Motley Fool Hidden Gems Investing - CEOs, IPOs, and PLTs

Episode Date: September 27, 2019

  Peloton stumbles on its IPO. Wells Fargo names a new CEO as eBay, Juul, and WeWork say goodbye to their CEOs. And Nike hits a new high. Analysts Andy Cross, Rob Gross, and Jason Moser discuss those stories and weigh in on McDonald’s new Beyond Meat-based PLT sandwich. Plus, Motley Fool senior analyst Bill Mann sits down with Collaborative Fund’s Morgan Housel to discuss investor psychology, stock allocation, and risk tolerance.  Get $50 off your first job post at www.LinkedIn.com/Fool.  Thanks Zapier. Go to zapier.com/fool for a free 14-day trial. Learn more about your ad choices. Visit megaphone.fm/adchoices

Chris Hill. Hey, it's Chris. Thanks for listening. We got a lot of CEOs in the news. We got a lot of IPOs in the news. We're going to get to all of that. But first, quick thanks to Zapier. Zapier is the easiest way to automate your work. It connects all your business software and handles work for you so you can focus on the things that matter most. Try Zapier free by going to our special link, zapier.com. Thanks also to LinkedIn for supporting this week's Motley Fool Money, LinkedIn Jobs uses knowledge of both hard and soft skills to match you with the people who best fit your role. Post a job today at linkedin.com slash fool and get $50 off your first job post.

Everybody needs money. That's why they call it money. From Fool Global Headquarters, this is Motley Fool Money. It's the Motley Fool Money radio show. I'm Chris Hill, and joining me in studio this week, senior analysts Jason Moser, Andy Cross, and Ron Gross. Good to see you, as always, gentlemen. Hey, Chris. We've got the latest headlines from Wall Street.

We will dip into the Fool mailbag, and as always, we'll give you an inside look at the stocks on our radar. But we begin with this week in CEOs on the move. After more than six months of searching, Wells Fargo has finally found someone willing to take the corner office. Charles Scharf is currently the CEO of Bank of New York Mellon. He takes over at Wells Fargo in a few weeks. Ron, this really started to seem like a job that nobody wanted, but given the reaction on Wall Street, Scharf and his reputation, it seems like a good hire for Wells Fargo.

Yeah, as you say, it took six months, but a solid choice. CEO of Bank of New York, CEO of Visa, Senior Executive at JPMorgan Chase, and Citigroup. He's on the board of Microsoft. Very well-respected. Has his work cut out for him, for sure. This is not an easy job here. First thing he has to do is really make nice with the regulators, and I think hope to convince them to lift the sanctions put on the bank back in early 2018, which really restricted their ability to grow. Interestingly, his background, specifically his most recent background at Bank of New York. They're not as retail-focused as Wells Fargo is. So, he may have a learning curve here. So, not stepping into a similar role. There's some differences here. But still,

solid, solid resume. Some interesting going to the outside, which is no surprise. I mean, I think they had to do this, considering where they are coming from, all the scandals they had. They've got to bring some fresh blood in here. But I think he is the first outsider to lead Wells Fargo in maybe ever many years, right? So, that's really encouraging, I think, for Wells Fargo shareholders and hopefully customers who've obviously gotten the raw end of the stick from the Wells Fargo for so many years. So, hopefully comes in and really shakes things up. Warren Buffett and Berkshire Hathaway is a large investor, still in Wells Fargo, the largest. And I just think

back to Warren Buffett and the Solomon scandal back in the early 90s and what he was talking about with reputation and losing money, and the fact that if you lose money, he'll be understanding. If you lose reputation, he'll be ruthless. He hasn't been so ruthless recently, but hopefully this is a really good turn of the page for Wells Fargo. Yeah, there's some really interesting data in regard to CEOs and how they come in and out of this line of work. You would think a CEO, you're going to probably hold that job for some time. But there is some level of attrition there. If you look at reasons why CEOs are getting ousted, they are getting ousted. Sometimes they sit down or retire.

