Motley Fool Hidden Gems Investing - GoPro's Surprising Shot

Episode Date: May 26, 2016

Costco posts strong profits. Monsanto rebuffs Bayer. And GoPro gets a shot of Red Bull. Plus, corporate governance expert and film critic Nell Minow talks Disney succession, Buffett wisdom, and must-see movies.  Learn more about your ad choices. Visit megaphone.fm/adchoices

Chris Hill, The Motley Fool Money Radio Show. 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 from Million Dollar Portfolio, Matt Argersinger. From Motley Fool Pro and Options, Jeff Fischer. and from Motley Fool, deep value, Ron Gross. Good to see you as always, gentlemen. Hey, how are you doing, Ron? It is our Memorial Day weekend special. We've got news, we've got Nell Minow in front of

a live audience at FoolFest, and as always, we'll give you an inside look at the stocks on our radar. But we begin once again with the retail industry. Shares of Costco up this week after third quarter profits came in higher than expected, but for the first time in six years, Matty, same-store sales were flat. Right. I was trying to figure out what investors actually liked about this report, because comps were flat. If you strip out foreign currency, gas sales, okay, up 3%. But overall revenue, just up 2.5%, really only because they're opening new stores. Profits up 6%, a little better than expected. But these aren't exactly the growth numbers that,

in my view, justify a PE of 30. My only guess is that the traditional retail industry has been so bad over the last six to nine months that Costco is slightly better than expected results is giving it some love. Did they talk about retention at all? Are they seeing any slippage there? There's no slippage in retention, and I'll point out that they had better than expected membership fee growth, which of course is a pillar of the business. So, that probably is giving it a little bit of a boost. So, six years of same-store sales growth, that's phenomenal, and that was bound

to end at some point. I think the question, Ron, becomes, three months from now, if we're looking at this same number again, then it's no longer a speed bump, then it's actually a point of concern. I think that's fair, but as Matty pointed out, I don't really think it's as bad as it looks because of foreign currency and because of gasoline. I think the numbers still are pretty solid, perhaps not as robust as they used to be, but they're opening new stores, they're growing on a per-store basis, the retention is still good, you still have the model working. And I'll add that you probably are ripe for another rise to the membership fee at some point, which is another lever

they can pull, assuming the economy is strong enough and the member base is strong enough, so we can see growth there. There's been a shift now going on with moving to the new credit card, which we'll see. That could either be a good thing, it could lead to a lot of growth in membership, or it could not, we'll have to see. I have a question for you two guys, who I know follow Costco closely. Does management talk about Amazon much at all in conference calls? O' Would you, if you were Costco? I would.

O' Costco doesn't really mention Amazon by name, but they talk a lot about their own e-commerce efforts, which are, on a relative basis, doing actually quite well. And they've got, of course, a relationship with Boxed, which is working out. You can, as you can with Amazon, not to this extent, but you can buy a lot of junk. That amazing assortment, you can obviously buy online as well. I've bought some interesting things myself. I would just think, over time, Amazon will eat into that. Even Costco's business is vulnerable with subscribe and save on Amazon and all the Prime members on Amazon.

O' Pantry deals. Exactly. We're buying more and more of those basics from Amazon. But unlike a Best Buy, where we say Best Buy is really just a showroom for Amazon, I don't think you'll ever say that about Costco. You're going to Costco, you're leaving with a cart full of stuff. If you're going to make that effort ... O' If you're Ron. I don't think you're going to say, oh, I see seven dozen pieces of licorice, I'm going to go now on Amazon and buy them. O' No, right. But you might just not go to Costco, period. Could be.

