In this episode of Rule Breaker Investing, David Gardner returns with Volume 8 of Gotta Know the Lingo, welcoming Motley Fool analysts Alicia Alfiere, Amanda Kish, and Nick Sciple.
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A full transcript is below.
This podcast was recorded on April 15, 2026.
David Gardner: Burn rate, asset location, inventory turnover, customer acquisition cost, spivy pop. Each of these represent intermediate-level terms that most serious investors know, and most people who are not serious investors do not know. I'm inviting on three serious investors this week, Motley Fool advisors and analysts all in order to help teach the rest of us some new terms, terms like the ones I let off with, each of which has been covered in the past episodes of this week's recurring series. Some simple, some more advanced, all terms you need to know. Drawn from investing and business, understanding these terms and the concepts behind them will enable you to become smarter about the game of investing smarter, which in my experience leads to happier and richer over time. Or maybe you already know these terms. In which case, we've got a scoring system. You can score yourself this week. It's Volume 8 of Gotta Know the Lingo, welcoming in Amanda Kish, Nick Sciple, and Alicia Alfiere to teach you and me this week only on Rule Breaker Investing.
Welcome back to Rule Breaker Investing. It's Gotta Know the Lingo Volume 8. The purpose of this series is to look at some of the terms that you might hear about and not always fully understand from business, accounting, investing, sometimes technology as well. Some new oncoming terms to get you thinking about the language of investing, business, and sometimes life, to get you smarter about these concepts. We're about to do Volume 8. I'm going to be welcoming on Amanda, Nick, and Alicia to share three simple terms and three advanced terms this week. Before we start, let's talk again about our little scoring system for you for this series you're scoring us. We have six terms for you this week, six that we're going to share and illustrate for you at the end. After we present each of our six terms, I'm going to ask you, dear listener quietly, just to think, did I learn anything from these Fools? If you feel like you didn't learn anything for that given term, your five minutes or so were wasted by that particular term, the score would be zero because you learned zero, and we were zeros.
Now, if on the other hand, you thought that was helpful, maybe you did know the term, or hey, you knew the term, but we made you laugh. Give us a plus one. Finally, if, as Amanda, Nick, or Alicia present their terms with their illustrations, if you find yourself delighted, not just by the quality of the learning, but maybe you got to smile along with it, if you really enjoyed it, give us a plus two. That is the scoring system for Gotta Know the Lingo. Let's get started. Amanda Kish is The Motley Fool's financial planning team lead and works to bring a financial planning lens to The Fool's stock-focused guidance. Outside of the Fool, she's an actor and singer and frequently performs in community theater productions. Amanda, welcome back.
Amanda Kish: Thank you. I'm so glad to be here.
David Gardner: I have an icebreaker question for each of you this week, and here it is. You ready?
Amanda Kish: I'm ready.
David Gardner: The question is, Amanda Kish, what's a financial concept that changed the way you see the world?
Amanda Kish: I think for me, from a financial planning perspective, that would be the concept of human capital and just how valuable that is. As investors, we're often so focused on the numbers on stocks and returns that we're getting. But especially early in your career, and even as you move into midlife, I would argue, your biggest asset isn't going to be in your brokerage account. It's you. Your future earning potential is an incredible asset that can behave a lot like a bond, relatively stable, potentially predictable cash flows over time. For a planner, once you start thinking about that and thinking about people's careers as a financial asset to be managed and protected, it can really change how you think about everything from insurance to asset allocation to career decisions. It's very important, even though it's not something that shows up on a balance sheet.
David Gardner: I love it, Amanda. Thank you for that. Was there an aha moment where you all of a sudden saw human capital new for the first time? The music stopped or maybe the music started playing, or was this just by osmosis over time?
Amanda Kish: I think a big introduction was hearing from our own Robert Brokamp and hearing him talk about human capital in my early days at The Fool. That was very formative in my experience of understanding that and how we relate to that as planners and investors.
David Gardner: Fantastic. Thank you, Amanda. Nick Sciple is a senior analyst on The Motley Fool Canada investing team supporting our Canadian services. Outside of The Fool, most of his time gets taken up by his three-year-old and his one-year-old. But Nick tries to find time to follow Alabama athletics and get to as many concerts and shows as he can. Nick, welcome back.
Nick Sciple: Great to be here with you, David.
David Gardner: Nick, what's a financial concept that changed the way you see the world?
Nick Sciple: I struggle with this one. Last time I was on the show, I said compound interest. I don't want to repeat myself. I'll give you one: child tax credit. Not because the financial concept is that important. It's because children change the way you see the world. Remind you of gosh, exponential growth. You see it right in front of you, as last time I was on the show, I had a 10-month old. I'm about to have a two-year-old. Totally changes your perspective on the world and how you want it to change and your role in it. Yeah, it's changed my perspective on finances, life, etc. If I've had to boil children down to a financial concept, it's the child tax credit, my two old tax credits walking around every day around.