But you go back to 2018, for example, and for the first time, there were more CEOs, 39% total of the CEOs that left their positions in 2018, 39% of them were forced out for ethical lapses versus something like financial performance or just board problems or whatever else that may be. So, I mean, I think that's understandable. We've seen a lot of leaders being put under microscopes recently for present and past behavior. It certainly seems like it's played a bigger role recently than in the past. Well, and just this week alone, you look at eBay, Volkswagen, Juul, WeWork, a lot of CEOs leaving their jobs this week, and it really does seem like it feels like a higher-than-average

week in terms of turnover. To that point, I mean, this year so far, 850 CEOs have left their posts, and that's 17% more than the 725 at the same time last year. So, your perception is actual reality. Public company stats, those are? I believe that incorporates not just public, but private. Interesting. Yeah. Overall, if you just look over the last few years for the S&P 500 companies, the average tenure of a CEO now is about five years. And that's actually down a little bit, down by

about a year over the last few years. So, you are seeing a little bit more aggressive nature from either boards or from activist shareholders trying to encourage CEOs to leave the main seat. I actually love that, because that means that the boards are taking a more active role. For decades, boards kind of sat on their hands and were happy to just collect their stock or their paycheck weren't as active as they perhaps should have been, especially when there was corporate governance shenanigans going on. So, I applaud. On last week's show, we talked specifically about WeWork, and I believe we had that,

the CEO leaving. I don't think we had the CEO, Adam Neumann, leaving necessarily as quickly as it happened, but I believe we had that. Yeah, we had that. And we're not geniuses. It was appropriate. Interesting entrepreneurs don't always make professional CEOs, and this is one of those cases. Hilliard. Real quick before we move on, you look at the average company in your portfolio, and let's just assume a new CEO is coming in. It's an average situation, and by that I mean, it's not, wow, the current CEO has got to go, it's just that person's leaving, new CEO is coming in. Let's just go around the table real quick. Ron, what are you researching first about the new CEO?

So, very simply, just the background, does he have experience in the industry specifically? Or she. Or she, good point. Is their experience appropriate? Were they inside the company or external, what the tenure looks like? Yeah, I mean, if there are any transcripts to go through from previous positions, it's nice to go through and just sort of look at the language that they use. I mean, is that language really customer-centric, or is it more metric-based, trying to appease Wall Street, they can give you a better idea of whether they're longer-term focused or perhaps a little bit shorter-term focused.

Yeah, inside or outside the organization, where are they coming from previously and what experiences they're bringing, then ultimately, what's looking at the next three, five years' vision that they're going to bring to the company? Let's move to the week in IPOs. Peloton, the company that makes exercise bikes and treadmills, went public at $29 a share on Thursday and closed lower, Andy. I think they were hoping for a different result. Well, the CEO definitely was, because he actually said it publicly on TV. I'm glad I'm a long-term investor, because clearly I'm not a day trader.

I predicted the IPO to pop yesterday, earlier this week when it came public. So, it's a really interesting company. So, the IPO aside, looking at the fitness universe, selling very expensive hardware. They also have a software tie-in, growing very fast, revenues more than doubling. It came public at an $8 billion market cap, and now it's about $7 billion. So, it's lower and continues to move a little bit lower. 1.4 million Peloton accounts, 500,000 connected fitness subscribers. That's someone who's bought these very expensive bikes or treadmills, and they're connected into the platform.

And then more than 100,000 just digital subscribers. growing very rapidly, losing a lot of money just as fast, too. And that's really the problem. I think when you think about what we've seen over the last few months in the IPO space, and so many companies focus so much on growth and investors willing over the last year or two to bid these stocks up, now we're seeing a little bit of pushback on that in the public markets. Before we get to other IPOs, can we talk about Connected Fitness for a second? Sure. Because it really seems like it is not a good business to be in. I'm thinking, Jason, about

the somewhere in the neighborhood of $800 million that Under Armour invested in the past in connected fitness of one form or another. And not to pick on them, but Fitbit. I mean, it's a nice little device. But again, it seems like a good idea. But the upside for connected fitness as a business so far has not presented itself. Yeah. I mean, I agree with you. I don't think it's very good on its own. I think it's better off as just one part of a greater whole. I mean, you saw with Amazon, and they released these wireless earbuds this week, this hardware event that they had. And those wireless earbuds have that fitness tracking capability locked right in there. So, you can get those things

