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This video was recorded on July 26, 2023

David Gardner: Last week, cryptocurrencies and meme stocks and movies with returning guest star Jim Surowiecki. Did you get a chance to listen, especially to our podcast ending game of buy-seller-hold? The week before, mental tips tricks and life hacks Volume 8. Micro journaling was one example. Ralph Waldo Emerson story diaries and journals contained this entry, for example, in its entirety, January 17, 1829. My weight is 144 pounds. You don’t have to make journaling a chore. The week before that a big theme for this month. What you’ve done to create some financial freedom. It was the week of July 4th, of course, here in the US. We talked financial independence on this podcast. Now the way we close out every month, as we’ve consistently been doing now, entering our ninth year of Rule Breaker Investing, is your mailbag. Final Wednesday of the month, we’re going to talk more financial freedom tips. We’re going to give a shout out to North Dakota. We’re going to go in-depth on your Sleep Number with some great notes and stories. As usual, thanks for joining me here at the height of summer only on this week’s Rule Breaker Investing.

Welcome back to Rule Breaker Investing. I like to start each Mailbag episode with some hot takes from Twitter. Here are a few from the month that has been @Jeremy_bear. Jeremy, thank you for this note. What a perfect way to celebrate independence day. Thank you so much for sharing your inspiring stories. This is through Twitter, but this has written to all of those who shared their stories. We featured a bunch on the first podcast of the month as different people told different stories about what financial freedom meant to them and how they created it for themselves and, or for others. Jeremy goes on, I’ve learned a lot, may even borrow a few foolish moves. I’ve listened twice already. A truly inspiring episode, lot of thoughtful stories about financial independence, made it to my list as one of 2023 is besties, @DavidGFool. That’s really make it an episodic series. I agree, Jeremy, I think we’re going to do that. I think the week of July 4 every year is a wonderful time for people who are not just from America of course, but all around the world, writing in and sharing their stories of creating a little bit more financial freedom in the year that has been. I really enjoyed that episode. Yes, I think it’s the start of something beautiful. Thank you.

Next one up Mark, @MXJay61. Hi David. Thanks so much for mentioning me in creating a financial freedom. It was one of Mark’s stories that I read. The bag of rice was metaphorical as we don’t eat rice. He has a laughter emoji there, but we did skimp and save. I didn’t need to sell stocks all year to finance our retirement. Well, thank you for writing in Mark. It was an expression, I guess. I said you might be from Australia. It might be an Australian expression. I’m not quite sure. But you said pretty much in order to live through a bear market and not have to sell your stocks and retirement. All you did is either bag of rise to the whole year. I think I said at the time on that podcast, I think that’s metaphorical. Thank you for confirming that it was not in fact what you did. Probably not the best healthiest approach to eating, but a very healthy approach to your finances. I’m so glad that you made it through a tough market. Mark and thank you for sharing your story. The last Twitter hot take @GaryCar. Gary, you just said reacting to last week’s podcasts, please do more. Buy, sell, or hold. Love that game. Well, I’m excited to announce that of course, next week we’ll be opening up authors in August and Rule Breaker Investing every year.

Each of the weeks of August dedicated to a different author, someone who’s book I’ve read. I’ve always read them. Someone who’s work I admire and want to share that with you. In many cases, you all have read these books before I did. You suggest it to me, Jason more that I read, love your enemies by Arthur Brooks. I did. I loved it and Arthur Brooks will be with us in August. Next week, I want to mention our first book up. It’s called American Ramble. It’s by author Neil King. Neil King in his early ’60s, having lived through a cancer diagnosis, decides after a long and successful career as a journalist, especially at The Wall Street Journal, that he’s going to walk outside the front door of his house, Capital Hill, Washington DC. He’s going to keep walking to New York City. He tells the story of his about a month long ramble, literally walking every step from Washington DC to New York City and while the focus might be on those two iconic cities, of course, so much of Neil’s ramble are the small towns, the rural areas that he visits in-between Washington and Philadelphia and New York. It is an absolute home-run of a book. I really love American Ramble is featured on the CBS Sunday Morning Show. Just a couple of weeks go earlier this month, it’s just out. Neil King is with you and with me next week for American Ramble on Rule Breaker Investing authors in August. Why am I mentioning this in conjunction with Gary Cars tweet. Well, Gary, I’ve decided I loved buy, sell and hold so much too. We’re going to do it all August longs Expect every one of the authors that I speak to. We’re going to play buy-seller-hold at some point, probably toward the end of that interview. You’re going to be getting your Phil if you’re a buy-seller-hold fan, I am too of that game, as part of course of author interviews, will mostly be focusing on their books.