Let's move to niche retail. William Sonoma's first quarter profits and revenue came in higher than expected, and shares moving higher as well this week. This is a good quarter, Ron. Yeah, tough time for retail, as we were saying, but I like this report. Beat on both revenue and earnings. West Elm, their furniture division, up 19%. William Sonoma, up 3.5%. Pottery Barn, which has been the weak spot, actually pretty robust. E-commerce now more than 50% of sales. That was up 8%. A very strong report. Williams-Sonoma has struggled over the last, let's call it year, after having a great, great run. Shares are off quite a bit. But now, I think, with these numbers

looking good and the stock where it is, it could be a nice entry point for investors looking to get in. Well, that's a surprisingly good number. I had no idea that their e-commerce sales were already 50% of revenue. Yeah. That was the thesis two or three years ago. They said, this is what we need to do. We need to increase that business. And if you didn't buy into that concept that they'd be able to, you didn't want to own the stock. And they executed. I was just going to say, that's the difference with Williams-Sonoma. They've talked about this omni-channel approach for years, and unlike a lot of other retailers that give

lip service to their particularly e-commerce efforts, Williams-Sonoma has actually delivered on it. And I missed it. I didn't believe they would, and therefore I didn't get into the stock. I don't think it's too late, actually. Seven times EBITDA right here at this price. Probably as long as things stay on the right trajectory, it could be a good time to get in. Shares of agricultural giant Monsanto up this week after German conglomerate Bayer made a $62 billion bid to buy Monsanto outright. Monsanto rejected the initial bid, Jeff, but they definitely left the door open. This would form the largest agricultural

seed company in the world with about 30% market share, if the two merged. And they'd have about 24% market share in ag chemicals as well. So, it would be an absolute giant. I would be surprised if European and U.S. regulators let it go through. Chris, before the show you were saying they didn't even let, in the U.S., the Office Depot and Staples merger go through. How can you let this merger happen? But the market is skeptical, too. The share price is well below the offer price. Monsanto has about a $50 billion market value, and the $62 billion offer is not popping the stock that much. You have a similar transaction going on in the industry with ChemChina trying to

acquire Syngenta out of Switzerland. They're running into some regulatory issues as well, especially here in the U.S. It'll be interesting to watch that, because that one is further along. As Jeff said, we don't even really have a deal here with Monsanto. But that one, you do have a deal, so we'll be able to continue to watch how that unfolds to get a signal of what the regulators are going to do. Yeah, and that's a $43 billion potential merger, China National Chemical, buy in Syngenta. And then you have the Dow and DuPont merger last year as well. So, all of these are kind of like merging Darth Vader with Darth Maul. They're all ...

I sleep in one. Just to go back to the good old Uncle Sam angle here, I don't know. I guess I would be stunned, but maybe I shouldn't be. I'd be stunned if this actually goes through. would be the largest German takeover of a U.S. company ever. As you said, Jeff, look at the deals that have been shot down. Much smaller deals in much smaller industries have been given the stop sign from some form of the U.S. government. The fact that one single company is going ... you threw out a couple of stats there, Jeff. 83% of U.S. corn seed sales would come under this one company if it went through. I don't know.

If you went for a very recent proxy, the government didn't ever explicitly come out and stop it, but Halliburton's purchase of Baker Hughes really got the red flags from regulators. That would have formed a really dominant oil services business, similar to what Bayer and Monsanto would control in the seed business. The fact that this is directly related to our food source, and there's so much controversy as it is, I think this will get double the scrutiny, and therefore it's even less likely to go through, versus if it was an office supply company. Yeah, it's too Orwellian to think of one company controlling so much of our food.

Fourth quarter profits for Lionsgate Entertainment came in much higher than Wall Street was expecting, and shares up more than 10% on Thursday, Matty. Yeah, nice gain. You have to remember that these results simply beat guidance that was already lowered significantly earlier this year. But here, the story is on the TV side, revenue from TV productions up 71% to nearly $250 million. They had a really big new licensing deal with Netflix for Orange is the New Black earlier in the year that really drove the results there. But really not getting it done on the box office, I actually want to ask Steve. Steve, did you happen to go see Gods of Egypt?

I don't even know what that is. Is that a film? Exactly. And apparently no one else did either, because that was just a really big miss for them in the quarter. They sunk a lot of money into it, didn't do much at the box office. And so, in many ways, Lionsgate is still that hit-or-miss business. But certainly on the TV side, I think that's where the trend for content is going. And if they can continue to hit home runs there, the business should do very well. Four of the five biggest box office hits from Lionsgate are the four Hunger Games movies. Can they get that woman to write a few more of those books?

I was going to say, they could revitalize that, do a prequel, I don't know, do something. Coming up, we've got some stocks on our radar, and we've got some tips to help you out this summer. Details next. This is Motley Fool Money. As always, people on the program may have interests 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 Jeff Fischer, Matt Argesinger, and Ron Gross.