all sorts of different ways. I mean, I think, yeah, Under Armour, they overpaid a lot of money for something that they haven't really realized a lot of return on the investment for. But you look at a company like Nike, Nike's done a good job of investing in connected fitness, but just not making a headline about it. And so, we'll talk more and more about their quarter here a little bit. And you'll see that, yeah, they are making investments in connected fitness, but it's not as explicit, it's not as obvious. And I think that's probably where they're one-upping most companies. You know, very interesting. So, the Fitbit comparison, Chris, so Fitbit came public in 2015. The stock, I think, doubled that day. It was valued at almost $7 billion,

five times revenue. So, kind of in the area of where Peloton is today, and now Fitbit's stock is down to below $4 per share. The market cap valuation has just kind of crumbled. Meanwhile, Garmin has done very well over the last few years, beaten the market. The stock has more than doubled since that 2015 IPO of Fitbit, while Fitbit stock and, of course, GoPro, have moved in the opposite directions. So, WeWork, as we talked about, shelved their IPO. Ron, we had another company get right up to the precipice of an IPO and then pull it. That's Endeavor, one of the biggest talent agencies in the country. And is it that bad an environment right now? Because

that's at least one way to interpret a pulled IPO. If you're not profitable, it's that bad. And maybe that's appropriate. That kind of euphoria has run its course. Endeavor has lost money in four of the past five years. They were looking to go public at an $8 billion valuation before the price got pulled back, trying to raise $600 million, but then they lowered the IPO price, then they pulled it completely. We'll probably see this come back at some point at a later date. Endeavor is the old William Morris agency. Folks who are fans of Entourage might remember Ari. Ari Emanuel runs it. So, it's an interesting company. It's a really nicely diversified entertainment

company, but you'd think you'd want to see some profits before you do a roadshow. We've had a lot of high-profile IPOs this year, but some of the biggest names, just year-to-date, again, as you said, Andy, we're long-term investors. But when you look at Uber, Lyft, more recently Smile Direct, those stocks all down 30% to 40% since their IPO. It really does feel like we need to take a break. Well, I think the bankers have gotten a little bit aggressive. Maybe the companies have too. The Smile Direct pricing was just wrong. They totally missed that. Maybe they missed the pricing on the Peloton IPO. Actually, they did. The bankers did and the company

did too. So, I think there's just some recognition that that kind of very excited, hot IPO market does go in cycles, and we hit a top of the cycle in the past couple of months. Yeah, it looks like of the 120 companies that have gone public this year, 57 are trading below their offer price, according to Renaissance and CNBC. That tells you something, right? It's interesting. Sometimes IPO markets get hot when investors think there's nothing else to buy, so they're buying the new thing. We've interestingly seen a rotation into some more conservative, more value-y kind of stocks, stocks that pay dividends. So, people are more focused on that as a place to put their capital rather than the next hot IPO.

You're also seeing companies out there that have had a decent track record thus far as publicly traded companies. I think Square is a good example here, where the fundamentals of that business are just as good as ever. But clearly, this appetite for risk is pulling back a little bit. I think the market's not as willing to give so much of that room on that price-to-sales metric that we keep on having to use for all these businesses that don't make any real money yet. Coming up, we're going to dip into the Fool mailbag, so stay right here. You're listening to Motley Fool Money. All right, before we get back to the news, quick shout out to LinkedIn.

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Things like collaboration, adaptability, work ethic. LinkedIn does the legwork to match you to the most qualified candidates so you can focus on hiring the person who will transform your business. To get $50 off your first job post, just go to LinkedIn.com slash Fool. That's linkedin.com slash fool for $50 off your first job post. Terms and conditions apply. Welcome back to Motley Fool Money. Chris Hill here in studio with Jason Moser, Andy Cross, and Ron Gross. Shares of Nike up 6% this week and hitting a new all-time high. Nike's first quarter profits came in higher than expected. Jason, a lot of things going in the right

direction for them, including e-commerce. Yeah, my daughters have owned the stock for a while now, they're pretty happy about things. I'm not going to make the leap to call Nike a tech company or a services business, don't get me wrong. But there is no doubt that they're making the necessary investments in tech and services to stay on the cutting edge for really what they're calling the digital consumer, the digital-first consumer. We are in a market now where a lot of people growing up in digital commerce is the first form of commerce that they know. And Mark Parker, CEO of the company, has said something on the call that I thought was really telling. Ultimately, and I quote, becoming personal