But it is interesting hearing well-known interesting people who’ve written great books opine, if, let’s say outer space exploration, where a stock buy-seller-hold, how would they answer? That’s what Jim Surowiecki did. Last week we’ll have a Motley array of topics in the month ahead. Let me mentioned that at the end of this week’s podcast, I will list out the books and the order in which they’ll appear next month on Authors in August. I’ve already mentioned some of these here and there. Some of you, I hope I’ve been able to get started reading. It’s our book club. I mean, Oprah does this every single month and has done it for years and probably very lucrative for us. We just do it one month a year. I hope you’re reading all throughout the year, but in particular, focusing on these books each year. This is the sixth year of authors in August and it’s just been a fantastic way to end each summer. Again, looking forward to that. I will give my list at the end of this week’s podcast. Onto the Rule Breaker Investing mailbag for the month of July 2023, I see eight items that ahead of us. Let’s get started.

The first one is from Sam Stevens. Now Sam is a former Motley Fool intern who’s now of course an adult and I think he works in the financial world. I know one thing for sure about Sam. He wrote into the podcast a few years ago and said there’s a better way to end market cap game shows than just having a tie at the end. We instituted his suggestion as the Stephens sudden death rule, which has since just simply morphed into the equivalent of the daily doubles. If you heard this past quarter’s Market Cap Game Show, you know that twice out of the 10 stocks we discussed each quarter on that game show twice, we have my players not just react to each other, but both have to make their best guess in the daily double format. Sam Stevens is the reason we’re doing that. Sam, you wrote in with Mailbag item Number 1, this has nothing to do with the Market Cap Game Show you modestly refused dimension that you are the progenitor of that feature. Sam, you just wrote, Hi David, I’m definitely a buy on buy-seller-hold is a game on the Rule Breaker Investing podcast. You go on to say, and I think CT UN, would argue it meets the definition of a game. You’re remembering one of my favorite podcasts of this year for Rule Breaker Investing. It was with games, philosophers, CT and when earlier this year, I think it’s a bestie for 2023. We need to get to the end of the year before we know what the 10 best were. But that was such a fun conversation and thank you for alluding to it right there in your notes, Sam, I also want to buy the ability of, or perhaps a combination of artificial intelligence is. Sam goes on to listen to all past games of buy-seller-hold and if not actually score them, summarize them, list without too much trouble.

On that thread, I imagine AIs could similarly summarize in score historical stock picks of financial pundits on CNBC, Fool-on Sam Stevens. Well Sam, you’re barking up the right tree here on this podcast because you’ve just touched on a couple of things I’m passionate about. One of them is that I do think it would be pretty cool to have AIs go back and listen to all of our past Motley Fool radio show, buy-seller-hold games. Once we played ever since on Motley Fool Money and certainly Rule Breaker Investing. What really blows me away when we talk about artificial intelligence is, and I’m thinking of course of ChatGPT which I use every day, I know there are lots of others. I’m staying focused on that one for now. I’m blown away by how instant the response is. You can type in something really long or copy and paste something really long and ask for perspective or a summary of it, and within about a second and a half, the artificial intelligence has already digested whatever you’ve put in and is giving you back some consideration or summary thereof. It is truly remarkable and I’m not sure the highest use sum of artificial intelligence would be to summarize all pass buy-seller-hold games, but I think it would be awesome. Then you also mentioned the idea of maybe, let’s say going back over footage from CNBC.

One of the things I’ve railed against in the past is when people make predictions on financial cable television and never are held accountable by themselves, which is how it should be. It should start with ourselves always, or by the network or by anybody else. It seems as if you can make free incorrect predictions all you like on financial television, people won’t really remember, and they might come back the next night and ask you to make more predictions. I’m not sure that leads to successful investing. I certainly don’t think it leads to a better world. I do think artificial intelligence could be run back over all video footage on YouTube, or CNBC, or anywhere, and this isn’t just speaking to stocks, this is speaking to all predictions, and I summarize and score things that the people at the time probably meant to be scored, but never got a chance to score or never wanted to be scored. I think more scoring, more gamifying, especially if predictions being made. In this case in the financial world is a better, smarter world. I do believe that that’s the one we’re moving into. Thank you, Sam.

Onto Rule Breaker mailbag, item number 2, and in fact, the next two items are both reacting to our financial freedom podcast earlier this month is there are two different perspectives from two different fellow fools who were helping answer the question in their own lives. I’m sharing out their stories or perspective so that you might be able to take something away from it yourself and increased financial freedom for you or for someone else. The first is from Brian Harris, Rule-breaker mailbag, item number 2, “David, I’m not a details guy”. Over and over again, Brian writes, I’ve tried and I failed to nugent our spending line-by-line. I have tried everything and each time I’ve come up wanting. I’m a small business owner and real estate investor. I have income coming in from multiple sources. The thing I did was to have all of my various income streams flow into a single savings account. I then set myself up a monthly disbursement from that savings account into my primary checking account. If I am able to make it to the end of the month on just that one disbursement which is predetermined to an acceptable families spending amount, Brian continues, I know I’m on the right path financially. This has allowed me the freedom to know where we stand as a family on the financial side without having to monitor every line item.