David Gardner: Very nicely put, Nick, despite the temporary horrific image I had of boiling children, but slightly more seriously, Nick, it has been a year or so since you last appeared on this series. You've had another year of parenting, Nick. There are some young parents, some parents to be listening right now. You got an extra tip?
Nick Sciple: Put the phone down. That's the easiest thing to do without thinking about it, and it takes you out of the moment, and those moments are precious.
David Gardner: Beautifully said. Alicia Alfiere is a senior analyst on the Rule Breakers and Super Nova Phoenix teams at The Motley Fool. Outside of The Fool, she spends time entertaining her one-year-old, and when she can, reading and writing stories. Alicia, welcome back to this podcast. You've certainly been on before, but to this series, this is your debut appearance.
Alicia Alfiere: It is, and I'm so glad to be here.
David Gardner: Alicia, what's a financial concept that changed the way you see the world?
Alicia Alfiere: I'm glad that Nick didn't talk about compounding interest because I want to talk about interest in general. It's a simple concept, the cost of borrowing money, but I think a lot of people just don't realize how much it really changes the true amount paid over time. When I got my graduate degree, like a lot of students, I didn't have the cash to fund that expense, so I had to take out loans. I made myself a spreadsheet to track my loans, payments, calculated interest, and I was shocked to see just how much even a lower interest rate could do to the total owed. I already wasn't a big fan of debt, but seeing those numbers really motivated me to do all that I could to pay off that debt as soon as possible. I did.
David Gardner: By lot, Amanda, I picked you to start it off here with your simple term, term number 1 for Gotta Know the Lingo. Amanda, what is your term to lead off this week's podcast?
Amanda Kish: I'm going to lead off with the retirement smile. The retirement smile, which is also sometimes called the spending smile, is a pattern of how retirees actually spend money over time. Instead of a flat line or potentially a steady decline, we see that spending tends to form a smile shape or U shape, higher in the early go-go years when we're more active doing more travel. Dipping a little bit in the slower middle years and then ticking back up near the end of life due to higher healthcare, long-term care costs. This is important for many years. This is really shaped how financial planning professionals have approached modeling spending in retirement with an understanding that retirees would, on average, follow that U-shaped spending curve.
It's an interesting and timely topic because when this research was first published back in the 2010, we have that very clear U shape. Now that research has been updated earlier this year, so that research has indicated that this is actually a little bit more nuanced topic than we had originally thought 10 or 15 years ago. The original research looked at average spending. On average, yes, you'd see that uptick in later retirement based on higher healthcare spending, but more updated research has shown that when we look at median spending, that shape of that smile curve changes. When you look at the typical household rather than the average, that late retirement uptick is much more modest. It's a little bit less of a smile and more of a smirk, if you will. That's because that big scary number that was pulling that average up, that late retirement healthcare spike is really being driven by a relatively small number of households with that significant long-term care needs. In other words, it's just really a few households that are doing a lot of the work on that right side of the curve. When you remove that, we find retirees simply spend less and less as they age.
This is important to know on a practical level that this doesn't mean that we ignore that need for long-term care and that risk. But what it does mean is that we understand this for what it is that extra spending is a tail risk and not a certainty. It's, let's say, a low to moderate probability event with certainly could be potentially catastrophic financial consequences for those that affect. But this isn't the risk that you plan for by, let's say, spending less early in retirement, spending less on your travel, but you do plan for it with a dedicated strategy, whether that's long-term care insurance, a separate bucket of assets for long-term care that's earmarked for that and not touched or at the very minimum, at least an honest conversation about what you would do if you end up needing that type of care. The bottom line is that retirement smile is real. It's just a little bit less dramatic than you previously thought it was for most of us.
David Gardner: Amanda, I'm curious you've spent years talking to lots of different Motley Fool clients, people seeking financial planning advice, and good ideas like the retirement smile. In your experience, how low does that smile bend, typically? Just the numbers of it for maybe an average Motley Fool client. Is it 20% less than the initial amount that we're spending in retirement once we get a little bit more used to it, or is it 33%? Is there a number you can put on that?
Amanda Kish: On average, I think we see about a 20-30% decrease from those initial years to those slow go middle years. It is meaningful and it is something that you want to account for in that spending.
David Gardner: Excellent. Is there anything about the retirement smile that makes you personally smile?
Amanda Kish: I think it's very helpful to understand that there are different points in the retirement life cycle and understanding that our needs and our spending are going to change over time, and understanding how that factors in and how that relates to what we see on average. I think that's very comforting to know that there's going to be ways that we can account for and accommodate the various stages that we find ourselves in the retirement life cycle.
David Gardner: Thank you. As you know, we close each term with me asking you to use your term in an interesting, illustrative sentence. What do you got, Amanda?