at scale is the ultimate objective. And so, that tells you where they are and what they're trying to do. And the numbers seem to be working out. Digital growth of 42% for the quarter. North American revenue, which we've been paying a lot of attention to North American revenue for Nike and Under Armour and other companies. That was not all that impressive, 4% growth for the quarter, but they made up for it internationally. China continues to just kill it. We've talked a lot about companies, retail that was going to benefit perhaps from the back half of the year, back to school season and whatnot. And they did note on the call that kids' footwear and apparel just experienced the biggest back to school season ever. So, that's good. Gross

margin expanded 150 basis points thanks to better pricing. And in other words, they were able to raise prices a little bit. All in all, it's a proven company. We know how popular the brand and the product is. They just continue to get it done. The stock today at 35X trailing earnings actually doesn't seem like it's all that unreasonable for such a quality business. Yeah, they're doing a great job. That digital growth does not bode well for folks like Foot Locker, where you really don't need that distribution channel anymore because you're going direct-to-consumer. So, I would be very careful of those companies and stay away. Interesting. Speaking about IPOs, Nike came public in 1980, less than $1 split-adjusted.

Now, at $93, it's an annualized return of 20%. So, annualized per year over the last 39-40 years. Wow. On Thursday, McDonald's announced it will start testing a new menu item in Canada. The PLT, the Plant Lettuce and Tomato Sandwich, will be offered in nearly 30 locations in Southwest Ontario. You know, Andy, after Burger King tested the Impossible Whopper, no one should be surprised by this. No, not at all. I think I was a little hard earlier this week on the name PLT. I'm starting to warm a little bit up to it. But they're going to test it, Chris, as you mentioned, in Canada, 28 stores. Interesting, the price will be a little bit less than $5. And by

the way, the Beyond Meat patty is made specifically for McDonald's, so they're going to try to keep that McDonald's taste into the patty. But as the rest of the world continues to move more and more towards trying to have alternatives to just meat, this continues to be a push. McDonald's has recognized this. Interesting, Beyond Meat stock really did jump. It gained almost a billion dollars in market cap that day. That's the equivalent of about 7 million PLTs per test store sold. So, the valuation per test store per PLT is quite high for Beyond Meat. Yeah, it really was something to see Beyond Meat sort of coming back to rationality in terms of its stock price. And then, as you said, on Thursday, the news breaks and it pops 12%.

Our email address is radio at fool.com. Question from Dan Rogers in the UK. Dan writes, I was recently made aware of the VIX index, which aims to track the volatility of the S&P 500. For me, it would make sense to simply buy the VIX during times of low volatility, and hold until the market becomes more volatile, which occurs fairly often, and then just repeat the cycle. Is there something I'm missing here, or is this a sensible strategy? What do you think, Ron? Oh, Dan, if it was only so easy, we'd all be doing it. But you are correct. It's the investor fear gauge. A high VIX reflects increased investor fear. Low VIX suggests complacency. But you can't directly buy the VIX. You have to do it through an ETF or an ETN,

the exchange-traded note. And it's basically, at the heart, it's a market timing strategy. So, your rate of return is going to be based on your ability to get in at the right time and get out at the right time. As long-term investments, these are not good. For example, one ETF is down 95% over the last five years. So, it's your ability to get in at the right time and get out at the right time. I would suggest that that's a hard game to play. There's also structural problems with the way these ETFs are structured, which kind of takes away from the profits that you could actually earn, the performance digresses from the actual VIX, which makes it an even more tough strategy, I would stick to being a long-term diversified investor.

I think that's right. I've never invested in the VIX. I've never played with it. I don't think it's the way that you have to. You certainly don't have to. We're not missing anything as long-term investors, so I think it's not something that you have to rush into. And like Ron was saying, the structural differences are the real worry with trying to trade around into the VIX. And while certainly there are some speculators, it's more often used by professional investors as a hedge to reduce risk in a portfolio. So, again, I would stay away. Just be an investor, not a speculator. Also, taxes. Yeah, short-term taxes, for sure. Ron Gross, Jason Moser, Andy Cross,

