Motley Fool Hidden Gems Investing - Apple, Alibaba, and The Wizard of Lies

Episode Date: June 9, 2017

Apple unveils a new sound. Alibaba hits a new high. And Nordstrom considers going private. Plus, investigative journalist Diana Henriques talks about her best-selling book turned HBO film, The Wizard of Lies. Thanks to Casper for supporting The Motley Fool. Save $50 on a mattress at www.casper.com/fool and use the promo code "fool".   Learn more about your ad choices. Visit megaphone.fm/adchoices

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That's why they call it money. The best things in life are free. But you can give them to the birds and bees. Chris Hill. From Fool Global Headquarters, this is Motley Fool Money. It's the Motley Fool Money Show. I'm Chris Hill. And joining me in studio this week from Motley Fool Explorer, Simon Erickson. From Supernova, David Kretzmann. And from Total Income, Ron Gross. Good to see you, as always, gentlemen. Despite all the headlines from Washington, D.C., there actually was business news this week. We're going to catch up with

bestselling author Diana Henriquez. And as always, we'll give you an inside look at the stocks on our radar, but we begin with Apple's Worldwide Developer Conference. Apple used its annual event to unveil the HomePod, a smart speaker for your home that will be available later this year for the cool sum of just $349, David Kretzmann. This does not appear to be, as initially some people thought, a competitor to the Amazon Echo and the Google Home Assistant, Even though it does have that functionality, it really seems like they're going after the music market. Yeah, up to this point, Apple frames this as being that there hasn't been a speaker that's wireless and smart and that also sounds really good. Usually you have one or two of those in a speaker, but not all three.

I think they're more directly competing with Bose and Sonos in this case, more of the higher-end wireless home speakers. The advanced speaker here is focused on music. that's really what the speaker is built around. So it has an incredible sound, but it also does have some of the Siri assistant that you also know and love on, well, maybe you love it, on your iPhone. So really, yeah, it has good sound regardless of the volume. It has spatial awareness, so it'll adjust the sound or the bass based on the layout of the room. So it's kind of a musicologist within a speaker. And early reviews have really kind of proven that point. A lot of positive reviews that the sound quality of the speaker is pretty top-notch.

Most people would not have an Amazon Echo and the Apple Pod, right? You'd have to be comfortable with that. It could take the place of everything that Alexa does for you, even though perhaps it's more of a musical device. Is that fair? I think if you're an iPhone user and you have an Echo device now, I think you would still be tempted to go to this speaker just because you're probably not going to be using the Echo to play music. The sound quality of the Echo isn't top-notch. So, I think, even if you are an iPhone user with one of these smart speakers, you might still be tempted to ... O' I don't like the name. Can I say that?

HomePod? O' That doesn't say anything about music. It's just not good. It's about your home, Ron. It's not about music. O' Yeah, I know, but I don't like it. Yeah, and it's fine. If this is a hardware device that they want to use for music, that's great for Apple. I think the bigger opportunity in this market is the market that Google and Amazon are going after, which is the vocal assistant market, that actually has more of the stuff like Siri and the Amazon Alexa kind of things. There's now 36 million

Americans that are using one of these in their home every month, at least once a month, which is up over 130% year-over-year. So, it's pretty impressive how fast that's growing. I think the data is really what a lot of those companies are after. But it kind of seems like Apple needs this to be a hit. Not necessarily a massive moneymaker. But they are clearly going after, as David said, they're going after sort of the music, the speaker market. And if a year or two from now, they're still trailing the likes of Bose and Sonos, then I think people are going to say, well, this is a flop because it's clearly not as enabled as the Google Home Assistant and the Amazon Echo.