Couple this with a biannual deep dive to weed out any unnecessary spending, and for the first time, Brian concludes, I feel like we are on the right path, and in control of our finances. Maybe this should be called budgeting in buckets, full on Brian Harris. Well, I can easily imagine Brian and many others listening. If you are a real estate investor, you’ve got multiple properties or multiple sources streaming you cash-flow probably coming in at different intervals, different times. It can be awfully simplifying to have those all sent one direction, and speaking of simplifying further, Brian, from that source account, if you disburse the amount you intend to spend in a month shared out with family and make that happen, and we hope coming in under that amount in a given month and not needing to go back to the well, I do think that that is a very lovely and simple way to run ones financial life. Not everybody needs to budget, not everybody’s ever go into budget but the more we can simplify our financial lives, I think the better off we are, one thing I’d like to note is that Brian is a small business owner and real estate investor. I think a lot of us think of those things as not just admirable, but probably somebody who’s more of a financial sophisticate compared to many others of us, and so when even Brian, who is both a small business owner and real estate investor, is just trying to track his spending from one month to the next at a family level, you can see how human that is and how we’re all connected. You can, for example, here about somebody who create an amazing company, but might be surprised how they’re conducting their personal life or how complicated things might be often for very successful people. In this case, we have a successful person with a smart approach kind of a systems approach.

Brian, you put me in mind of James Clear’s book Atomic Habits. James a past guests was authors in August, but it was certainly an author on this podcast a few years ago, and I was seeing this great quote from his book, Atomic Habits the other day and I’m going to share it with you. He says success is not a goal to reach or a finish line to cross. It is a system to improve an endless process to refine. James goes on in his book and chapter 1, I said,” if you’re having trouble changing your habits, the problem isn’t you. The problem is your system. Bad habits repeat themselves again and again, not because you don’t want to change, but because you have the wrong system for change “. It’s a reminder to all of us, I think that one of the best path to success is to build a system around yourself that will enable you to succeed. Again, I highly recommend Atomic Habits to anybody who hasn’t read it, but Brian, what you’ve described is essentially building a system and that is much more likely to lead to successful spending habits and family finances. Congratulations on that step toward financial freedom. Thank you for sharing and let’s move on to Rule Breaker, mailbag, item number 3, this one from some time correspondent, always a pleasure to hear from him again, Dave GAC. David writes, here’s one thing we have done to create more financial freedom for ourselves or others. My wife and I decided to fund accounts for our grandchildren. We decided that when they reach the sixth grade, we would start them off with $1,000, and give $500 more per year until their senior year for a total of $4,000. They pick 10 companies and then each year can add to their 10 or add additional companies.

Dave goes on, we did not dilute ourselves into thinking at such a young age they would become enamored with the prospects of investing. I did make them fill out a chart showing how much $1,000 would grow at various rates of interests and time. They all enjoyed the homework and were impressed by how time and a bit better interest rate really changed the amount, but of course, could not internalize that someday my grandchildren would be in their ’60s. Concluding here, Dave writes, I will consider it success if 10 years from now as we make the last installment, I’m still alive and have my faculties. Hopefully it will give me the chance to light a spark of enthusiasm for saving and investing in at least two of them. Already I see flickers of interest. It is already successful for me as I’m having fun doing it. Dave, I really appreciate you sharing that approach with your grandchildren. Sixth grade sounds like a $1,000 to each of the children. That’s something to look forward to if you’re 10 years-old and getting to the 11th or 12th birthday and sixth grade and you get a $1,000 from your grandparents, it sounds like you and your wife are having them pick 10 stocks. So $100 in each of 10 stocks and then $500 more per year until their senior year of high school. Different people can work with different amounts and/or different intervals, or number of stocks. That’s the way Dave has set up the game, but what he’s showing us once again is in James Clear’s words, a system, he’s basically built a system that all of his grandchildren can run through. It involves some coaching and interaction with their grandfather and some fun picking the companies and following and learning from them. Not everybody is expected to be passionate about this, and I think most 10-year-old, don’t foresee being 60, and the idea of owning stocks and the importance of compounding would not be clear to them without some enlightened grandparents. In many cases, enlightened grandparents or other mentors anyway, Dave, thank you very much for sharing that. I acknowledge it. It’s already a success because you’re having fun doing it. I do hope and trust you will be around 10 years from now, and I’m looking forward to hearing more about your experiment, your system. Congratulations for helping some young people toward financial freedom.