guys, we'll see you later in the show. Coming up, a conversation with Morgan Housel from The Collaborative Fund. Stay right here, you're listening to Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. Earlier this week, we held a three-day event in Washington, D.C. for some Motley Fool members. One of the highlights of the conference was a conversation in front of a live audience between Motley Fool senior analyst Bill Mann and Morgan Housel from the Collaborative Fund. They talked about the psychology of investing, risk tolerance, and more. But we start our conversation with Morgan,

sharing why the obvious parts of finance get ignored. The obvious stuff in finance that everyone knows is true gets ignored because it's obvious. And people think that if it's obvious, it can't be that powerful. So they spend a lot of their time doing things that are less obvious, but much more complicated. And I think it's very similar to health, where a lot of the key for health,

let's put aside bad luck and genetics and whatnot, is diet and exercise. But that answer is just too, it's both too simple and it's not a fun answer to hear from. No, it's no fun at all. But it's the same in investing. You know, spend less than you earn and save the difference and diversify in long term.

And that's pretty much it. Everyone wants to know, well, what else? And I was, no, that's pretty much it. These things are easy in the laboratory though. But in real life, they're actually pretty hard. Yeah, I mean, that's... Let's take the base one, like spending less than you make. Why is it so hard for people, do you think, in actuality,

when it's just literally the most obvious way to wealth? I think a big part of this is just a perpetually moving goalpost, not just individually, but for the whole society. So if you ask most Americans when was the peak boom in the United States, when was life the best in the United States, If you do these surveys, most people will tell you the 1950s and 1960s. That was peak middle-class America when everything was great and everyone had a great job and everyone had a pension

and everything was great. If you actually look at the data adjusted for inflation, the median income is almost double today what it was back then. The median, not the skewed by the tails. The median is almost double just for inflation. But a lot of the reason it feels so much better for people back then than it is today, or I should ask, why don't people feel twice as well off today

as they did back then is because the goalposts has moved for everyone. And a lot of the goalposts has moved because we have a huge skew at the upper end of incomes that kind of inflates everyone's aspirations. And you start anchoring to other areas of income. But I say that because that's why a lot of these things are hard.

Why is spending less money than you make so difficult for so many people, even if we are, on average, twice as wealthy as we were during the glorious 1950s? I think it's because the keeping up with the Joneses effect applies to everyone, and I think it's only generalizing a little bit to say that in the 1950s and 60s, a decent house was 1,200 square feet, and a decent vacation was camping, and hand-me-down clothes were perfectly acceptable, and it's just not anymore. My grandfather was a soil

conservationist from western North Carolina. I don't think his salary ever had a comma in it, but he invested from the time that he was, you know, from the time that, and he started in the Depression, and he put his money for years into three companies. One was John Deere. One was a company called Jefferson Pilot, which is now a huge Lincoln Financial. The third was a little bank called North Carolina National Bank, which, does anybody know what that is now? Bank of America. WeWork. Yes, WeWork, yeah. Soon to be. And so he would go see his broker, and the broker would say, Big Joe. Everybody called my grandfather Big Joe, because he was big and named Joe, so it helped. So Big Joe, you really need to diversify. And my grandfather would

say, well, are you telling me that NCMB is not the best bank in North Carolina? And he'd say, no, sir, I'm not. He said, are you telling me that John Deere isn't selling more tractors than they did last year? And he said, no, sir, I'm not. He said, are you telling me that Jefferson Pilot isn't really good at insurance? The guy said, no, sir, we're not. He said, okay, I'll see you in a year and that was it and retired a millionaire yeah i mean having you know simply dedicated his time to finding really great companies and holding them my parents are somewhat similar not stock pickers though but my parents they call big joe too they don't call him big joe yeah but my parents have been dollar cost averaging into vanguard index funds for 35 years or something and they've

never sold ever and if you ask them why they did that i don't think they could articulate it because I don't think – it's not something that they did because they studied finance and they determined that this was going to be a great way to invest. It's just – I think so much of investing is just psychology, and that's the approach that fit their behavior. And if you compared their returns, I mean, they'd literally be in the top 10 percent of hedge fund managers if you compared their returns over time. And they've done it without even knowing it. They couldn't even articulate why they did it. Yeah, which is probably the best reason why to have done it that way. So there are a lot of really great investors who believe that stock picking is the core to great investing, like Warren Buffett, for example.