But to me, it's just one more piece in this ecosystem that Apple has created. It's your computer and your phone and now your HomePod and your watch and whatever else they're going to come up with. As long as they keep doing that and keep making it so Apple is part of everyday life for you and switching costs are hard because you're all interconnected, I think they've got a good thing going. David, HomePod got all the headlines, but there was a lot of other stuff at the developer conference. What's one thing that we should keep our eye on? One thing that didn't get a whole lot of attention, but I think will be really interesting to follow over the next few years

is what Apple is doing with augmented reality. And Apple is not the first to jump into the space. Google, Facebook, Snapchat are all doing different things here. But they announced the AR kit, the augmented reality kit, which is essentially a toolbox for app developers where they can incorporate this augmented reality technology into future apps that they develop. So a lot of cool implications here for gaming and a lot of different use cases. I think that'll be a key thing to watch. Shares of Nordstrom up 15% this week on reports that members of the Nordstrom family are considering taking the retailer private. And Ron, I don't think I blame them. I don't blame them either. It is tough out there for retailers, especially mall-based

retailers. To me, Nordstrom's best in breed when it comes to department stores. They were smart enough to hold their store count to a reasonable level. They were smart enough to recognize that a discount-off-price market needed to be served, and they developed RAC and really pushed that hard. They developed their online business to make it 20% of full-price sales. When they saw that that was going to be important, customer service, I think, is absolutely by far the best out of the retailers. So, what do you need to be public at this point if you're them? It's tough out there. They're going to need to navigate through this tough time, come out the other end, wherever that end may be, and why do you need to do

it with the scrutiny of the quarterly conference calls and earnings, unless you need access to capital, which is what the public markets are supposed to be for in the first place, and I actually don't think they do need that. Did I see this right in the Wall Street Journal, that in the retail space Nordstrom is the most shorted stock? As you said, it's tough out there for retailers. I would never put Nordstrom in the same category as some of the other truly struggling retailers. I saw that, too. The only thing I can think of is maybe the others have been picked through already.

And, you know, the short sellers have made their JCPenney money and their Macy's money already. Their shares money. Exactly. They're turning to Nordstrom's, which is, you know, 5.6 times or so EBITDA. Macy's is only four times EBITDA. Kohl's only four times. It's a little bit more pricey than those companies on a cash flow basis. So, maybe they're looking at it as a stock that has nowhere to go but down. I would never

short this company, though. Tough week for chipmaker Ambarella. First quarter results look pretty good, Simon, but their guidance for the current quarter was not pretty. Yeah, Chris, Ambarella is a company that's got a really cool technology that's still just struggling to find its niche and find the right market for that technology. They build systems on a chip that allow for high-definition video capture, and then they're able to process It was very energy efficient. This could be good for wearable devices. They're very good for compression efficiency, so it's good for streaming things to the internet.

But they haven't figured out how that's really useful to the market. We've seen in the past couple of years, they worked initially with GoPro for action sports camera. And, you know, we've kind of seen the sales from GoPro cameras decline the last couple of years. They had a hit last year with DJI for the Phantom drones, for consumer drones. We're seeing revenue from that down year over year. And now they're trying to get into the enterprise space where they're using them for security cameras, for directly embedding them into automotive applications. But I think that at 30 times earnings, and for a company that's spending 33% on R&D every year, you've got to see management

go out there with guidance that's stronger than 3% revenue for 2018. I think that they're really still, they've got a lot of opportunity, but we haven't seen the execution from these guys yet. Even with this week, it's trading at 30 times earnings? Yes, correct. Non-adjusted on gap earnings, yes. We were talking before we started taping. I mean, this is a very interesting space. There are going to be winners here. But as you said, they're working with GoPro, whereas the likes of Cognex gets to work with Apple. Right. And I mean, consumer devices are tough, right? I mean, if you're working with Apple and you're embedded with that,

that's great. You've got a great customer that you're going to ride their marketing coattails and the spin that they're going to get to get an iPhone in everybody's hands. GoPro didn't prove to be that. I mean, we had an alternate future that maybe everybody had a GoPro camera, but that didn't play out that way. And now, Ambarella has kind of lost their largest customer and is searching for other opportunities. Cool technology, cool company. We need to see execution in the markets. Chinese e-commerce giant Alibaba surprised Wall Street this week at Alibaba's Investor Day. The chief financial officer announced the company's raising their revenue guidance

for fiscal year 2018 45%. Do I have that right, David? 45% to 49% for this upcoming year. That's coming off of 56% growth from last year. And no analyst was expecting growth over 40%. So this is pretty surprising on the upside. And really, Alibaba is just the dominant player in the Chinese e-commerce space. Right now, about 15% of total retail in China is online. That's above the US, which is more around 11% right now. And Alibaba has about 60% market share of that e-commerce space in China. And they're expecting the total value of all the goods sold on their platform to reach $1 trillion within three years. And by that point, they expect to be reaching 2 billion total customers. So, the scale of