As we glide into Rule Breaker Investing mailbag item number 4, Dave GAC is mentioned once again because Dave, couple of months ago, you mentioned on the podcast that you’d visited most of the states of America with a couple of exceptions, one of which was North Dakota. As I read that Mailbag item, I predicted, at least in my head, I may have said it on air that we might get some responses. Now whether the official Chamber of Commerce of the state of North Dakota is listening to this podcast or would want to respond. I couldn’t have said, and indeed, to my knowledge, it has not. However, Spencer Guerin, a fellow fool, I’ve not met Spencer before, but this is his mailbag item. Spencer is taking the time to write in. So this speaks to our previous correspondent, Dave GAC, but not talking about building a stock market game for your grandkids. Now this is about North Dakota. Dave said in so many words, at a more advanced age, Dave said he didn’t see much reason ever to go to North Dakota or to be buried there. Here Comes Spencer Guerin, although I can certainly think of worst places to be buried, he may not want to wait that long or he will miss, and here’s a list of four reasons to go to North Dakota. Number 1, the wood chipper exhibit in the Fargo visitor welcome center, whether at Cohen brothers fan or not, Spencer writes, you have to appreciate the towns sense of humor. A great reference too close to movie Fargo.

Number 2, Spencer says, you wouldn’t want to miss a 40 foot sculpture of a Holstein cow, and the opportunity to wonder why it exists. Spencer’s words number 3, the impressively large and somewhat magical collection of scrap metal sculptures along the 30-mile stretch known as the Enchanted highway. Finally, number 4, lots and lots of Big Sky country. It really is a beautiful place. Spencer concludes, just don’t go in the winter and make sure you have a full tank of gas before you leave any actual populated town. Fool-on. Spencer Guerin. Well, Fool-on to you Spencer. Thank you. On a side note, I’ll have to say I’ve not yet been to North Dakota. It does border Minnesota. I’m a lifetime Minnesota Twins Baseball fan. There are a lot of Twins fans in North Dakota. By the way, on a baseball note, the Minnesota Twins have been the hottest team in baseball check it since the All-star break and yet remarkably The Twins were they in the American League East. As I do this podcast, The Twins would literally be first-place in the AL Central. The Twins would be in the cellar. They would be in last place in the American League East 10 games out. North Dakota, I see it’s nicknames The Piece Garden State, Rough Rider State, Flicker Tail State, and Heaven on Earth, The Motto, Liberty and Union, Now and Forever, One and Inseparable. Well, I’ve vote for those sentiments. Thank you North Dakota. Well, the next two Rule-breaker Mailbag items Numbers 5 and 6 are both about your Sleep Number.

I think a lot of regular listeners and Rule Breaker members over the years will know exactly what I mean when I talk about Sleep Number. But there are new listeners every week and I certainly don’t want to assume everybody knows what we’re talking about and we’re about to do a deeper dive here, so let’s be clear on our terms. Sleep Number has been made popular by the company that is now called Sleep Number. In fact, Select Comfort renamed itself Sleep Number because if it’s catchy marketing around it’s best-selling mattresses where you can dial the firmness. I think it’s 1-100, maybe 0-100 depending on which side of the bed you’re on, which means a couple of people’s spouses or partners who sleep together, you can actually have a much firmer or softer mattress than the person on the other side of the bed. That Sleep Number I think many of us are familiar with that brand and that product. But I co-opted the phrase because I think it’s so applicable to how we think about the portfolios that we managed. That’s at the heart of Rule Breaker investing. That’s the heart of investing. Even people who don’t break the rules have portfolios if there are investors. A few years ago I decided this is the right concept to teach people managing their portfolios.

Specifically, what is the percentage that you would allow the single biggest holding in your portfolio to occupy of your overall allocation. If there is 100% of a pie, that’s your net worth, what is the largest you’d let us slice get of a single-stock or single investment before you started feeling uneasy before you started losing sleep at night. Your Sleep Number, for example, if it’s nine, that means you would not be comfortable, you would start losing sleep if you ever let one of your stock’s a single investment become 9% or more of your overall holdings. We’ve talked about this extensively in the past and this show, you can certainly Google it and read more about it. Most mutual funds have Sleep Numbers around one because they’re so diversified with hundreds of stocks. Very few stocks are much more than 1% of that fund. Some people will allow a single-stock or if you’re looking at your overall net worth and your small businessperson, it might be the majority of your net worth is tied up in one thing, one business, maybe yours and so your Sleep Number is much higher, whether or not you want it to be it is in many cases. Just being conscious and self-aware of what is appropriate for your own situation and what feels right. We all have different risk tolerances. We have different time horizons so we all have different Sleep Numbers. I think for a lot of people it’s very helpful for them to articulate it to themselves to know what is that number that you would let a stock get up to of your overall allocation without going over that.

