economy when it's that big. I'm not going to say too big to fail because I don't like that phrase, but companies become highly relevant, like let's say Amazon.com is highly relevant. It's very, very important to our economy, both, I would say, domestically here in the US and globally in many cases, that Amazon becomes important in a way that a small cap stock B can't at that stage. There are just a lot of thoughts here. I want to close with this one, though, about rebalancing, because you mentioned that. I often talk against rebalancing in this context. Many investment advisors and much of the regulated mutual fund industry, when facing imbalance, do have to rebalance. That's the practice just automatically selling positions that have risen in order to reinvest the proceeds into those that have fallen. That enables various investment instruments to achieve their objective, to fulfill their charter. They have to remain well balanced across their holdings, which means on a periodic quarterly or annual basis, they are selling their winners and reinvesting the proceeds into their losers, what Peter Lynch famously called watering their weeds and cutting their flowers.

By the way, I think that's gotten to be somewhat of a tired analogy at this point. That's why I propose, I don't know, let's go with the horse racing analogy here, a new one. I think in investing, especially for Rule Breaker investors, we should be backing our thoroughbreds and retiring our also RN. That's how I think about proper portfolio management. I'm not a fan of selling off our winners to add to our losers. By the way, no wonder so many investment funds and advisors broadly underperform the market averages. They are regularly rebalancing.

Now, keep in mind, often they have to by law, they're required to maintain vast diversification, which means they have to sell off their winners and reinvest into their losers. But good news, Andreas, as an individual investor, you and I, we can manage our own portfolio. We don't have to genuflect at the altar of rebalance. Backing our thoroughbreds and retiring our also rands, letting our winners run, and as you say, also staying open to new opportunities, that's what we're all in search of. There are some thoughts and reflections. I don't have a firm answer either way because I don't think it's possible to give one. I love math, and I appreciate that math is often hard-edged. It's right or it's wrong. Green check mark, red X next to your math answer on your math test. But in this case, we're not talking about the actual math. We're talking about the context around our portfolios when we exhibit, here at the end of 2024, portfolio level thinking, and thank you for taking us there. Onto Rule Breaker Mailbag item number 4. This one from frequent contributor Lisa Wharton. Lisa, always a pleasure to hear from you.

She starts, dear Rule Breakers. I'm incredibly honored to be a Rule Breaker poet due to David having read my poems at least five or six times on this podcast. But I'm not just a Fool poet. I actually know a thing or two about investing. I've been a Motley Fool member since 2008, and since then, my portfolio has gained more than 2,000%. That means your portfolio Lisa portfolio level thinking is up some 20 times in value over the last 16 years. Thanks. Largely she writes to the guidance of Motley Fool Stock Advisor and Rule Breakers. One of my standout investments was Tesla. Following Stock Advisor's recommendation, I bought Tesla, Lisa writes in 2012. Split adjusted, it was just $2 per share looking backward back on that day. I might have seemed like a genius with the Motley Fools' help, of course, but this journey wasn't without its challenges. Holding such a volatile stock has been an emotional roller coaster. By 2016, my Tesla shares had 10Xed, and the pressure to sell was immense. People around me constantly said I was foolish to hold on to such a risky company. I resisted selling until some Motley Fool analysts marked Tesla as a hold in February 2016. That's when I sold 50%, although I held onto the other half. Over time, I built my Tesla position back up, especially after Tom Gardner recommended the stock.

Now, Tesla is my largest holding, and Lisa adds, I plan to keep it for a long time. I also bought Amazon in 2012, Netflix in 2009, and then Nvidia in 2010, made some mistakes along the way, like selling 40% of my Amazon about seven years ago and unloading much of Netflix after it doubled. I initially sold all my Nvidia shares in 2012 after they went nowhere for 2-3 years, but I bought back in during 2016, and I've been thrilled with that decision ever since. Despite these missteps, Lisa goes on, my returns since 2008 have still exceeded 2,000%. The key has been to layer out gradually rather than sell everything at once. As time passes, the remaining shares have a compounding effect, making earlier sales less impactful on the overall portfolio.