the company is just phenomenal. And it makes sense for that growth to continue. There's a huge market. So, what holds them back over the next few years? Because they are so dominant in the world's largest country. Do they just need to make sure that more and more people every month are moving to e-commerce? Yeah, I think for them, the key is just bringing new people online onto that platform that they have and retaining them over time. So making sure that your offerings are compelling enough and convenient enough for people where it makes more sense just to buy stuff online. So far, they've done a good job with that. But obviously, there are a lot of

competitors who would love a slice of that market. Coming up, big news from the music industry and a few stocks on our radar. Stay right here. You're listening to Motley Fool Money. As always, people on the 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. Welcome back to Motley Fool Money. Chris Hill here in studio with Simon Erickson, David Kretzmann and Ron Gross. Earlier this month, shares of Vail Resorts hit an all-time high,

but the stock dipped late in the week after a third quarter report that was, well, Simon, it wasn't perfect. I think that's where Vail Resorts is now. The market is looking at a stock that has done so well for so long. They're saying nothing less than perfect will do. Not as sky high and elevated as they used to be before. Exactly. Yeah, I mean, Lyft revenue was up 25%. The number of visits was up 26%. That's still a pretty good quarter, especially when you consider now they're incorporating the Whistler Resort just north of Vancouver up in Canada into the financial results. That was another

great acquisition that the company's done. But I mean, this is just a cash flow machine, Chris. I mean, you've gotten 44% of sales are now coming from season passes. They're growing that at 30% year over year. It's surprisingly recession resistant that we saw back in the years of 2008-2009. And you've got the mountains that are not replicable by competitors. So, you keep people coming back, they spend money at the resort on cocoa and jackets, and then they ski on the mountain. It's a pretty good business model. Well, and two things about Vail. You go back, you mentioned the Great Recession, you go back maybe five to 10 years, there were legitimate questions, I think, about

this company's ability to get people to their resorts when it wasn't winter. And they have clearly answered that. And as part of this latest quarter, they just made their first acquisition in the east, in Vermont. Stowe Resort, yep, up in Vermont. And like you mentioned about the summertime activities, they now have Epic Discovery. It offers things like mountain biking, ziplining, spa resorts in Vail, Breckenridge, and Heavenly at Lake Tahoe. You're getting money throughout more of the entire year on existing assets, and that's very profitable for the business. SiriusXM made an offer to buy Pandora, outright. And Pandora rejected that offer, but they did accept an investment from SiriusXM

to the tune of nearly $500 million. How is this working? Is SiriusXM just buying? Oh, it's working. They're buying Series A Convertible Preferred for 19% of the company, which, as you said, translates to $480 million. They did want the whole company. They couldn't get it, so they entered into a partnership. I am a proud Sirius subscriber, but I'm also an Apple Music guy. So, Pandora is not something that I think has, I mean, they're not profitable. They really need to get in there. And Sirius thinks that they can help. Pandora wants to be in the car. Sirius wants to be more mobile and internet. They think they can work this out together. I will have to wait and see how this pans out. I don't know why they had to make such

a large investment. I think they could have developed a partnership, a joint venture. year. I don't necessarily see the exact need for a $500 million investment. Something else that hurts here is, two years ago, Pandora bought Ticketfly, which is the online ticket seller, for $450 million, and they're selling it this year for $200 million. So, you're saying that was a bad investment? From an ROI perspective, I don't know how you see that as a positive. Is there any way to see this other than this activity this week between SiriusXM in Pandora, is merely a precursor to Pandora being sold outright at some point in the next,

say, one to three years? I don't see how SiriusXM makes this investment and doesn't buy the rest of it somewhere down the line. It's certainly possible. It's kind of maybe dipping a toe in the water. KKR was going to invest $150 million into Pandora. That is now dead as a result of this deal. So, they're taking three times that amount of money from Sirius, who will also be probably a better strategic partner, not just a financial partner, so I get that. But as you say, this might be a precursor to a complete acquisition. Before we get to the stocks on our radar, first concert you ever went to, Ron? Oh boy. Def Leppard opened up for Billy Squire.