What about if you have a spouse or partner and you’re managing something together or that portfolio is for you both you both agree on that? Have you discussed that? Does your broker or financial planner share the same approach? Are they aligned with what you consider to be your Sleep Number? Both of the next two items are speaking directly to this but with nuance. I’ve just given you the straight-up chapter and verse of what we mean in a Rule Breaker Investing context when we talk about Sleep Number, both of my next talented correspondence are going to be sharing different angles that provide, as I mentioned, additional nuance help you think a little bit deeper about this and progress all of our thinking from base level to a little bit more advanced level. Robert Schuler, let’s go to yours next for Rule Breaker Investing mailbag item Number 5. Dave, Robert, here. You answered a couple of questions in the past, including a question on inflation back when it was still in, ”Transitory” stage when I just asked you to talk about it and not give so much a question is just a, “Penny for your thoughts.” While I do remember doing that and thanks for asking Robert on an older podcast. This is a similar question where I would like your thoughts as well on how I could do better in my thinking and investing. Just as no one really knows how they are going to react during a large downturn until actually living through it, I believe the same is true of a Sleep Number. I used to just say it was 15 and leave it at that until I actually started getting some larger holdings. Robert writes, “I realized mine is much smaller than 15, probably around 7-10. I can’t give you a good number though because I’ve discovered it depends on the stock.

My biggest holding is Costco. I bought it nearly 20 years ago and it is well more than a 10 bagger.” For newer investors, that means it’s gone up well more than 10 times in value for senior school year. Continuing on, “I feel very comfortable letting that one get large as it’s taken years to get that big and isn’t trading at too much of a premium. However, I have sold partial positions twice in the last couple of years. In the first case, Shopify. At one point it was over a 20 bagger in my portfolio and I sold 10% of it. I still hold 90% and looking at it now, it’s about a nine bagger, so less than half of what it once was. In hindsight, I think this was a good move. I made some money which was reinvested elsewhere, but still own the stock.” Robert is of course, referencing the Shopify, which has had a better year this year is still well down from its earlier highs. Anyway, picking it up right there and is now the other stock that I sold a partial position in more recently was Nvidia. I actually sold a large stake, about 40%. This was an 11 bagger, but even the Fools on your services think it’s overvalued. I don’t think it’s trillion-dollar companies, so I trimmed a large portion, but still hold shares. In both cases, my Sleep Number was exceeded. Even though in Nvidia’s case, it’s still smaller than my Costco stock so I think a Sleep Number of varies depending on the stock. A large position in a large stable company should have a higher Sleep Number than a younger company like Shopify or an overvalued one. Robert says, “Like Nvidia, however, so much of what I just said goes against Rule Breaker principles. I’m selling my winners and talking about, “Overvalued stocks.” What could I be doing better while still sleeping well at night. Thank you.

Robert.” Well, first of all, I’m mainly sharing this Robert because I think you’ve done a great job highlighting next level thinking around Sleep Numbers. Of course, I’d like to go with the chapter and verse and the basics of it first. That’s what I do in a lot of my writing and my thinking. But once you have a rule, I’m not saying you should write away, go out and break it. But once you have a rule, you should live into it for awhile and see whether you’re learning something that changes. It might change the rule or change the game. I think what you’ve pointed to here for you is that not all stocks are created equal, as you said in your note, it depends on the stock. A Sleep Number varies depending on the stock and I think we’d also say maybe depending on the person. Because if you’ve gotten to know a company like Costco really well, presuming that you’ve probably bought from Costco for a couple of decades, you said you’ve held the stock anyway for a couple of decades. That means you have a much deeper association and knowledge about that company. Then if some other stock, a younger company perhaps, or a company you just didn’t know nearly as well if that occupied the same large slice of your overall pie. I think it is right to say that we should ultimately size our Sleep Number based on the stocks themselves. How comfortable are we owning that much of this one versus that one? I do like the objective overall Sleep Number approach, but I’m here to say, your thinking is excellent. That’s why I wanted to share it through this podcast. Probably when I write this down at some point, at some point I think I’m going to write another book.