Amanda Kish: They call it the retirement smile, and the best way to keep yours intact through all three stages of retirement is to plan for it.
David Gardner: Thank you. The retirement smile term number 1, thank you, Amanda Kish. Again, friends, if Amanda and I didn't cause you to learn anything, then give us a zero. Please do. Give us a plus one if you had fun and learned something. Give us a plus two, especially if you feel like you have a new term you could use and share with others. That's maybe a great way of scoring Gotta Know the Lingo. Let's move on now to term number 2. Turning to Nick Sciple. Nick, what do you got for?
Nick Sciple: David, I brought depreciation as my term today. Depreciation is an accounting process where you spread the cost of long-lived assets over its useful life rather than recognizing those expenses all at once, part of generally accepted accounting principles, GAP, where expenses are supposed to be matched to the revenues that they generate, and that's what depreciation does.
David Gardner: Nick, at what point in your own schooling? I know you went to law school. I don't know if they taught depreciation before, during, or you learned it after law school. When did depreciation really come into your life?
Nick Sciple: Accounting. First year, undergrad, business degree, accounting. You got to learn about double declining balance, straight line, all these different forms of depreciation and how to make those numbers add up.
David Gardner: Nick, obviously, depreciation matters deeply for some of the stocks that we research, for some types of companies, less so for others. But explain a little bit more about depreciation. Explain why it matters.
Nick Sciple: It matters for investors. This is a non-cash expense that's recognized on the income statement, and it is often why you will see companies appear to be unprofitable. Amazon was an example for a long period of time, generating positive cash flow every year, but because you are depreciating the cost of your long-lived assets, your reported accounting earnings look lower than the actual profitability of the operating business. An example of what's going on today, we have this huge CAPEX build out for AI data centers, all that cash is being spent today, but because of depreciation, those expenses will be recognized over the years to come. When you're analyzing businesses, that's why we often say, look to the cash flow statement first and look at the income statement in context with the type of business it is and depreciation and those things.
David Gardner: Nick, what are some other examples for you of industries that clearly, as an investor, you want to be looking for depreciation. You want to be factoring it in to your stock research? Then maybe an example or two of an industry where it really doesn't matter or it could mislead you.
Nick Sciple: Sure. Heavy asset industries. Think about rail, roads, manufacturing, things like that. Depreciation is very important because they have lots of long lived assets on the balance sheet. Would be less important for let's say a fashion retailer or a company that's most of their assets are in brand. They're selling consumer goods. Those would be less important because they just have fewer long live assets. You talk about these asset light businesses. Those are the type of businesses where you're not going to see a lot of depreciation.
Alicia Alfiere: Nick, I just wanted to jump in with a fun question here. Has there been a time when a company has changed its depreciation schedule, and you were excited about the implications?
Nick Sciple: I can think of fewer, less exciting things in the world than depreciation [LAUGHTER] schedules. Tends to be more often than not, it's a red flag. It's a company that is extending useful lives of its assets, which means that they can reduce expenses and play accounting games. There's things you can look at to see funny business going on. For example, you look at the GPUs today, many of these become obsolete after two or three years. However, the depreciation schedule necessarily match reality. When you see those types of divergences, it can be a place to look at as an analyst.
David Gardner: GPUs, of course, graphical processing units, and it's reminding me, spoiler alert, that Nick will be introducing an acronym a little bit later in the show, one that I myself don't recognize, but that's because I'm here to learn just like each of you listening. We're all learning all the time. Stay curious, Fools. Nick, thank you for depreciation. Would you please use it in an interesting illustrative sentence?
Nick Sciple: Sure. Companies spending billions of dollars on AI data centers this year won't recognize those costs until future years because of the accounting concept known as depreciation.
David Gardner: Thank you very much. Again, I really do appreciate you making it relevant. You're right. The amazing, really unprecedented amount of corporate spending on artificial intelligence has created a real gap between the actual money going out the door and how that will be accounted for. Nick has brought us an excellent term. Part of what we try to do with Got to know the Lingo is think about things that are relevant to today's news. Nick, thank you very much depreciation, even though it's a concept that's been around for a long time, it feels particularly relevant during this era. Thank you again, Nick Sciple, Term Number 2, depreciation. Let's now move to Alicia Alfiere, Alicia, welcome. What do you have for us Term Number 3.
Alicia Alfiere: Today, I've brought you Dollar-cost averaging. The practice of buying shares of an Index Fund or a company's stock at different price points over time, so sometimes it's higher, sometimes it's lower. You're not trying to time the market here, just buying over time. All of those price points average out so that it doesn't matter that sometimes you bought at a higher price. The reason why I brought this today, my daughter turned one not too long ago, and she's already an investor. When she's older, we'll use her portfolio to teach her about Investing, and we'll pick stocks together based on her interests. Right now, I'm building the foundation of her portfolio with a collection of index funds, and I'm dollar-cost averaging into them. Regardless of what the market is doing, I'm buying on a regular basis, and I believe that this will create a strong foundation for her to build upon in the years to come. I also like Dollar-cost averaging because it helps me keep a cadence of Investing. Often when the market is volatile or when life gets insanely busy, it's easy to forget about some things or put them off for later. I don't want to forget about Investing.