Wow! Nothing says 80s like Def Leppard and Billy Squire. David Kretzmann? Help, a Beatles cover band. Sixth grade. Wow. Sixth grade. Nice. Simon? Mine had to be Alanis Morissette back in middle school. Nice. See, I'm in Ron's camp age-wise. For me, it was Billy Joel.

Steve Broido, our man behind the glass. Yeah, it was at the Worcester Centrum. Good venue up there in Massachusetts. Steve Broido, first concert you ever went to? Would have been REM 1988. Ooh, that's a good one, too. Nice. All right, let's get to the stocks on our radar, and Steve will hit you with a question. Ron Gross, you're up first. What are you looking at? All right, for Steve and all Seinfeld fans, I've got Penske Automotive. Are you kidding?

I am not kidding. PAG, it's a recent recommendation in our total income service. They're the second largest new car dealership, a really disciplined consolidator in a pretty fragmented industry, 3% dividend yield. They have increased their dividend for 24 consecutive quarters. We like to see that over in total income. Stock is undervalued as well. Should be nice upside there.

plus you get the dividend. You went through the Penske file, didn't you? I did go through the Penske file. Steve Broido, question about Penske? Is there a world for a unified car seller like CarMax, but a dealer that I would go to that is across the nation, that's one person that owns it that manages, it's not run by a family? Well, AutoNation is the number one new car dealership, and they're clearly the largest, Penske being number two. Berkshire recently got into that industry buying VanTweel. I don't know how to pronounce that, Vantrell Group, they're now the No. 4. So, there are some pretty large folks here, but there's also lots of mom-and-pops, and that's why the industry has been consolidating.

David Krentzmann, what are you looking at this week? I'm looking at Tractor Supply Company, ticker TSCO, maybe the most innovative company in the country. This is a rural lifestyle retailer geared toward recreational farmers, ranchers. They offer products around home improvement, agriculture, lawn and garden, livestock, pet care, you name it. Right now, they have over 1,600 stores across the country. They think they can get that up to 2,500 stores. They also recently acquired PetSense, a small-town pet store chain. They've really been beaten up lately. They're facing a lot of the same headwinds that a lot of retailers are facing. They're trading for about 17X trailing earnings.

They've paid an increase in their dividend each year since 2010. I think this is a solid company producing strong free cash flow that'll stick around. Steve, question about tractor supply? What's something I might buy there that I wouldn't buy online? A 50-pound bag of grain, or feed, for your horse. I agree. We've got Penske Automotive and Tractor Supply. I really hope this is vehicle-related. Well, I just wanted to say, David, I think that that company sounds like they're really

planting the seeds for future growth. Oh, man, Simon. I am going with PayPal, Chris. Ticker P-Y-P-L. I'm going to present an unpopular opinion in that I think that the dominance of the credit card networks is declining in the next couple of years. Oh, it's a good thing Jeff Fisher isn't in this room. I think that merchants are getting tired of paying the 2% to 3% just to move money around through these traditional networks and that there's more options now in the form of peer-to-peer networks that do not have those transaction clearing costs that the traditional networks do. I think that PayPal's Venmo is one

of those. We're seeing transactions on that more than double year over year. And I think that's even more appealing to merchants in the coming years. Steve, question about PayPal? Does the former relationship with eBay, has that tarnished this brand? I think of PayPal as being an eBay product, pretty much still. Yeah, that definitely is. Probably a lot of people would think that, too. But one of the reasons they spun out of eBay was so they could actually capture more opportunities outside just that platform, Steve. Maybe there is still a connection, I don't think it's

tarnishing the brand. PayPal, Penske, Tractor Supply, any of those stocks interesting to you, Steve? I might look at Tractor Supply. Okay. Yeehaw. All right. Ron Gross, David Kretzmann, Simon Erickson. Guys, thanks so much for being here.