This will be the thing I like to talk about. Go a little bit deeper into some of the things that we’ve talked. A more of a surface level. I think it’s appropriate podcasts being more of an oral medium. We’re not going to do big deep dives as people jog around or drive their cars and listen to this podcast. But I think books are more appropriate for that. Anyway, I really appreciate the nuance thinking. I don’t think that this goes against Rule Breaker principles. In fact, I think you’ve deepened it, at least in your own case, and that’s why I wanted to share it out. I think your thinking is sound. I want to mention before we go onto the next Sleep Number Mailbag, I think that Robert signed his note. Robert Schuler from Lancaster, Pennsylvania. He wrote, “I know you have roots here, so I figured I’d include that.” Well, thank you. Robert. Yes. Lancaster, Pennsylvania is one half of my family, the homebase and has been for decades. I’ve spent a lot of time in Lancaster and central Pennsylvania. Then partly underlying that because my guest next week, Neil King and his amazing book, American Ramble spends very meaningful moments in York, Pennsylvania, and Lancaster, Pennsylvania. No spoilers here, but I would describe those which appear in the middle of the book as the centerpiece of his entire book. We’ll hear Neil’s own take on it next week. But if you live in or around central Pennsylvania, Lancaster, York, thereabouts, I really think you’re going to appreciate American Ramble and how Neil talks about your hood. It’s history and where it is today. Lancaster, Pennsylvania, yes, I think in my family, I also think now of next week’s guest. Anyway, thank you, Robert. Onto Mailbag, item Number 6, this one from Max Karl. Thank you, Max.

Hi, David. Thank you for consistently bringing an element of fun and deep thinking to myself and fellow listeners once a week. You always have a way to stir up new thoughts and ideas that stick with me. I’m ready with a trick I used to help sleep at night hoping that others may also benefit from this, or to stir up any thoughts, or disagreements. I will also add, Max writes that, for me it’s a fun way to gain a wider understanding of many businesses while again, helping me sleep at night. To get into it, I’m talking Sleep Numbers. I’ve always thought of my Sleep Number is pretty high, but about two or three years ago, I was thinking more into the Sleep Number and decided that for me, my Sleep Number was different depending on the company. Different companies have different profiles. I understand different businesses better than others, even if I own both. Ultimately, I do not have one fixed Sleep Number that applies to every company I own. I like to assign a different Sleep Number, which can change over time to each of the companies I own. He goes on in this note to lay out his whole system with his spreadsheet. That wouldn’t be the best reading on a podcast. Let me just briefly opine a little bit and share a little bit of thinking before I go to the end of Max’s notes. Max, you have also lighted upon the same truth, the same viewpoint as Robert, our previous correspondent. You’ve taken a slightly different nuance here though, because Robert thinks of it more generally as different Sleep Numbers for different companies based on your knowledge and competence in that company. The part of the note I’m not reading, you are actively applying a single Number 2, every stock up and down your portfolio and you have a process by which you might tweak that from time to time.

The reason that I wanted to share this is because many people take many different approaches to investing, certainly with the Motley Fool now and its 30th year, we have some people who from a psychographic level we could term stock jocks. These are people who really love following the markets. It doesn’t mean they’re actively trading or not, although I think they tend to trade more so. But it really just means they’re avid, they love this and you’re a good example of this, Max, I don’t think you’re a trader at all, but you are somebody who has regularly looking up, and down his portfolio, and cogitating about it, and reranking, and elsewhere in your note, you talked about the importance of tracking versus the S&P 500, each of your positions and indeed it multiple accounts. This is somebody who very deeply engrossed in investing and loves it. I’m certainly much more like that myself than not. We’ve also learned over the decades at the Motley Fool that the majority of people are not so-called stock jocks. Actually, the majority of people don’t even own stocks, but of those who do, many are not as active. They check their accounts once a month or so or maybe their 401(k) statement when it comes in. Quarterly in some cases. It’s just as important their financial freedom to them as to others, but their own approach is just more hands-off, maybe more qualitative, less quantitative. I would describe that as a larger group, worldwide, than people who are really avid. It’s fun to present the case of Max Karl because Max, you’re somebody with lots of different accounts, multiple Excel spreadsheets. You love tracking this stuff and you have your own individual Sleep Number for each company.

That’s the nuance I wanted to highlight here with Mailbag item Number 6. I also want to point out one other thing about Max’s note. He talks elsewhere in the note about having multiple accounts, one of which is his fun account. Now, I know a lot of Motley Fool members, a lot of people I’ve met at book signings and investment clubs over the years and they have multiple accounts themselves. Often, they’ve got their fun money, they’ve got their fun account and you’re one such Max. You pointed out that your Sleep Number, within that context, you allowed to be larger in your fun account, then you might, if you’re investing something for a parent or more conservatively for a dedicated reason, like maybe you’re trying to get to a down payment on a house and you don’t want to take big risks and miss the house. It’s also true that Sleep Numbers don’t just depend on the stocks that you hold in your competence in them, but also sometimes in the accounts that you’re managing different ones might have different Sleep Numbers. In fact, you close your note Max by saying let me end by telling you my fun account was hammered during the 2021 and 2022 market down 30%, 50%, 60%. Well, hey, Max goes on, at least I didn’t just spend it all and saved some.