A recent conversation at my rowing club illustrated this point. A young man told me he'd bought Tesla shares in 2010, even earlier than I did. Unfortunately, he sold all his shares after they doubled. I've heard many stories like this over the years, underscoring the importance of patience and strategy. In investing, Lisa concludes, layering out and layering in is critical. It's a strategy that has served me well, and I hope it could guide others on their own investing journeys. Happy holidays. Sincerely, Lisa Wharton. Well, Lisa, I appreciate the overall points and the examples you gave as well. I think it's quite amazing that you sold out of some of those great stocks, and yet not all the way out in some cases and got back in in some others. I especially appreciate your points about Tesla and how emotional a stock, what a roller coaster stock it has been. Most 100 plus baggers, which is what Tesla has been for me, will have those roller coasters, and they're not just, I don't know, price based roller coasters. It's not all about the numbers of the math. Lisa, you're speaking to the emotional toll that can take.

I certainly acknowledge that, but staying invested, and lessons learned from stories like yours. You learned at first hand from Tesla, but through this podcast, you're sharing out lessons that others are hearing and will learn from. I appreciate your point about layering in, to use your phrase, and layering out. What you're essentially saying is too many people are all on or all off. Things are black or white. There aren't any grays, and yet, I don't think that's Foolish. I think it's great to be incremental with what we do. When I do sell off a large holding, often because it's got too large, I just sell it off in bits and pieces. It's not an all or nothing. I also sometimes buy in thirds, something I did in the earliest days when we started the Motley Fool with my original AOL stock. I didn't feel fully confident in the company at first, so I took my money that I was going to invest in it, and I divided it up in three. I invested it one third, one third, one third over time to build more confidence. Yes, layering in and layering out is a tool to manage emotions and maintain that exposure to great companies. Yours is a story of patience and resilience. I always love hearing these stories because so many of us don't have that experience yet. A lot of young investors listening to us this week, a lot of people who are new to investing weren't taught these things, weren't taught the benefit of patience. We hear about how great patience is and other things in life, but for some reason, people don't think about the stock market that way to their detriment, I think, and you're helping illustrate the great benefits of that.

Congratulations on your success, and thanks for writing in. Happy holidays, Happy New Year to you. Onto Rule Breaker Mailbag item number 5, Vince Graneri. Always great to hear from you, Vince. Thank you for this note. Hi, David. As the year comes to a close, it's appropriate for investors to review their portfolio, assess the performance of their stocks, do some tax planning, and look forward to the unknown year ahead. Well said, Vince. As you so often remind us, these types of activity can also be beneficial in one's career and in their life in general. You're right, Vince. I agree. Just interrupting briefly. One third of my focus on this podcast is on investing, one third is on business, and one third is on life. They all count, and the key is what wins in investing wins in business and wins in life. Getting in the habit of being a great investor helps you so much in your career and in your life as well, and thank you for putting it in the way that you did. Vince goes on, "That's what makes this December Mailbag so special, as it's where investments, business and life intersect. I found your besties podcast to be particularly challenging for me, even though I was very pleased to see optimism with Bill Burke, batting leadoff. That is the one Rule Breaker podcast among all you have ever done." Vince adds, "I have listened to every one." By the way, I think this is something like the 497th consecutive week of this podcast. Wow. Thanks, Vince. Anyway, he's pointing to my optimism with Bill Burke podcast from this year as the one Rule Breaker podcast among all that I've ever done that he's gone back to over and over again, which brings us to Vince writes the challenge. "As I listened to each of the besties on your list, I began arguing with myself, the optimist versus the realist.

For example, Rand Stagen's insistence that his clients commit to long term engagements with his company. Well, of course, what consultant wouldn't want a guaranteed long term gig? I hearken back to the many expensive, thinking in terms of both time and money, the many expensive corporate transformation initiatives in companies where I worked. Most failed to have a lasting impact. It was the corporate version of the long running TV show Survivor, where the goal seemed to be to outwit, outplay and outlast the change agents. Maybe that's why I left the corporate world to start my own company over 20 years ago. Then again," Vince goes on, "I argued back, each one of these corporate transformation initiatives brought with it the opportunity for me and others to learn something and often many things about ourselves and those around us.