David Gardner: Alicia, so Dollar-cost averaging, often think about it for Index Funds. Are there assets or types of investments where Dollar-cost averaging is inappropriate?
Alicia Alfiere: That is a good question. I think, for cyclical industries in particular, I would stay away from that. I think what I like to do with cyclical industries is understand where I am in the cycle, and then try to be opportunistic based on that.
Nick Sciple: David, I wonder if you had some thoughts on that, given a guy who always talks about, don't throw good money after bad. How do you think about Dollar-cost averaging with the type of stocks that you have recommended in the past and follow?
David Gardner: Thank you, Nick. Well, first of all, I absolutely love the concept, and I'm really glad that Alicia brought it for this particular Got to Know the Lingo because I think it's relevant in every era, and every year. You're right, Nick, there are some companies or situations that it might be less or more appropriate for, but I think most of all, what I love about Dollar-cost averaging is, as Alicia said, it just creates a cadence, and I think it's the right cadence, especially because most people they're not attuned to that naturally. Many people were not raised as I think Alicia's 1-year-old will be on the concept of ABI, Always Be Investing, and that's really what I love about Dollar-cost averaging. I will say that I tend to buy in thirds with stocks, especially if it's a volatile time or a stock I'm just getting to know. I don't feel the need to put it all in at once. I've written about that in Rule Breaker Investing. Buying in thirds would be an example of Dollar-cost averaging, but really more broadly, it's more an approach to your money, and an approach to life, and that's why I think it's so relevant.
Amanda Kish: I would just throw out there. I love Dollar-cost averaging, as well, and don't underestimate it as a behavioral management tool. I think it's a good tool at helping investors to not only invest over the long run, but it helps you manage that regret factor of knowing when you did or didn't get into the market at different price points. You don't have to worry about that timing by making it more automated.
David Gardner: Well said, Amanda, and Alicia, before I ask you for your interesting illustrative sentence, I realize I'm a little remiss. I also have another new parent here. You're just about through your first year of parenting. How about a little bit of advice from somebody who's been there and done that now for around 12 months?
Alicia Alfiere: As you've said, I don't have a lot of experience, but I do have 12 months of experience, 13 months, actually. I would say, my piece of advice is soak it in. Enjoy the moment that you're at because time flies really quickly. You only have a baby for 12 months, and then you have a toddler, so every moment is important.
David Gardner: I'll just tag on that starting an account for that baby or toddler is a great move and such a gift years later as things compound through I'm not trying to steal your sentence here, Dollar-cost averaging, Alicia Alfiere. What is an interesting illustrative sentence you have here for Term Number 3?
Alicia Alfiere: Well, Dollar-cost averaging won't be my daughter's first words. I'm hoping that it'll be Mama, but it will help me be consistent in Investing for her future.
David Gardner: Excellent. Very well done. We are at the halfway point of this week's podcast fellow Fools. We've just gone through three simpler terms, a reminder for each of the now. Remember, score us zero plus one or plus two for each of these. The retirement smile, depreciation. Dollar-cost averaging. Again, if you already feel like you knew those, we added no value to your life. First of all, I personally apologize. Second, maybe you want to share it out with people who don't know, because a lot of people don't know these things. But if we made you laugh, give us a plus one, and if you feel like you have something you can use as a tool now and share with others, plus two, this is a quality assurance system. In fact, you can let us know on social media or via our mailbag, how we scored for you. This week and why?
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David Gardner: Let's now move from our simpler to our more advanced terms. I'm going to turn back to Amanda Kish. Amanda, what is your more advanced term for Got to Know the Lingo Volume 8?
Amanda Kish: I'm going to turn to talk about reflexivity. Reflexivity, it's a concept that had its origins in the field of sociology, where this theory was that defining situations as real makes their consequences real. Or, in other words, your thoughts shape your reality. When you apply that to the Investing world, reflexivity is the idea, and this is something that I think George Soros advocated. Market participants don't just observe the market conditions, they influence them. Their perceptions, actions, feedback into the fundamentals that they're analyzing, creating a self-sustaining loop where reality and belief both shape each other in real time. If we think about the classical model of markets, it assumes that markets are efficient. Prices reflect fundamentals, earnings, growth rates, etc, and then as investors analyze that, the markets adjust to the true value.