I’m pausing it there to say I omitted a part of his note where he mentions how he funds his fun account and it’s basically money that he would have spent otherwise, but he’s decided as a prudent Foolish investor, not to overspend his means. He’s decided to take some of the money he would’ve spent and instead put it in an account and have extra fun with it. If you think of it that way, even if you’re down 50% on that account, you still have 50% more than you were probably going to have started with. But Max goes on from there to say, at least I didn’t just spend it all. I saved some and that really helped me sleep at night. I never felt the panic and as a result, I didn’t sell anything. In fact, I found myself having fun with it, adding to the account where I could and scooping up more shares of different companies that felt like opportunistic purchases and what do you know? Max concludes, the magical markets have brought the portfolio back again. Thank you for the weekly podcast. We look forward to them best regards Max Karl. There in conclusion, you have more additional thinking around Sleep Numbers. I think it’s such an important concept because we all like or don’t like different investments, this one or that one, and we all have different habits as investors. But one thing we’re all doing is we’re building portfolios. I have a list of six principles upon which I think Rule Breaker portfolios should be built. One of them is certainly Number 4, I think is know your Sleep Number. It comes straight from that work of mine is I hear you talking about this phrase and get multiple notes in about how this helps you. I think it helps all of us invest in a way that we can sleep at night, which is right there in the phrase itself.

Onto Rule Breaker Mailbag, Item 7. When I talk about stock jocks, I think we’re about to hear from another one of them. This is a really fun note. Thank you, Federico. Hi, David. First, thank you and Tom and the whole Motley Fool team for the invaluable knowledge you share. The Motley Fool opened a whole new world to me, gave me the confidence to invest, which is now such an important part of my life. You can’t imagine. I am Federico Negro. I’m taking that to be an Italian name. Federico, 36 years of age, writing to you from across the Atlantic, and a Fool, heavy user, Motley Fool books, Motley Fool podcasts, Motley Fool recommendations, Motley Fool Live, my Gardner-Kretzmann continuum number is 1.38, my Sleep Number is unknown, I guess it’ll depend. Federico rights on the conviction of that outlier. Time horizon, 40 plus years after all coming from a 36-year-old gentlemen. That makes it a lot of sense to me, Federico. Risk tolerance still figuring that out, but I think on the higher side, I’m realizing it’s the FOMO, the fear of missing out that leaves me anxious, tended to overbuy when the market drops. Federico is highlighting two things that have helped him as an investor and a very avid investor toward financial freedom. My Number 1 decision toward financial freedom, has been the discipline to invest every single month. No exceptions. As Jocko Willink says, discipline equals freedom. So true in so many fields, Jocko Willink, author podcast or navy seal. One of his watchwords, discipline equals freedom. Federico adds, I save and invest 10% of my salary monthly. Another thing he references, I’m not going to read it out in full, but he looks carefully at the cash percent of his portfolio. Especially in bear market times, he loves that number to be high because it means, he has cash on the sidelines to invest.

For my own part, and this is David speaking, not Federico. I tend to just keep invested whole hog all the way through, but some people like to tweak their cash percentage. And for them, again, a little bit more of an avid investor, more active approach. That can be a very important number. The second thing toward financial freedom, Federico, you manages the importance of tracking. “I’m slightly obsessed with tracking.” Federico says my exercise, my sleep and naturally my portfolio. By the way, I’m the same way on all those things with Federico. The Number 1 tool I use is the tracking tool that we’ve once mentioned before on the show by Brian Withers. It’s amazing. Using any tool like this, led me to decisions that will enhance my financial freedom, such as tracking my cash percent, journaling stocks on my watchlist, allocating a bit more to ETFs, especially when their performance is beating my picks out and the awareness of asset allocation by market cap of phrase, of course, near and dear to this show. Since we’re talking about tracking and keeping score, Federico concludes: Let me point out in January, you said on your podcast that we’re at the tail end of the bear market. It didn’t change my strategy because I invest every month after all, but it gave me a renewed confidence and tranquility. You are right. But who’s tracking anyways have nice one cheers. Federico Negro. Well, thank you very much Federico, for this note.

I absolutely appreciate your Number 1 rule which is always be investing ABI, the discipline to invest every single month. Discipline equals freedom. By the way, being mechanical is a lot easier than not. When you’re having to change your processes or change your amounts or change your mentality, on the fly. Humans aren’t always good at making those decisions anyway, and it takes a lot more time and energy. So I really appreciate the simple approach, basically dollar-cost averaging into the best investments that we know of. Over the course of our lives, are going to lead most of us to the Financial Freedom we seek. Federico, you have clearly gotten this. Thank you for your lovely words about the Motley Fool. I’m not sure I made an actual market call in January because I don’t really make market calls, but I probably did say something like, 2022 was a brutal year. I think the market is going up this year and I might well have been heard on this podcasts, we may be near the tail end of a bear market. If so, I’m glad I did and I hope the AIs are noticing again.