And then there are others who are all about allocation. David Swenson at Yale, who you were talking about earlier, everything for him is allocation. I know which one of those two I think is more fun. Yeah. Because picking stocks is fun. But where do you sit on that continuum? I've evolved a little bit over the years. When I started at The Motley Fool 12 years ago, I was 100% stock picker.

That's what I loved to do. That was all of my assets and whatnot. And then as I got interested in the behavioral side of investing, it just kind of moved towards, okay, the only variable I want to focus on now, the only variable that I think is really going to matter to me at the time is how long can I stay invested for. If I can own index funds and not have to think about the stocks that I own, and if I can just leave them alone for 30 or 40 years, because I was in my 20s at the time, that would lead to a result that I have very high confidence I would not regret. And then so

it just became, you know, if I can do this with less activity and less effort and I can spend all of my time focusing on this one variable that I want to think about, that seems like a great way to go. So I've often been kind of tagged as anti-stock picking, which is not the case at all. I think what it comes down to is everyone has very different goals and different desires and different, you know, what they consider entertaining in investing. And for me, I just got so interested in the behavioral side of investing that that's what worked for me. Yeah. What do you think

the biggest mistakes that people make when they're going about setting up an allocation? I think people massively underestimate the odds that they'll be wrong. And they overestimate how they will feel

when they are wrong. And just, if you look at, just take an index. Overestimate meaning, oh, I'm going to be able to handle it, or overestimate? Yeah, they underestimate, you know, when they go into their investing, they think the decision they're making is right. And if they are wrong, they think, well, I'll be okay if it's wrong. If there's volatility or whatnot, I'll be okay with that. If you just look at any index fund across the globe, this is true everywhere. So you take in like the S&P 500, 500 companies.

If you look at how those individual companies perform, not the index as a whole, but the individual companies perform over a 10 or 20 year period, the data shows that about 40% of those companies, if you look at a long enough period, will effectively go out of business. 40% of them. Now, in an index fund, that's okay for people because you don't see the performance of those individual companies. But if you have a stock-picking portfolio,

and even if it's diversified, you own 50 or 100 companies, a base-case scenario, like par for the course, is that over a 10- or 20-year period, 40% of the picks that you made and fell in love with and put your effort into are going to suck. Benjamin Graham, who was Warren Buffett's mentor, effectively owes his entire investing success to one company, Geico.

If you look at Benjamin Graham's performance as an investor throughout his entire life and you take out Geico, it's nothing. And that's how investing works. This is especially true in venture capital, where I am right now. Everyone is going to be wrong a lot. Because most people, even if they know those numbers,

when they log into their portfolio and they see that 40% of the picks that they made 10 years ago are disasters now, that doesn't feel good. and you start questioning, do I know what I'm doing? Do the advisors know what they're doing? This doesn't seem right, but it totally is right. Wrapping your head around the idea that these things are driven by tails,

that a few of your stocks are going to drive the majority of your performance, is not something that's very intuitive, so it's easy to overlook. But the psychology of investing, I think, is so difficult, even in the moment, to grasp. I mean, when everyone's researching behavioral finance, this is true for everyone. Daniel Kahneman, who won the Nobel Prize for this stuff, is the one who mentioned this. It was shocking that he mentioned it, but everyone thinks they're studying other people.

No one thinks they're studying themselves when they're thinking about the biases that cause people to go astray and have these crazy ways of thinking, but it applies to everybody. Not only does it apply to everyone, but it's different for everyone, depending on where you are in your life, what your goals are. I realized years ago that I have a lower risk tolerance in investing than most people of my age and income and net worth would. So I think it's different for everyone. But if we don't accept that it's different for everyone,

a lot of people will just look for the one right answer. You know, should you buy this company? It's usually framed as binary, yes or no. And the answer is always, for every financial decision, it just depends, depends on who you are and what you want and whatnot. I think, again, it's very similar to medicine, where, you know, this is the biggest shift in medicine,

from what I understand, I'm not a doctor, but in the last 30 years is shifting away from the idea that there's one right answer that the doctor knows to asking the patient what do you want what do you want to do this is what we can do these are the options what do you want and so i think finance is very similar in that way and a big part of that is just realizing that since there's no right answers that most of what we debate about most of what we argue about in investing are things that the reason we're arguing is because there's no right answer no so we're going head to head and one person's saying this stock's cheap and the other's saying no it's not and the reason we're arguing is because the real