Well, reflexivity says that that's not quite the case. It says that the act of investors believing something can actually cause that thing to become true or at least to shape the fundamentals themselves. A classic example of that is a company stock is doing very well. It's flying high, so that rising stock price means it can then raise cheap capital. With that cheap capital, it can do all things, acquire competitors, attract talent, and now those fundamentals actually improve because the stock went up. That belief helped create that reality. On the flip side, think about something like a bank run. Depositors fear a bank is insolvent, they pull their money in a panic, now that bank actually is insolvent. It's that fear that became the fact. Basically, this argument says that markets are not fundamentally self-correcting in that neat, efficient market way that economists might think they are, at least in the short run. We see evidence of that in these boom, and bust cycles and these sequences where these feedback loops really can take prices very far from reality before everything reverts back to the norm.
I think that's important for investors because if you understand that, that narrative and the fundamentals can co-create with each other, then you think a little bit differently about momentum, bubbles, does a stock deserve its valuation? Sometimes the story is doing the work. It's attracting capital, enabling strategy, building that moat. Other times that story is just a story, and those fundamentals haven't shown up yet. Understanding that phenomenon, and that it exists, and that we all participate in it, I think it is a very important first step for investors.
David Gardner: I was really excited when you let me know that you were bringing this term to this week because it is one of my favorite concepts, Amanda. We have never covered this one before on this series, especially for Rule Breakers, and Rule Breaker Investing, it's just so meaningful. In a lot of ways, venture capital is what enables things to become real in the world. How do you obtain venture capital? You need to be persuasive enough a combination of the product or service you're offering, along with your human capital, who you are as a person. Are you convincing to others who can write you checks? All of a sudden, the people who are get the checks and their products or services become real, and enter the world.
I do think often phrases that I lean on a lot like winners win, what do they do? What do winners do? The answer is they win. That does create a self-reinforcing dynamic, which is very important. As you point out, Amanda, it also can be the opposite. If there's just a sense, you know what? That person is not persuasive to me. They're not going to get the money. Therefore, they're not going to get the opportunity, in some cases, the prosperity that others might have gotten. Of course, it can be faked. Some people go with the fake it till you make it approach. That can work through reflexivity. It can also backfire. If they're not ultimately worthy, but this is such a helpful concept. I think it explains a lot of the venture capital world, and I love that it came from our financial planning lead, because Amanda, you're right. Soros wrote a great essay on this topic, and I'm definitely a student of it, but just an undergrad student. I'm sitting at the feet if anybody wants to tell me more about reflexivity, Nick Sciple.
Nick Sciple: I think one of the better examples in the market of the past decade is Tesla. Tesla benefited from reflexivity all the way up, access to capital, willingness to go through what I think, Musk called it, manufacturing hell to actually get up to scale. The magic of Elon created reflexivity that made Tesla happen in a way that Ford, GM never could have.
David Gardner: Is a great example, and Tesla has also been a fantastic stock for Rule Breaker Investors. They're not always going to work out that way, but Tesla is now 171 bagger since we first recommended it. I watched this one and several other Rule Breakers, Nick, and Amanda, get that moxie behind it and that public perception that it could happen, that it could be real. We can love the velveteen rabbit into existence if we will just love it enough. I think Tesla's a fantastic example. Well, Amanda, it's about time for the interesting illustrative sentence, except that I want to go longer on this one. Alicia, I think you got some.
Alicia Alfiere: I wanted to ask what mindset tools can investors use to deal with the potentially negative impacts of reflexivity in the market.
Amanda Kish: I think a big part of that is just understanding long-term averages, having that long-term mindset, and really understanding what it is that you're Investing in and understanding your thesis. Like any concept that's more behavioral finance focus, if you understand what's going on and understand that there's going to be these strays from the the fundamentals for the long-term averages. I think that's really going to help you stay put and really help you not make moves at the wrong time that you may be selling into a bear market or hopping on a hot trend too late in the game. I think being confident in your plan, knowing where things are over the long run, sticking to your thesis, sticking to your financial plan, and refreshing that in times when markets are crazy, are really going to help you stay grounded.
David Gardner: Put your hand up, fellow Fools, listeners everywhere, if you already knew what reflexivity was. I don't see every hand up, so I'm glad that we went over this one. Amanda, how about an interesting illustrative sentence to close here for Term Number 4?
Amanda Kish: Flexivity is the market's way of reminding us that sometimes the story doesn't follow the stock price. Sometimes the stock price writes the story.
David Gardner: Really well said. While I think I've presented a mostly bullish view of this, and it's because I believe it is such a fundamentally important dynamic. For the winners among our Rule Breakers, it also can cut the other way just as easily. It's an ambiguous, neutral term, but it's a real concept out there. Amanda, thank you for bringing it. Let's move on to Term Number 5. Nick, earlier, spoiler alert, I said, you'll be bringing an acronym. I'm going to let you throw down the letters first. Then, for those of us me included who didn't know what those letters stood for, could you please lay it out?