Thanks, Chris. Up next, investigative journalist Diana Henriquez faces off with Bernie Madoff and shares the story with us. Stay right here. This is Motley Fool Money. All right. Before we get to this week's interview, I've got to say thanks to Casper. Casper is an online retailer of premium mattresses for a fraction of the cost. Casper understands the importance of actually trying out a mattress that you're going to spend a third of your life

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and use the promo code fool. Terms and conditions apply. Welcome back to Motley Fool Money. I'm Chris Hill. Diana Henriquez is the best-selling author of Wizard of Lies, Bernie Madoff and the Death of Trust. It's the basis for a new HBO movie starring Robert De Niro as Madoff. Last week I got the chance to interview Henriquez in front of a live audience and we kicked things off by talking about Madoff's history on Wall Street. This is someone of great stature within the community. And the only sort of investing corollary I could draw just from my own experience was Peter Lynch. That if someone like an investment manager on the stature of Peter Lynch and all of a sudden you learn, oh, actually he just pulled off a $50, $60 billion scheme, the reaction for a

lot of people would be, what are you talking about? That's nuts. Yeah, that's an excellent analogy because within the community of Wall Street trading, I mean, people who had come up when NASDAQ was a crude set of monitors on your trading desk revered Bernie Madoff. He and his brother were extremely popular, but also always thought of as having the cutting-edge technology, the very best electronics, the very best grasp of how technology was radically changing the marketplace.

And he had a gift. One regulator referred to Bernie saying that he had the decoder ring. He could always explain some new weird thing that Goldman Sachs was doing in a way that regulators could understand it. So he was able to decipher the increasing complexities of Wall Street for the regulatory community, which enhanced his status there. The most signal reason that he was so trusted and so admired came in the mid-'90s when the huge price-fixing scandal hit the NASDAQ market.

Some of you may remember that, 93, 94, where it was revealed that at least two dozen major over-the-counter stock trading firms, Prudential, Merrill, Morgan Stanley, were involved in, their trading desks were involved in fixing prices. They kept the spreads abnormally wide by coercion, by intimidating any trader who tried to narrow the spreads. Conspicuous by his absence from that scandal was Bernie Madoff, who was one of the biggest NASDAQ traders on the street. So if you're a regulator or another trader on the street, you've got scientific proof that Bernie Madoff is the only honest man on NASDAQ, right?

Because he legitimately was untouched by that scandal. Now, we can speculate now that he kept everything scrupulously clean so no one would ever come over and look at what he was actually doing. But that was who he was. He was not only historically admired. He was one of the early OTC traders to adopt NASDAQ, to push for the NASDAQ technology, and then he worked assiduously through NASD committees to write the rules, to establish the standards, to really build the modern NASDAQ market. So, yeah, it was like Peter Lynch had suddenly taken off his mask, and, you know, there's Charles Ponzi. so what is he like in person because clearly he has this almost you know to stick with the mask analogy he has this investing persona that enables him to convince people to hand over

vast sums of money for him to invest but when you're sitting across the table from him what's you like? Quiet. A little self-deprecating. Not at all pushy or brash. Not slick. Not slick at all. A little bemused. Not at all trying to impress you. And, of course, that can be very seductive. What he does exude, though, that I think you miss if you haven't met him in person is just this unflinching air of competence. Several people who had worked for Bernie or invested with Bernie and knew him well referred to that feeling of safety he gave them. I refer to it in the book as being like the calm voice of the pilot coming in over the PA system during the storm.

Ladies and gentlemen, we're experiencing a little turbulence. Everything will be fine. And that's how Bernie made people feel, that the market was experiencing a little turbulence. Bernie wasn't upset. Everything would be fine. That calmness. One of his former employees recalled

that in the months after the 9-11 tragedy, bomb scares were routine in New York. Anyone who lived in the city at that point remembers that. The anthrax scares, that kind of thing. So the Lipstick Building was evacuated a number of times in response to a bomb scare, and the employees, the first time it happened, just got...

Bernie calmly shepherded everybody together, got them down the staircase from the 18th floor, then assembled them, got them back up, never turned a hair and so many people remarked on that aspect of his personality that that sense of safety and comfort that he gave you um with that calm competence so he's an innovator when it comes to trading um he does not fit the what we classically think of in terms of a slick con man is that how all of this got pulled off in plain sight because that's one of the things that you know is in the book it's in the movie as well where you know one of his sons is being

interrogated by the FBI and they're like how is it you know because his sons his adult sons are involved in this firm and the FBI is saying how did you not know about this and his response and he's got a point is you're the FBI how did you not know about this this went on for decades and It was the biggest Ponzi scheme in history. And I think that's a very valid critique. This was the worst failure in the SEC's 75-year history up to that point. And it was a failure of imagination, mostly. They got tips.

