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9 "Self-Evident" Foolish Truths, No. 8: Be Ready and Willing to Lose

This week is the 120th Rule Breakers podcast, and as Motley Fool co-founder David Gardner looked back, he realized he's covered a whole lot of subjects in those shows. More to the point, with all those episodes behind him, there are some areas he may not have covered in detail in a while. So he's getting back to basics with a set of ideas he thinks any Foolish investor ought to take for granted -- because he's not taking it for granted that everyone knows them.

In this segment, he discusses his biggest losers -- and how many he's had. But what takes the sting out of those big declines is that the gains from his winners far exceed the pain of his losers.

A full transcript follows the video.

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This video was recorded on Oct. 11, 2017.

David Gardner: Foolish Self-Evident Truth No. 8: Get ready to lose. Foolish Self-Evident Truth No. 8 is that you will lose and lose a lot as a Rule Breaker investor. I have a horrific statistic for you. Thanks for listening all the way through to this point in the podcast. I've got a special Easter egg stat for you, here, right now. I have now picked in Motley Fool Rule Breakers' history as many stocks that have lost 50% or more as my age. I am 51 and this week I now have my 51st [-50%] loser.

And I hate that. It's shameful. I don't like to think about it. People have followed my advice, I have followed my advice, and a lot of the time [not all of the time, and we'll get to that in a sec] but a lot of the time we lose, and we can lose dramatically. And you need to be ready for that if you're a Rule Breaker; otherwise you're not a Rule Breaker. You need to be willing to lose, and here's why.

Because even though I have 51 [-50%] losers in the 316 stocks that I have picked over the course of the 13-plus years of Rule Breakers -- 51 [-50%] losers -- good news. The 51st best stock that I've picked is Ellie Mae. I picked it five years ago this month and Ellie Mae is up 232%. The 51st best pick.

Can you hold both those stocks in your mind? Can you see that while you're going to eat it a lot, the value of winning far wipes out the cost of losing? This is such a critical psychological point. Psychologists tell us that the pain of loss is three times the joy of gain. Think about that. It hurts to lose far more than it feels good to win. That's just true of human psychology.

But look at the math that you and I just threw down together. A quick quiz. What is the pain of loss at its maximum for an investor? The answer is losing 100% on a stock market recommendation which I've still never done personally myself. Minus 100%.

What is the joy of gain by contrast for investors? The answer is that joy is unlimited. My four horsemen -- the four stocks in Motley Fool Stock Advisor that have gained 50X or more of their value -- any single one of those four horsemen itself wipes out pretty much all the losses of all of my [-50%] losers and then leaves profits on top of that.

So, just recognize that the math of investing directly reverses the psychology that all of us are bound to. The pain of loss may be three times the joy of gain for most contexts in life, but for you and me, for Rule Breakers investors, it's quite the opposite. A lot of people don't realize that and they live in fear of ever having a single stock that would lose 50% or more of its value.

David Gardner owns shares of Ellie Mae. The Motley Fool owns shares of and recommends Ellie Mae. The Motley Fool has a disclosure policy.