GoPro, the camera behind video cameras popular with fans of extreme sports, struck a partnership this week with Red Bull, the energy drink company. I wish I were making this up. It must be a great deal, Jeff, because shares at GoPro up more than 10% this week. Well, GoPro needed a little bit of help, but they need a lot more than this, because it doesn't look like they're on deck to earn profits, earnings per share, until at least 2018, and that estimate is ... And that's important, why? And that's a small estimate, and it's speculative as it is. So, GoPro is worth

with $1.4 billion right now market value, which by itself is a great success for a company that's 12 years old. But the problem is, the stock was eight times higher just in the past couple of years. So, it's had a really rough ride, down some 90%. Their sales, of course, are down sharply, Chris. Their margins are down right along with that into losses. It's hard to see what's going to really propel the business back to the heights that it hit in 2013, even 2014. Some people hope it'll be drones that come out this holiday season, but I think drones, just like the GoPro camera itself, is not a mass-market product. Can someone explain to me what the deal with Red Bull actually is? Is it just a

marketing deal? Okay, so, I guess there is that news, too, before I just pile on GoPro. So, GoPro is going to be the only and the official camera of any Red Bull event, and Red Bull has some 1,800 events around more than 100 countries across the planet each year. So, that increases the visibility of GoPro at any Red Bull event. But that said, they've had a partnership a long time. That's why I haven't talked about it much so far. I don't see much leverage from the formality of this partnership, because they've had an informal partnership for a long time. I'm calling it the jump-the-shark moment.

It's downhill from here. I hope not, but they do have a rough road. Memorial Day weekend is the unofficial start of grilling season. And normally, this is the type of segment where we just go around the table, guys. But, Jeff, Matty, no disrespect to you, and certainly no disrespect to myself, but we are in the presence of a grill master in Ron Gross, and I don't know that our listeners know that about Ron Gross. But Ron, since you are a grill master, before we get to the stocks on our radar with Steve Broido, if you could share a few grilling tips, because I don't know about anybody else, but I could use them.

We could do a whole segment, but we won't. Two words, salt and booze. You need more than you think of both of them. You can't be afraid to use salt. Just in day-to-day life? Salt is the number one thing that distinguishes a professional chef from a home chef. Home chefs underutilize salt to a significant extent. Booze, have some fun for crying out loud.

It's Memorial Day. Have a couple of cocktails. A couple more tips that I think typically people make a mistake. You don't add barbecue sauce in the beginning of the grilling cycle. It will burn the sugar in the barbecue sauce. You've got to wait until the end. Certain cuts of beef you've got to marinate. Flank steak, strip steak, London broil will be tough as nails if you don't marinate them.

Can I just stop you right there? No, I'm on a roll, man. Just one thing on the marinade, because here's one frustration I have as someone who attempts to grill. is the range on how long I'm supposed to marinate is anywhere from 30 minutes to four days. So narrow it down for me. For example, for fish, if you marinate fish in something citrus, it'll start to cook the fish, and you don't want that to happen

because it's going to start to go bad, and it'll get really mushy. Something like a beef you can marinate until the cows come home, no pun intended, and you'll be okay. So you want to be careful about the cooking process. And I will end with you must, you must let your protein rest for five or ten minutes after it comes off the grill, so the juices can redistribute into the meat, and you'll get a much juicier piece of meat. Oh, man. That was great.

That was mind-blowing. More salt, more booze, let it rest. I mean, I was in on more salt and more booze. Anything on kebabs? Do you have any guidance on kebabs? Because here's the thing. I told Dan Boyd, one of our producers, we were going to be talking about this, and he immediately went to kebabs and says, don't mix the meat and the vegetable. No, I think you can. That's okay. If you don't have metal skewers, which most people don't, you end up using the bamboo. You've got to soak the bamboo for a long period

of time so they don't burn when they're on the grill. Yeah, no, I don't. Who has that kind of time? Can I add one more tip as an amateur? Undercook. You can always put it back on for a bit more time. And during the resting period, it will come up to temperature, too, and continue to cook. So, that's a perfect tip. That's a good point, yes. Alright, we're going to go to our man, Steve Broido, on the other side of the glass for stocks on our radar. He'll hit you with a question. Also, on the other side of the glass this week, long-time listener Harry