We only needed to be open to it. What we received was potentially an order of magnitude more than we contributed, optimism, fragile, though it was, and a delicate flame that needed to be nurtured, was a powerful impetus for positive change. As I look back on 2024, I saw where I took the opportunity to learn more about myself and others and pledged to do more of that in 2025 and to encourage others to do so. You know I could go on and on, but let me close as I opened with an investment story. I've been a Fool for over 20 years, and I started out buying virtually every Foolish recommendation for many of those years. In 2021, I found myself owning well over 650 stocks and was the world record holder of the Gardner-Kretzmann Continuum score in the over age 60 division, at 10 plus. Since I was nearing retirement, still am and closer, I hope, I decided it was time to take a more active role in choosing stocks, even though my extensive portfolio had been a market beater, thanks to Motley Fool research and my asset allocation strategies. My new goal was to reduce the number of positions from 650 to something more manageable, 75-80, split into two portfolios, one focused on growth because I don't want to outlive my assets and the other on dividends because I need to replace income from my job.

I'm happy to report at year end that my portfolio now has 85 positions, split 39 growth and 46 dividend. It wouldn't have, couldn't have happened without The Motley Fool. Wishing you and our community the happiest holiday season and a healthy, happy and optimistic New Year." Signed, Vince Graneri. Well, Vince, reflecting on the tension between optimism and realism, looking at different contexts like corporate transformation, where maybe realistically we shouldn't be too optimistic about two-day workshops that are going to come on and with change agents, change the culture of our company in brief. Although I'm with Rand Stagen, it can be done. It just takes real commitment, and it needs time to happen.

But not just that corporate transformation context, Vince, but also your personal investing and when to be optimistic and when to be realistic. I think an optimist buys every time the Motley Fool says buy, and guess what? I think it works. I think you just told a story of how it does work. I think Lisa told one before you, but not everybody has the money or the time or the interest in saying yes every time. We know that when we say yes every time, a third of the time we're going to buy in front of a bad stock market, and you have to be OK with that. As a fellow Rule Breaker, I know you are. I put it out there every week. That's the right mindset, to be an investor over the course of your life. But it does involve some tension between being optimistic, but then the realism that one year and three, the market drops. I don't think in the end there needs to be a big difference between being an optimist and being a realist. I think the phrase we often use is being a rational optimist, and that combines them. It puts me in mind of Matt Ridley's wonderful book, The Rational Optimist. A couple of quotes come to mind as I was looking back over that book recently.

The first is, Ridley basically says, if you're going to be rational and look at history fairly, you can't help but not be an optimist. You have to be an optimist because you can see the tremendous progress that we've made over the last century, over the last five centuries, over the last 5,000 years. You have to recognize that and realize that through many of those generations, the people living at that time thought that things were all going down, that things were going to get worse for their kids. Yet, time after time, it's not been the case, and that's the rational view of history. I'm going to quote straight from his book. Ridley is also big on the idea of ideas commingling with other ideas. He talks about how ideas breed, and they breed with other ideas, and progress results. I'm going to quote right here.

He writes, "The history of the modern world is a history of ideas meeting, mixing, mating, and mutating. The reason that economic growth has accelerated so in the past 200 years is down to the fact that ideas have been allowed to meet at an unprecedented rate." Again, I think that is a realistic view of things. I also think it is an optimistic view of things. One more Ridley quote, he says, "The pessimists mistake is to assume that the world's problems will remain unsolved, because they do not know how they will be solved. But this is to ignore the fact that solutions are often the product of ideas meeting and improving upon one another." Both of those quotes, by the way, again, from The Rational Optimist by Matt Ridley.

