Summary

The article provides three investing rules by a millionaire investor, David Gardner, emphasizing investing in real businesses with beautiful prospects, playing the long game, and investing in the future.

Abstract

The article presents three investing rules by David Gardner, co-founder of Motley Fool. The first rule is to invest in real businesses with beautiful prospects, which involves identifying companies that solve real problems and have the potential to earn money. The second rule is to play the long game, which recommends buying quality businesses and holding them for at least five years. The third rule is to think about the future and invest in companies that are working towards building the future you desire.

Opinions

The author believes that investing in real businesses with real products, solving real problems, and earning real money is the key to successful investing.
The author categorizes investors into two broad categories: short-term traders and long-term investors, and recommends the long game for most retail investors.
The author emphasizes the importance of investing in companies that are working towards building the future you desire, and suggests that this approach has two benefits: enjoying living in the world you so desired and becoming wealthy.

Want To Make Millions in the Stock Market? 3 Investing Rules by a Millionaire Investor

Let these rules inspire you to become a better investor than before.

Money pot and a boy working on a laptop (Image created using “Canva”)

Here are the three Cardinal rules of investing by a great investor and co-founder of Motley Fool, David Gardner.

Rule #1: Invest in real businesses with beautiful prospects.

Rule number one is to invest in real businesses with beautiful prospects.

Let’s break this rule down into two dimensions.

Real businesses
Beautiful prospects

1.1 What does a real business mean?

Here are the prerequisites for a company to qualify as a real business.

The company is solving a problem or adding value to society.
It can earn money by selling the solution.

If the business does not meet the first rule, i.e., solving a problem or adding value, it is a speculative product.

The valuation of such a business will evaporate as fast as it was built.

If a business cannot meet the second prerequisite, i.e., cannot earn money from the solution, it is a charity case.

Unfortunately, you cannot make money by doing charity.

Hence, invest in real businesses with real products, solving real problems, and earning real money.

1.2 What do beautiful prospects of a business mean?

The following steps will help you to understand a business’s prospects:

Problem: First, identify the problem a company is addressing.
Total Market: Then, check how many people think it is a problem.
Addressable Market: Estimate the subset looking for a solution to that problem.
Target Market: Finally, check how many people are willing to pay for that solution.

These simple steps will give you an idea about a company’s prospects. It will help you figure out whether the vision of the enterprise can be a reality or it’s a dream.

1.3 To wrap up

Invest in real businesses that solve real problems and earn real money by solving them.

You should avoid jumping into an investment without doing any research. Additionally, ignore the investment products that have no real business behind them.

Rule #2: The long game is the only game to play.

There are different types of players in the investing game. I categorize them into two broad categories:

Short-term traders — Buying and selling investments in the time frame of 1 hour to 1 year.
Long-term investors — Buying and holding investments for at least five years.

I presume most retail investors are part-time investors. And they have a full-time job outside the investing game. Thus, the long game is the most profitable game for these investors.

The long game recommends buying quality businesses and holding them for at least 5 years.

You will sell the business if the company’s fundamentals or the story behind it has changed.

2.1 Reasons why the long game is the most profitable game

In the long game, investors do not have the pressure to invest every day. Instead, they can choose when to invest.
Most short-term traders cannot beat the market returns, i.e., the return from a broad market index. So why bother picking stocks yourself if you cannot get a return higher than a broad market index like S&P500. Simply put, it is not worth it.
In the long game, players let the magic of compounding do its Abracadabra.
Investors pay less to no tax on long-term capital gains.
In the short term, retail investors compete with Wallstreet experts. As a result, the odds of coming ahead of Wallstreet moguls are very low.
The stock market is unpredictable in the short term. But, it gets predictable in the long term.
Active trading is a very stressful job. But, long-term investing is not. Long-term investors can automate the purchase of their favorite stocks or ETFs.
Part-time retail investors do not have the time to study and research every stock. Hence, it is easier for them to invest in broad market indices for the long term.

2.2 To Conclude

The long game is a more relaxed and profitable way of investing for most part-time retail investors.

Rule #3: Think about the future. Live backward from the future and Invest in the future.

What is the future world you want to live in? Which company is working hard to make your future world a reality?

Let these questions guide you while choosing a business to invest in.

For most of us, the goal is to make money. But, would that money be any good if the world you are living in is not the one you envisioned?

3.1 What would you prefer;

To be a billionaire in a world at war or a millionaire in a world at peace?
To die a wealthy person at an early age or live a long healthy life?
To visit Mars in your lifetime or become rich on Earth.

The list goes on. These are the choices we have to make as an investor.

Ask yourself what type of world this company is planning to build. And do I want to support their cause by giving them my hard-earned money?

3.2 Third option: Live wealthy in a world you desire.

Investing in a company that is building the future you desire has two benefits.

If the company succeeds, you will enjoy living in the world you so desired.
Additionally, the company will make you wealthy. So, you can live happily in your envisioned world.

3.3 To summarize

Go 10 years forward into the future. Envision the world you see.

Look for companies working towards that goal. Then, analyze them and lend them your money to make your dream a reality.

At the same time, give the businesses time to build your dream world. Do not waver by the short-term noises of short-sighted individuals.

These are the three Cardinal rules by David Gardner. Let me know what you think and the Cardinal rules that guide you.

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