Yang, visiting us from the great state of Wisconsin. Thank you, Harry, for stopping by. Alright, Ron Gross, you're up first. Steve Broido's going to hit you with a question. What are you looking at? Steve, Modine Manufacturing, MOD, a microcap manufacturer of thermal management systems for vehicles and ventilation and air conditioning systems, industrial equipment. Only a $500 million company. They reported earnings earlier this week that looked actually pretty good, despite the fact that they sell into some end markets that are really troubled, such as agriculture and mining. Really strong balance sheet. The company is cutting costs and doing what it needs to do to get them through this

tough period. It's only an $11 stock. I think it's worth actually $17, 50% upside from here. Again, they're cutting costs during this bad time, so they're going to be lean and mean when the tide eventually turns. O' Steve, question about Modine Manufacturing? How does Matthew Modine be able to be such a great actor and also own a company? There's actually a very large lawsuit against Modine for the use of the name. No, I'm just kidding. I think Matthew Modine would be a perfect spokesman for this. O' All right, Matty?

I'm looking at Starbucks, SBUX. It's creeping closer down to $50. If you can get the stock for less than $50, you're paying only about 25 times forward earnings, which seems still expensive, but actually, for a company like Starbucks, with what they're doing in China, for example, the growth they still have overseas, I think that's a great multiple to pay, if you can get it. So, Starbucks, it's on our watch list, the million-dollar portfolio, we've been waiting for a better price to get it into the portfolio. Steve, question about Starbucks? I don't drink coffee, should I care about this business at all?

Yes, because tens of millions of people do drink a lot of coffee, and they love going to Starbucks. What does success look like for them in China? They've got, and it's understandable, they've got some pretty robust targets that they're trying to hit. Is this a situation where, as we've talked about before with Elon Musk and production targets for Tesla Motors, where it's like, hey, even if he comes relatively close, that's fantastic. Can Starbucks come close in China, or do they have to hit those numbers? No, I think they can come close. I mean, they're trying to double their store count right now. And they have around 2,000 stores. They're

going to double that probably by 2020. I'm actually watching revenue per store more closely, because obviously, revenue per store in a place like the United States and Europe is going to be much higher for a long time in China. But if they can actually do well with that number, and it doesn't drag down overall sales so much, that's key. The growth is great, the store count is great, but I also want revenue per store in China to be good as well. Alright, Jeff Fischer, what are you looking at? Steve, what do you drink? If coffee is not your daily ritual, do you have a daily ... A lot of Diet Coke.

In the morning, you get up, crack open a ... Yep, love it. We've got to get you on to coffee, man. All right, we're talking about Celgene, an $84 billion biotech behemoth. Their biggest selling drug is for blood cancer, and they just recently protected it from generic sales until at least 2022. The company right now is on track to grow earnings per share about 20% annualized through at least 2020, and they have a really rich pipeline, product pipeline, a lot of things coming up,

A lot of key data coming out in 2016, 2017. Interesting company at a mid-teens multiple to earnings looking about a year forward, even while it's growing 20%-ish. O' And the ticker symbol? Celgene is C-E-L-G. O' Steve, question about Celgene? Does patent protection that these drugs deal with, is this a good or a bad thing for them? Patent protection generally lasts 17 years from the time of discovery or filing. a good thing. It protects their profits. They put a lot of money into research and development. They need some time to earn that money back. And given the long development time for a

drug and approval time, they don't have that many years to really make their money back. That's part of the reason the prices are so high, unfortunately. And then, patent protection goes away, and generics roll out, and that eats away their margins. So, yeah, they need to generate real profits, and they need patent protection, definitely. Sell Jean, Starbucks, Modine Manufacturing. What do you like, Steve? Modine. I'm 100% VisionQuest, Matthew Modine. Ron Gross, Jeff Fischer, Matt Argersinger. Guys, thanks for being here. Thanks, Chris.