Nick Sciple: Yes, David, happy to do it for you and for the listeners. LCOE is my term. Stands for Levelized Cost Of Electricity or sometimes you'll hear it as Levelized Cost Of Energy, and it is a metric that gives the average net present cost of generating one unit of electricity over a power plant's entire lifetime, counting for the cost to build it, fuel it, operate it, finance it, etc. It allows you to compare solar power generation, against wind, against gas, against nuclear, against coal, one for one in a way that makes them apples to apples. As you've charted, Levelized Cost Of Electricity over the past decades, solar power has come down dramatically, and now, according to that metric is by far the cheapest form of electricity today.
However, it’s important to caveat that term. Levelized Cost Of Electricity does leave out some really important costs of energy production one being distribution. It doesn't account for the distribution, the power lines that it takes to get that power from your solar power plant in the desert to your factory in the city. Also, it doesn't account for dispatchability. Everybody knows the sun doesn't always shine, the wind doesn't always blow. That means if you have, for example, an AI data center that needs to be on all the time to serve your customers, solar and wind may not be able to service those loads in the way that these tech companies need them. That's seen a big explosion in the past several years in natural gas. Nuclear is having a renaissance because it can provide that firm 24/7 power that data centers need to run, and for that reason, folks are willing to pay a higher price on a level-edged cost of electricity basis to ensure that reliable supply.
David Gardner: Thank you very much, Nick. I know this partly comes because part of your focus of The Motley Fool has been energy companies. This is an area of expertise for you, and therefore, you're rocking acronyms I didn't know before this week's podcast. Looking at levelized cost of energy today, you're pointing out that solar is the cheapest by far, even including wind; is that right?
Nick Sciple: I believe so. Yes, sir.
David Gardner: That makes me happy because I've always thought I try to think backwards from the future as an investor, and it just seems like the end game, the end state would be the sun. It's the sun. How could it not be our number 1 source of energy ultimately? But, boy, does it still take a lot of effort to get there? Of course, in the meantime, nuclear and other options are showing up and are very interesting, as well. Wouldn't we love to see nuclear fusion happen in some real way at some point? Nick, when you look at solar, do you find yourself generally bullish because of that low LCOE or is the cost of distribution, et cetera, still daunting?
Nick Sciple: I think it's really in all hands on deck. The panel makers have been challenging because of commoditization, competition from China and other markets. I do think there are interesting opportunities to invest in solar next, what is Nextracker? Now I believe it's NextPower. They've changed the name ticker is NXT, they provide actuators that allow solar panels to track the sun throughout the day, maximize the production of those solar panels, and they've become the one-stop shop for that business. It has exposure to this massive growth in solar power production without being in the commoditized panel part of the business. I think there's certainly opportunities to invest in solar power, but I think the entire energy grid is an opportunity today. A lot of folks don't know. If you go back to 0607, all the way through 2020, electricity demand in the US was basically flat. As we enter the 2020s with the rise of AI, potentially electric vehicles, we're at a whole new growth trajectory that we hadn't seen in better part of 20 years, and that's going to require solar, nuclear, gas all across the board, and so I think it's a very interesting time to be looking at energy and electricity.
David Gardner: Glad you used the word gas because I hadn't really presented that yet. We hadn't talked too much about it, but it is such an important and relevant source of energy today. Yet, I still want to pin down on the future. Nick, what about nuclear? How do you assess nuclear energy today? Do you have a general sense of the LCOE of nuclear as it compares to gasoline, for example? Are you invested in any nuclear stocks?
Nick Sciple: Yes, so levelized cost of electricity for nuclear power is the most expensive, and a large part of that is, this is the most regulated form of electricity production by far. Also, we've essentially not built nuclear power plants at scale in North America since the 1970s. If you look at other markets like China, where they've been building at really a rapid pace, or in Canada, where really the backbone of their grid is nuclear power, they've been able to bring down costs and get these projects in under budget and before deadline. If we can get our pace of nuclear power plant generation to the point where building one, taking that workforce, moving on to the next one, I think costs will come down over time.
There is opportunity in these small modular reactors where you can make the reactor in a facility and ship it out to its end destination. But it's really a question of us as a society, how much are we willing to invest in nuclear? If you go back to the 1970s, we had 40 plants up and running, and then as energy costs came down, we moved on to other things. There was also safety concerns of course, but if we remain committed to nuclear, I think in the long run, I think it's only going to grow. Right now, it's 20% of electricity in the United States. Still, nuclear of clean, non carbon producing energy is still the number 1 producer on the grid and I think we're in a new era when it comes to electricity, demand, growth, and I think that will be a tailwind for nuclear for the next decade.
David Gardner: Thank you for those thoughts. I think we've strayed from just defining our term because I get interested in these things, and I like to hear from people who know more than I do. Thank you, Nick. I want to ask you just one quick follow-up before we go to your interesting illustrative sentence. Whenever I hear that we've levelized to use that term, not one of my favorite verbs, I don't think, when we've levelized a cost, but then you go on to say, well, not really because we haven't actually factored in these other costs. It starts making me wonder, can we levelize those? Is there a true apples to apples that we can create that better expresses without asterisks real comparisons. I realize it might be local and contextual, et cetera, but is anybody working toward a true levelization of the cost of energy?