They actually staged several aborted or futile, fruitless investigations. They were always looking for front-running. They were looking for the wrong crime. They had it in their mind that this man couldn't possibly be a Ponzi schemer because that's not what Ponzi schemers look like, but he was one of the biggest market makers on the street. He could be doing front-running, which is a form of insider trading in which he could position an order for his private clients

ahead of a big order flow he sees coming in, profit from the subsequent rise in prices, quietly sell, pocket that profit for his private clients. And every time the SEC investigated him, their mindset, you know, as the prior speaker was talking about your assumptions, their unexamined assumption was he was front-running. That's what he was doing. And Bernie loved it when people investigated him for front-running because that was the one crime he was not committing. So every time they investigated him for front-running, what happened?

Exonerated, clean as a whistle. Absolutely not front-running. Do you think the family knew? I do not. Even Peter, who is serving a 10-year prison term, Peter Madoff, for securities fraud violations and tax law violations, was not charged by prosecutors

with knowledge of the Ponzi scheme. he did he insisted at his sentencing though the judge was skeptical that he had not known about it until the night before Bernie confessed to his wife and sons when he confessed to his brother the it never made sense to me that Bernie would have admitted his wife and his two sons to this fatal secret. It never made emotional sense. His relationship with his son, Andrew, always contentious. Andrew wanted to set off on his own, wanted to set up his own firm. If Andrew had had the knowledge of his father's fraud, he would have used it. He would have used it as emotional blackmail to get what he wanted, and he never did, never could. Mark, much more fragile

emotionally as is evidenced obviously by the fact that he committed suicide on the second anniversary of his father's arrest and it was his second suicide attempt that's not portrayed in the film but that that is the actual personal history he was plagued by nervous stomach problems his father saw him as a sweet, gregarious, affectionate son, but not strong. And he never would have, people who knew Mark said Mark could never have stood the pressure of running a Ponzi scheme day to day, waiting daily for exposure, for destruction. He couldn't have stood it. And in fact, when the fraud was exposed, he couldn't bear it. So that didn't make sense. It didn't make sense that the sons had

turned him in as some sort of kabuki theater to make it look like they were not involved so that they would be spared. If turning him in would have spared anyone from suspicion, Madoff would have arranged for Ruth to turn him in because that's who he was most concerned about protecting was Ruth. Ruth thought he walked on water. She had met him when she was 13 years old. They married when she was 18. She had never loved anybody else, and she thought he was a genius. She had transformed her life from a, you know, barely above working class Queens to this, what to her was palatial living. It never made sense to me that Bernie could ever have had a conversation with her that went like, Ruth, I know you think I'm a genius and a wizard,

but in fact, I'm a crook and I'm ripping off your entire family. Please pass the asparagus. Yes. You want holidays with that. No, it made no sense. And when I talked with people who knew Ruth, and I got this image of this bubbly, lighthearted person who's going to have that third glass of wine at the party. This is not someone you trust with a fatal secret. Oh, and then her constant suspicions that Bernie was cheating on her. I mean, what kind of lunatic cheats on a woman that can pick up the phone to the FBI and put him in prison? This makes no sense. So the dynamics of the family, which I think are very accurately portrayed in the film, just never made that guilty knowledge make sense. There are a lot of other circumstantial

reasons why I believe the family did not know based on their use of corporate funds. There was a cash crisis that Madoff experienced in 2005, in the fall of 2005, during which if he had accomplices, he would have said, you know, family hold back. You know, I need every dollar because we're facing a cash crunch here. The Ponzi scheme is going to implode if you take any money out. They continued to take money out, to borrow money from the firm, to withdraw you know, assets that they needed. They did not change their pattern of access to the firm's cash one bit. Other accomplices did. People who later went to prison in the follow-up prosecutions, they did change their pattern when they saw what was going on. So that's among the

reasons that I think that the family did not know. Coming up, Diana Henriquez talks about how to avoid the next Madoff. Stay right here. This is Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. Let's get back to my recent conversation with Diana Henriquez, author of Wizard of Lies. Let's talk a little bit about the movie. How did you land the role of Diana Henriquez? I was born into it, actually. so for those who haven't seen the movie the movie opens with the first meeting

in prison between Diana and Bertie Manoff which means at the end of the movie when the credits roll and Barry Levinson the Academy Award winning director is the director of this film and per his usual way of going about things

the credits roll and it's in order of appearance so it's Robert De Niro Diane Enriquez. Yeah. How did that happen? I met Robert De Niro in June of 2015 for the first time as he was preparing his characterization of Madoff.