Just a little bit of additional thinking for you, Vince, as you prepare for 2025. I love your sharing of your journey, streamlining that 650 stock portfolio. You still have a Gardner-Kretzmann continuum ratio above one, good on you, but into that balanced and focused approach that you have for having some growth and for having some income. Again, I think it's a theme of this podcast. It's a theme of December 2024 here at the end of the year portfolio level thinking. You took a portfolio that had hundreds and hundreds of stocks that was doing perfectly well, but you made it more manageable for you, as you move forward into the next stage of your life toward retirement. You made it a portfolio that you understand probably a lot better because with 80 companies, you have 570 others you no longer have to keep up with. I've made other points about the six principles of the Rule Breaker portfolio.

I'm not going to speak to it here, but for anybody who ever missed that podcast I did almost four years ago now, January 13th of 2021, that's where I put out my six principles of the Rule Breaker portfolio. Vince, I see you exhibiting a number of those, the right thinking, the right principles leading to the right actions. I celebrate your Foolish journey and your thoughtful and strategic approach to management, not just of your wealth, but as you're saying also of your business career and of your life because these things are all connected. Well, Vince, thank you for riding in and Happy New Year to the Grenaris here in 2025. Now the final Rule Breaker Investing mailbag item not just of this podcast, but of the year at hand. One Dave to another, as Dr. Sue said, there are probably too many Daves, but Dave Smolko, thank you for this note. Dear David, I'm a long time Fool member subscribing to your first investment letters in 1993. I would say that was back in our print days, Dave. You have been around us for quite a long time. Thank you.

I've never written to you before, but this holiday season, I want to express a debt of gratitude to both you and your brother Tom for giving me the confidence to make stock selections on my own for so many years. Without the help of Wall Street investment advisors, you provided the encouragement to embrace risk where it was warranted and develop a plan for identifying solid growth companies. My investment journey started in 1990, pre-Motley Fool when my dad passed away, leaving my mom with $250,000 in cash, and leaving instructions to quote, "Just roll over my CDs and live off the interest and Social Security." He had two CDs in one bank, Dave writes, with different maturity dates, each paying around 8% interest. The problem was the CD interest declined significantly after he died. Had my mom listened to that advice, she would have had to live off the principle of those CDs and slowly reduce that cash balance. It might have been gone in 10 years.

I asked my mom to trust me and let me develop a better financial plan that would protect her principal, allow it to grow a little, and pay her some income in the form of interest and/or dividends. In March of 1990, after my dad's passing, I was 28, a CPA, but had no real investment knowledge, and I had two months to do some research on how to invest that $250,000 before the CDs matured in May of 1990. I spent many nights at a local university library reading Moody's and Standard and Poor's and any investment newsletter I could get my hands on. At the same time, I read Peter Lynch's One Up on Wall Street, which really spoke to me and gave me the tools to research companies before I came across your newsletters. From Peter Lynch, I learned about diversification and investing in what you know. I was not afraid to invest on my own after reading that book. I divided up the $250,000 by putting $50,000 in a municipal bond paying 6%, a money market account to give her access to about 20,000 in cash, 50,000 in the S&P index fund, 50,000 into an American Century Large Cap no-load mutual fund, and I set aside $80,000 to invest between five individual stocks.

Those five stocks were MAC, Walmart, Waste Management, GTE, and one stock that I felt was worth taking a risk as it sold a product I used at work every day. It was something I knew and felt would be essential to all American businesses. That was Microsoft with its MS-DOS. I allocated $15,000 to Microsoft in May of 1990. That one decision was life changing. It did not become apparent right away. It took about three or four years before accelerating. In subsequent years, I also embraced your philosophy of letting winners win and being 100% invested in stocks. I know your brother likes to have a percentage in cash. You were one of only two people who espoused this philosophy of accepting the risk with being 100% invested. Jack Bogle was the other. As Microsoft grew, I attempted to sell a small portion each year to diversify into other stocks. Friends in the investing field told me I should sell Microsoft each time it rose another 50% to lock in my profits. But my thinking was, why should I sell the stock just to try and find something else that will grow when I already own a good thing? It didn't make sense to sell. Over the years, Microsoft has always been over 50% of my mom's total portfolio as it has generated true wealth. I determined it was an acceptable risk, and I do not lose sleep over it. Today, it is a 500 bagger for her portfolio. Those original shares allowed my mom to send three grandchildren and two great grandchildren to college. She bought three new cars for various people. Two John Deere tractors for my brother and my nephew, it allowed her to travel for a few years while she was still able. She also gifted shares to my brothers and myself.