Nick Sciple: Levelized cost of storage is out there. There are different metrics you can use that will account for what you have to spend to back up that solar power plant or that renewable power plant. JP Morgan does some work on this, Michael Cembalest has some great data to look at. But there are efforts out there. JP Morgan is one of the better ones.
David Gardner: Thank you, Nick. How about an interesting illustrative sentence using either your acronym or your full phrase?
Nick Sciple: When people argue that nuclear energy is too expensive, they're usually looking at levelized cost of electricity in isolation. But that's like saying a backup generator is too expensive until the power goes out.
David Gardner: Boom, thank you for that, Nick, and thank you for the discourse, as well. Let's move on now to our final term this week. Back to Alicia Alfiere. Alicia, what do you have for us term number 6?
Alicia Alfiere: Risk tolerance or how comfortable a person is with volatility at the potential to lose money with an investment. This one seems straightforward on the surface, but it can be more complicated than many realized because it can change over time, based on the individual and phases of life. I believe that it's something an investor can only truly know after a market downturn with losses and self-reflection. Also, I think it's something that you can understand better, make peace with, and perhaps get better at through journaling.
In a previous episode, Amanda discussed risk capacity. Risk capacity is more about your ability to weather the storms of losses and it looks at things like how much money you bring in, what are your assets and what are your expenses. That's different. Again, risk tolerance is a bit more squishy and personal. It's dealing with emotional reactions to things like volatility and the potential to lose money, and it can change over time. Why I brought this today? The market has been volatile and not the upward kind that people don't mind. I think regardless of where people are on their individual investing journey, there's a lot we can learn in terms of how we're dealing with volatility now, how we're viewing the overall market and different opportunities, and how we're thinking about the potential for losses.
David Gardner: Thank you for that, Alicia. On the face of it, you're right. This doesn't feel like an advanced term, necessarily. As a term, it's probably not, but as an important concept that you need to earn your stripes over time, you need to live to understand yourself and the markets at large, it is a more advanced concept. I want to open it up with Amanda, as well, because she did. As you mentioned, Alicia, she brought risk capacity last time. I want to open up to you both. My question is, has anybody ever actually tried to quantify this? Because whenever we say risk tolerance, you're right, it feels squishy, Alicia, because nobody has any actual number, or there's no Myers Briggs, where I can say these four letters for my risk tolerance and yet, I feel like the investment world would be helped if somebody did compartmentalize or quantify in some way, shape, or form, and presumably, Amanda, someone's doing it out there.
Amanda Kish: Somewhat probably is, although it's such an individual-specific concept, it's really hard to get a more group quantitative type of idea and put numbers to it. But I think, as Alicia said, I 100% agree that it's very much something that you have to live through. That's where you earn your stripes and understand what your true risk tolerance is and compared to risk capacity, I think a good way to look at it is Alicia mentioned, risk tolerance is the emotion, risk capacity is the spreadsheet. So if you want to actually put some quantification behind that. Run the numbers, run the analysis. If you want to know how would it feel if your portfolio falls, 30%, 40%, 50%, you run those numbers. That's important to do that and make those calculations to really get comfortable with that.
Alicia Alfiere: Yeah, and David, I could be mistaken. But haven't you done some work around risk tolerance? I think you call it and correct me if I'm wrong, sleep number?
David Gardner: It's true. I appreciate that. That was not a leading question, and I wasn't thinking you were going there, Alicia, but you're right. I do think about that, and that is, in fact, principle number 4 of the Rule Breaker portfolio, which is to establish your sleep number and sleep number in brief, is the percentage that you would allow your largest holding to become as an overall slice of your investment pie and still sleep well at night. For example, if someone has a sleep number of 12, that means if a single stock or holding becomes more than 12% of their overall net worth, they start to lose sleep, and some people have a sleep number of 12, other people have a sleep number of two, and some have a sleep number of 32. I do think there's something about knowing yourself, Alicia, and you're right, It's hard to know for sure until you've really lived it and experienced it. Thank you for that.
I don't think everything needs to be quantified. One of my favorite lines is there are no numbers for the things that matter most. But I do feel as if risk tolerance squishy such a good term that you brought Alicia, it's because we haven't really done a good enough job creating a construct or framework that we can hand our fellow Fools or the world at large and say, what's your risk tolerance? By the way, whatever you think it is now, as Alicia said earlier, it might change and you also might not be right about yourself, as well. So I appreciate this concept. Nick, any final thoughts here before we go to Alicia's interesting illustrative sentence?