answer the correct answer is who knows there's just some level of risk in there not only is a risk in there but everyone has a totally different risk tolerance that they're willing to take and that's why people come to vastly different conclusions sure like for example is this stock going to go up or you know is this is this a good opportunity well okay let's go back and talk about what you mean do you mean is it going to be up tomorrow i don't know is it going to be up five years from now, I feel like I've got a better grasp around it. But 40% of the time, I will say yes. And the answer I probably should have answered is still, I don't know. Or even if you said, or no, even if you said, I think there's a 60% chance that this stock will go up in the next

five years. It's a little bit terrifying when you are writing for a lot of people, because you when you feel like you're writing for yourself, right? Like, you really, it's hard to say, I don't know. Like, it truly is. I honestly think if you do, though, I think people find that humility refreshing. Yeah, I mean, eventually they don't, though, if you keep saying, I don't know about everything. I don't know.

So you're not bullish on my career then? Maybe I should read more of your stuff. There's obviously a market for people that have very firm opinions, mostly on financial TV, where if you go on TV and say, I don't know, they're not going to have you back. They want someone who's going to give you an answer. Years ago, I was doing a radio show,

and about five minutes before we went on, the producer said, we're going to ask for your six-month market forecast. And I said, oh, I don't do that. That's not what I do. And she said, well, we have five more minutes. Can you make one up? And I just thought,

that's so indicative of how the financial media works. That happens all the time. People want very firm answers on where things are going. But I think if you're just honest about it and open about that you don't know, And not that you don't know anything, but here's what we do know, and here's the universe of stuff that we don't. I think a lot of readers will find that, you know, appealing. All right, I'm exhausted.

You ask me a question. No, okay. Ask me a question. What have you, let's say in the 10 years since the financial crisis, how have you changed your, how you think about finance? And I don't just mean picking stocks, but let's say like at the household levels, sitting around the dinner table, how do you think about financial risk post-financial crisis? You know, it's funny because I think that, you know, obviously the other thing that's happened is that I've aged 10 years in that time, as have most people. That's how math works. But because that happened, you were just talking about how the fact that you were writing and you

had a young family, you know, when I was, when the financial crisis happened, I was just at the point of saving for my eldest for college. Like we were starting to get things rolling. She's now a sophomore in college and it really it really impressed upon me the importance of making sure that you know truly what your time frames are yeah the knowledge that 2008 could have been 2018 when i really had to write that big check was was terrifying of course a lot of people if they want if they plan to retire in 2008 that was a bigger deal too things look great in 2007 then you get to 2008. It's a different story. I also think with that topic, to the extent that people are long-term thinkers, particularly young investors, the long term is just a collection of short terms.

And if a lot of people think, oh, I have 20 years in front of me, but they still can't put up with losing 40% of their money in 2008. So even if they have, they have a long time horizon, but they don't necessarily have the endurance needed in their finances. So I think that was something that really occurred to me was even though in 2008 i was in my early 20s it was still he was 17 it was it was even though let's say i had 40 years in front of me until retirement it's still really jarring to deal with so even though you have a big time horizon doesn't mean it's not going to hurt in the short run so morgan in terms of a portfolio how many stocks in your mind is too many stocks.

I think there's a post that Tom Gardner and I wrote several years ago for The Fool where we kind of looked at it. And I believe the research, and I may be remembering this incorrectly, but basically I think the research was if you own more than 50 or 60, you're getting very close

to what's going to track as an index fund. And then at that point, you have a portfolio that you've put a lot of effort into. It's going to be a tax nightmare because you have to track all those individual sales and whatnot. and you're getting very highly correlated to an index fund.

Here's a good example of that. The Dow Jones industrial average is 30 stocks. The S&P 500 is 500 stocks. The Russell 3000 is 3,000 companies. The correlation between 30 and 3,000 over time is in the high 90%. There's so much correlation, and that's just at 30, owning 30 Dow companies,

you're basically owning the same portfolio as if you have 3,000 companies. So, you know, this gets into, it's a difficult question because stock picking for people can be really fun, and there's an entertainment aspect to it. But if you're looking at it mathematically, I would say probably 30 to 50, you're getting close to too much. Morgan Housel, thank you so much. Always a pleasure. Coming up, are you looking for stock ideas? Good news. We've got a few stocks on our radar, so stay right here. This is Motley Fool Money.