Now it provides security for her long-term care assistance. As for me, I read your Rule Breaker Rule Maker book when it came out, continued receiving your monthly newsletters and allowed you to join Peter Lynch as mentors in my decision making. The first recommendation I purchased on your newsletter was Middleby, which became a 10 bagger.

I also purchased Netflix, but sold after a few years, my biggest mistake. There were several losers in there, but over time, the largest winners made the losers negligible. Today, my largest winners include Nvidia, Starbucks, Shopify, Square, Meta Platforms, and MercadoLibre. With my mom's portfolio, I sold Waste Management after four years and bought Cisco Systems in 1994, which became a 30 bagger. I sold the Walmart after it doubled and switched to Starbucks in 1992, which became a 41 bagger. Your philosophy allowed me to have confidence to stick with my decisions even when companies experience stagnation or difficult times as Microsoft and Cisco and Starbucks have, and to buy with the intention of owning good companies with solid earnings, a moat, good management, and someone on CNBC saying the company was "overvalued." I thank you once again, yours truly fellow Fool Dave S.

What a beautiful note to close on, to close this podcast and this year. I love what you did for your mom, Dave, and by extension for her whole family, you included. What a win, win, win. How proud would your father be to see that you didn't bury the talents. You actually effloresced. Part of what makes it all so sweet to write it out, I know you, for me so sweet to read is the times you went against conventional wisdom. First, instead of just keeping it in CDs, you invested differently, including basically one-third of that money in individual stocks, five of them, $15,000 in Microsoft, which by my calculation was a 6% position for your mom at that point. Second, despite being told, as Lisa Wharton was told earlier this podcast, you have to sell your winning stock, using that oft used phrase by the financial industry, we need to lock in profits. You did not.

That's the only way, by the way, you're ever going to achieve a 500 bagger, is to hold and let that winner run high to become a 500 bagger. Third, and final, you stayed invested 100% in the market, all the way through dot boom 2001, the Great Financial Recession, 2008, '9. As a Microsoft shareholder, I would add for you that you had to sit through Steve Ballmer, who didn't create a lot of value over about 10 years. Then, of course, through COVID, as well, 100% invested all the way through. That, Dave Smolko, was so inspiring a note to end on and thus to close ringing in the new year, English speakers worldwide each year sing, should old acquaintance be forgot and never brought to mind. Remember that lyric, it's actually just a rhetorical question. I don't think 18th century Scottish poet Robert Burns was suggesting that you forget old acquaintances and certainly not old friends. Instead, the rhetorical question invites reflection on the value of long standing relationships and shared memories. The implied answer is, no, old acquaintance should not be forgot. We should not forget old friends or the times that we have shared. For this week's podcast some new voices as always and many old friends, and not only do we not forget them, actually we remember them and celebrate them. Let's make a habit of doing what Phyllis Hoffman herself did mention at the top of this podcast, to share out our money questions, our financial lessons with family and friends. Pay it forward. I might even say sometimes, pay it forward you will be richly rewarded.

I wish you, dear listener, dear fellow Fool a lovely holiday and a cracking good start to 2025. Thank you. Thank you for this year. I enjoyed doing some portfolio level thinking together this week. See you next week. Fool on.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. David Gardner has positions in Amazon, MercadoLibre, Middleby, Netflix, Starbucks, Tesla, and Walmart. The Motley Fool has positions in and recommends Amazon, Block, Cisco Systems, MercadoLibre, Meta Platforms, Microsoft, Middleby, Moody's, Netflix, Nvidia, Shopify, Starbucks, Tesla, TransMedics Group, and Walmart. The Motley Fool recommends Waste Management and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.