Nick Sciple: Just a reflection on investing or risk tolerance, it teaches you about yourself. When you find yourself in those scenarios, when every headline is about how the market is crashing, it teaches you a thing about yourself that you can learn no other way. I think as much as investing is about time to make money for your family and give your family a better life. There are some other fringe benefits as well along the line, and one of those things as you're more interesting person, you learn more about the world, you're more curious about the world, you learn more about yourself and how you respond to world events.
David Gardner: I give you a heck yeah, thank you. Well said, Nick. Alicia, how about that interesting illustrative sentence here for risk tolerance?
Alicia Alfiere: Sure. I explore my risk tolerance by journaling about my investments and my reactions to wins, losses, and reactions to the overall market.
David Gardner: Thank you, very well done. I mean, I know you read and write stories so you also, turns out, have an investing journal.
Alicia Alfiere: I do.
David Gardner: Maybe just a broad journal or is the Investment Journal specialized apart from another life journal?
Alicia Alfiere: Well, I collect journals. So the investing journal is definitely separate from other journals.
David Gardner: Excellent. Thank you for that. There you have it. Got to Know the Lingo volume 8. We had six terms this week just to review them in order. A retirement smile, depreciation, dollar cost averaging, reflexivity, levelized cost of energy, LCOE and risk tolerance. I think my talented fellow Fools did indeed bring some simpler and some more advanced terms this week. How'd you score us? How'd you score us at home? Remember, 0, 1, or 2 for each of those. Feel free to tweet it out if you've got a high score or a particularly low score. We hope your results, dear listener, speak for themselves, whether it was a zero, a one or two for each of our terms, a lot of fun bringing that to you this week. Thank you again to Amanda and Nick and Alicia. In fact, I want to give each of them an opportunity for a final line. We've tried this the last few episodes here. It's baseball season again, and in major league baseball haters come up to bet, they get their requested walk up music played. Well, for my analysts and my advisors, I'm going to give them a walk offline. So let's do it in order. Amanda, you're first up. What is your walk off line today?
Amanda Kish: When investing, we spend a lot of time talking about returns, but the real goal is never the number. It's the life that number makes possible.
David Gardner: That's kind of a mic drop with everything blowing up behind you in slow-motion walk-off line. That was powerful, Amanda. Thank you. Nick, I wouldn't want to have to go next, but you're next.
Nick Sciple: No bonus points for degree of difficulty. Investing is not like gymnastics. The obvious easy thing can pay just as well as the backward somersault back flip. Investing is as hard as you make it, and just remember, you don't have to do a backward somersault, back flip to score 10 out of 10 from the judges.
David Gardner: One of the reasons I love showing off my fellow Fools in weeks like this is because I am both learning from you but also inspired by you. We sometimes mirror back to each other, because Nick, one of my favorite essays that I once wrote on investing, and I think you can probably Google it and find it out there on the internet somewhere, but it's great stocks don't make you think. That really, for me, is thematic. It's not that much more difficult. My first great stock pick was America Online. It seemed totally overvalued at the time to much of the world at large. But I was like, Hey, let's not do the double backflip with Nick Sciple here. It's the decade America is going online. Let's own America online. So great stocks don't make you think really appreciate that point. Alicia, what is your walk off line?
Alicia Alfiere: Investing is a journey, and a key thing to leverage here is self reflection, especially with losses. There are things to learn, as well as in times of volatility and uncertainty.
David Gardner: Very well said, whenever I think of journey and that word, which means a lot to literature majors, I think about the construct of the hero's journey, which I know many of us would have studied at some point in school, and I really do think each of us should be the hero of our own investing journey. One of the best ways to learn about yourself and become a little bit more heroic is to reflect, as Alicia just shared. For those who are inclined to write, you're probably going to accelerate those learnings and probably improve your journey even more if you take the time to set down your thoughts and then revisit them from time to time.
Well, in closing a few episodes ago, our colleague at The Motley Fool, Sanmeet Deo, this was his walk-off line, stay curious, Fools. That is indeed the spirit of this series. Got another lingo, where we're here to educate, especially, of course, always, to amuse and enrich, as well. But, yea, educate. We're actually building up quite a glossary of terms at this point, A-Z. Once you start multiplying eight episodes times six terms, each, we've done about 50 terms and concepts at this point. So if you enjoyed what you heard and you want to keep learning with your child in the car or just listening by yourself on a jog, you can go to rulebreakerinvesting.com where under our podcast tab, you will find each of our Got to know the Lingo episodes in order. So you can binge listen to the whole series and quiz yourself all the way through. Again, thank you, Amanda, thank you, Nick, and thank you, Alicia.
Amanda Kish: Thank you.
Nick Sciple: Thank you, David.
Alicia Alfiere: Thank you.
David Gardner: To you as well, thank you for suffering Fools gladly this week's stay curious fools. Fool on.
Alicia Alfiere: As always, people on this program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. Learn more about Rule Breaker Investing at rbi.fool.com.