Thank you Federico Negro. And now on to our final mailbag, Item Number 8 from Mike McMann. Mike, thank you for this, David. Just fresh from listening to the July 12 episode on tips, tricks and life hacks, and I wanted to pass along my thoughts before I give my brief thoughts. This is about journaling and Mike a couple of times is written in and when I talk to think it was item number 2 in that week’s podcast about micro journaling as a life hack, it was inspired by your words Mike. So you’ve written in a couple of times on this and I’m going to take this as the cherry on top as we close out this month with this mailbag. Mike writes as someone who is journaled diary related entries for over 45 years. I want to share an insight as to why daily journal entries, regardless of length, are beneficial. By taking five minutes at the end of the day to simply run through the events of the day and capture things you notice, benefits emerge. First random ideas that have popped up over the course of the day can actually now be addressed. The mind likes things to be settled. The process of filing ideas into a journal frees up our memory. Second, any potential unresolved conflicts can be identified. You can determine if you need to address them in third and my case Mike writes, since I interact with financial and investing news and my portfolio on a daily basis, not recommended unless you have the right mindset.

I can process any thoughts, feelings or ideas occurring in our investments. I also want to share a tip related to Number 5 in that podcast, which is how you navigate a room and individuals in conversations. And what Mike writes here is, when individuals are engaged in conversations and you want to talk to someone, here’s the tip. If the person you want to talk to, is engaged in a conversation with someone else and they’re standing belly button to belly button, avoid interrupting their participants if they are standing instead at angles to each other, it is safer to enter conversation. Cheers Mike McMann. Thank you, Mike, for your reminders and your assertion about the benefits of journaling and micro journaling. I was calling out Greg McKeown in his wonderful book, Essentialism, where he talked about the beauty of just writing less than you think each day, whether it’s in an electronic journal or a paper journal. Write less than you think micro journal just to get in the habit and it will become a habit. The benefits you and Mike McMann’s case for 45 plus years and counting and I do appreciate reading body language and rooms. Mike, your point about if people are really tucked up against each other. Probably doesn’t make sense to introduce yourself in that context, but when people are standing at 90 degree angle to each other, feels like you can move right in. We humans, such social creatures. That’s a wrap for the podcast, the mailbag. This week I mentioned at the start that I would read out our authors in August and here they are.

On August 2nd, next Wednesday, Neil King, American ramble, we’ve talked about that this week. The week after August 9th, Sunny Vanderbeck, a fellow conscious capitalists board member, long-term friend of mine, who has a lot of experience working with founders who ultimately end up selling their companies. That might have been when they started, sometimes is a serial entrepreneur or it might be a family business held multiple generations selling out. With Sunny Vanderbeck on August 9th, on August 16. The aforementioned Arthur Brooks is wonderful book, Love Your Enemies. I also will note that Arthur has a new book coming out. I’m sure we’ll talk a little bit about that one too. In September he co-wrote it with, Here’s a way to sell books. Oprah, yeah, that’s right. Build The Life You Want by Arthur Brooks and Oprah Winfrey. I’m sure we’ll talk to Arthur about the art and science of getting happier, but Love Your Enemies is such an important book written just a few years ago, speaking to the divide we often see in the United States of America, much brooded about these days. Sometimes I think it’s talked about more than it really exists, but it’s also true that clearly there are some strong differences of opinion about the future of our country.

What Arthur speaks to most of all, in Love Your Enemies, is that we need to treat others, whether they agree with us or not, we need to treat everyone with out contempt. Contempt when you essentially hold your hand up in front of someone else’s face and say talk to the hand. That happens a lot on both sides of the aisle these days. It’s a very bad habit and it’s caused a lot of consternation and loving your enemies. That ‘s a phrase from the Bible. For many religious traditions, is something that is an incredible antidote to our times. Arthur Brooks and I will talk about that on August 16th. August 23rd, we presently have two different authors trying to pick between them, so I don’t want to say their names, but both are great. An so probably next week’s podcast are. So I’ll remind you of our fourth author. In August there are five Wednesdays, so we have four books and then a mailbag. Speaking of mailbags, thanks for listening in and joining with me this week. Thanks especially to my correspondence. Until then, may your Sleep Number be the right one? May you take steps systemically toward financial freedom for yourself and for others? And sure. Go North Dakota.


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