And we had coffee at a hotel in Manhattan. And it went on for two and a half hours. I mean, the chemistry was very good. He had a million questions. and I just loved talking with him and I figured that's my fodder for future cocktail parties. Oh yeah, there was a time I had coffee with Bob De Niro. And he apparently felt very comfortable with me

and he's not a man easily made comfortable in company. I've watched him do interviews on television And as a professional interviewer, and Chris, too, you'd rather die slowly of a thousand cuts than to try to interview Bob De Niro on TV. I mean, he loves everybody. He has no controversial opinions or didn't until recently. And so he is a little awkward with people he doesn't know. He apparently suggested to Barry Levinson that I should play myself. Don't ask me why, but he did.

And Levinson thought about it and decided to give it a try. So he set up a screen test. I had to audition to play myself, as it turned out. Very, very weird experience. And I did the screen test in an office at HBO overlooking Bryant Park, sitting on plastic chairs like you are, knee-to-knee with the casting director who was playing Bernie. She was a she, so there was this woman playing Bernie,

and Levinson was sitting on the sofa behind her. I did the scene with her. Levinson gives me some input, some editing. Did you ask for a moment to get into character? I didn't. I should have. I should have. He was very clear that he didn't want me to play Diana Henriquez. He just wanted me to be Diana Henriquez, and that was his sort of method acting advice for me.

I'm thinking back to when this story was playing out and my various reactions, you know, as an investor, and there was sort of the initial shock, and then I went through this short period of time where I just couldn't get enough of this story because the details that were coming out, you know, were part detective novel and part Greek tragedy, you know, on the family level. And then somewhere after all of that, I started to think, wait a minute. Part of the reason I'm delving into this story and consuming it so much is because it didn't affect me at all as an investor. But I think for a lot of investors, at some point you see this story play out and you think, well, wait a minute. Could this happen to me? And I'm not rolling with these big sums of money. But in terms, I mean, you've spent your career investigating these types of stories. So to a room full of investors who desperately do not, among other things, want to be involved in, you know, on the wrong side of this type of scam, what should we be looking for?

Or are you going to say, don't worry, this will never happen again? Because I'm fine with that. I would love to be able to say that. But unless the entire marketplace falls prey to clinical paranoia, that isn't going to happen because Ponzi schemes live on trust and so does a healthy economy. That's the diabolical part. Trust is a two-edged sword. We can't operate a modern economy without it. How many of you did internet shopping recently, sending your money and your credit card number off to some people you don't even know actually exist, right? Never seen them. You do it because you trust it.

That kind of trust is one of our national assets, the fact that people trust our financial system enough to have direct deposit of their paychecks, to do bill-paying services through their brokerage firm. So you can avoid a Ponzi scheme by never trusting anybody. I guarantee you, if you don't trust anybody, you'll never get rooked into a Ponzi scheme because only someone you trust can lure you into a Ponzi scheme. or you can avoid a Ponzi scheme by insisting that whoever manages your money uses an independent third-party custodian to hold your assets,

that there is some independent party who knows that the stocks did get bought, the bonds did get sold, and the cash got put in your account, so that you are not relying on the same person who's managing your money to hold your assets. That's a simple, protective thing that you can do. I mean, the sad thing is criminals are so deviously creative that that isn't 100% guarantee because they can create a phony custodian. You know, they can create a business that they secretly control and say, well, here's my independent custodian, Chris, over here.

And Chris is actually, you know, a fraud and working with me and I'm splitting the profits with him. So it's not foolproof, but it's close enough. It's good enough. It will save you from 97% of the Ponzi schemes out there if you just insist on that little level of protection. Every mutual fund in the United States is required to do this by law. Mutual funds are required to use independent third-party custodians. There's a reason for that, so you should do the same.

Wizard of Lies is available everywhere. That does it for this week's show. Our engineer is Steve Broido. Our producer is Matt Greer. I'm Chris Hill. We'll see you next week.