All right, before we get to the stocks on our radar, quick shout out to Zapier. When you're running your own business, your to-do list is never ending, and the solution is to automate tasks. That's where Zapier comes in. Zapier is built to automate your work because it connects all your business software and handles work for you, so you can focus on the things that matter most. Go to zapier.com slash fool, connect the apps that you're already using, and let Zapier take it from there in just minutes. Here at The Motley Fool, we have a lot of people using a lot of different systems, and Zapier helps us integrate them all. When you're going between Slack and Google Docs and Zoom Video, all these different apps,

it's pretty easy to lose track. And Zapier is great at helping us zap from one app to the next. right now through November. Try Zapier free by going to zapier.com slash fool. That's Z-A-P-I-E-R dot com slash fool for your free 14-day trial. Zapier.com slash fool. Let's get to the stocks on our radar. 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 once again with Jason Moser, Andy Cross, and Ron Gross. Guys, seems like the school year just got started, but here at The Motley Fool, we are already looking for interns for

the summer of 2020. We certainly are. Investing, writing, marketing, we're looking for software developers. We want you. So, if you're a college student, or you just happen to know a college student who might be interested, tell them to go to careers.fool.com. That's careers.fool.com. And when you apply, tell them you're one of the dozens of listeners. Let's get to the stocks on our radar. Our man behind the glass, Steve Broido, is going to hit you with a question. Ron, you're up first. What are you looking at this week? It's a radar stock, not a recommendation. I just started looking at it. It's Five Below, F-I-V-E. Operates over 750 discount retail locations in the U.S.,

aimed largely at teen and tween bargain shoppers. It's a re-recommendation in April in our Rule breaker service. They have done quite well in a difficult retail environment, gained customers from other failed retailers like Toys R Us. Significant growth plans in place, plans to grow to 2,500 stores from 750 right now. That's a pretty big growth runway. Certainly doesn't appear cheap at 39 times earnings, so that's where I need to dig in a bit more. Steve, question about five below? How many items do you think the average customer is picking up at once, if they are indeed five below? Some are 10 below, actually. They've introduced a 10 below, too. So, I'm really

going to say only one or two items per trip. Jason Moser, what are you looking at? Yes, a little company called Facebook, you've probably heard of it, ticker FB. They recently announced a project called Live Maps that is going to go along with the augmented reality glasses that they keep telling us they are working on. But this is an interesting Live Maps initiative, it's basically working on creating 3D maps of the world. It's going to incorporate, essentially, more real life into navigating around anywhere from cities to neighborhoods and buildings. It's responsible for things like getting notifications projected into thin air, or identifying objects with labels. All sorts of neat stuff. And I do

think it's important, because they need to figure out a way to diversify this business model just beyond the advertising revenue that really supports the stock today. We are certainly seeing with big tech, Amazon included, they're starting to roll stuff out now. So, I think the race is on to try to develop this wearables market. And just one side note, we will see COO Sheryl Sandberg testifying next month, likely, regarding Libra, testifying in front of Congress. So, that should be kind of interesting. Steve, question about Facebook? Has the media turned more positive on Facebook? It seems like a year ago, every

headline was horrible, and now it seems like things have gotten a little bit better for them. I think, yeah. I think the tone is a little bit more positive, but not so positive. It's better, but not where it needs to be. Andy Cross? Stitch Fix, S-F-I-X, the online apparel provider. When you load in information, put a bunch of data in, you get a more customized piece of apparel back. They report earnings next week. Revenue was up 29%. Client growth up 17%. That's actually the lowest point in the past couple quarters, so I want to see that reverse. That's what I'm looking for. Steve? Is Andy Cross going to be a Stitch Fix subscriber? I will someday. I am not now, though. I predict I will

be. What do you want to add to your watch list, Steve? I own Facebook. I think I'm going to go with that one. All right. Ron Gross, Jason Moser, Andy Cross. Guys, thanks for being here. Thanks, Chris. That's going to do it for this week's edition of Motley Fool Money. Our engineer is Ebroido. Our producer is Mac Greer. I'm Chris Hill. Thanks for listening. We'll see you next week.