Last week, I got the chance to interview our friend Nell Minow in front of a live audience at FoolFest. We will bring you that conversation next. Stay right here. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. Last week, we hosted FoolFest, our biggest investing conference of the year. One of our guests was Nell Minow, corporate governance expert and film critic. Here's part of our conversation. Before we get to corporate governance stuff, and I think I have a way for us to sort of get into corporate governance um let's talk about your family for just a second um it was i believe i have the math correctly 55 years ago this month yes that your father

newton minnow uh gave the famous television is a vast wasteland speech he did um for those unfamiliar um what is your memory of of that because this is one of those quotes that gets thrown around on Twitter all the time, and I think more so than many quotes, is sort of misappropriated. They just focus on the vast wasteland part. Well, it really hit home. My dad was the chairman of the Federal Communications Commission. He was just, he was 34 years old when he was appointed. He had just turned 35, and you have to remember that at that time, the television industry had been beset by all kinds of scandals. They had the quiz show scandals and the Paola scandals. At that time, also in 1961, there were three broadcast networks. There was no such thing

as PBS. All of the news that was on television was 15 minutes at 6 o'clock. That was it. There was not one national program for children. And so he spoke to the National Association of broadcasters, which previously had had nothing but love and valentines from the FCC chairman, who all went and had jobs in the industry afterward. And he told them that the airwaves were a scarce resource, and he was going to allocate licenses based on who served the public interest, as according to the law. And they didn't like that at all. And as a result, Sherwood Schwartz decided to insult him by naming the sinking ship on Gilligan's Island after him. the ss minnow we're super proud of that

the show was banned in your house well we weren't allowed to watch television so the medium was banned in your house uh we were allowed to watch very special programs that my parents picked out for us including rocky and boinkle uh which they liked and uh and the early days of what became pbs was at that time uh national educational television the same day dad gave the the speech he also signed the first license for weta which is now public tv here in washington produced the civil war and the news hour uh so we watched very select programs on television with my folks but that taught me how to be a movie critic they made me a critic very young. I want to get to the movie critic in a minute, but on the corporate

governance side, I mean, you have, to borrow from The Godfather, you've made your bones going after boards of directors. Yes. And early in your career, that put you head on with your father. Yes, it did. And I just have to say, he's the greatest dad in the world. He's absolutely wonderful um but yes i was uh at the then very new institutional shareholder services which was the first company large company set up to advise institutional shareholders on proxy votes and it bugged me that nobody was paying attention to boards of directors and i said well they have to tell us two things do they have any stock and did they go to meetings let's not vote for them if they don't have any stock and they don't go to meetings so the second name that came up was my

dad who had missed more than 25%. That's the cutoff. So I had to call him and tell him. And I said, hi. And he said, hi, how are the kids? Oh, they're fine. Listen, I have something to tell you. You've missed too many meetings on the board of AON. And we're going to recommend a vote against you. And our clients include the California Public Employees Retirement System and Tia Kreff. And they're going to vote against you. And he said, well, how many meetings did I miss? And I said, well, the cutoff is 25%. You missed 27%. And he said, that's really close. And I said, Dad, when I came home at 1215, and my curfew was 12 o'clock, you told me that clothes didn't count god that is every kid's dream and i gotta say uh my dad is so great

i was very embarrassed by this and i never told anybody he thought it was a hilarious story he told it to fortune magazine and it's been reprinted now many times so let's talk about investing and our role as individual investors, how much influence can an individual investor wield when it comes to things like boards of directors? Because on the surface, it seems like not much at all. Well, you know, I checked before I came over here today, 200 companies over the last couple of years have done something that nobody would have said could happen a couple of years ago and that is they have adopted what's called proxy access giving shareholders the right to nominate board members because I have a secret for you

you know how they tell you that the majority of the board members are independent I don't know what they think that word means because they're not independent they were all picked by the CEO they're approved by the CEO they're informed by the CEO if shareholders don't have the right to nominate their own directors there's no such thing as independence and even if they've never use it, just knowing that that option is there is going to make them do a better job. So the fact that 200 companies have adopted proxy access is stunning. We've had, since Sarbanes-Oxley, the opportunity to vote against pay plans, and even though

it's non-binding, I'm sorry, since Dodd-Frank, even though it's non-binding, it's had a huge impact on the ways that companies think about pay what they put to a vote how they respond to votes against so yeah I mean that's the good news there is some bad news shareholders cannot remove directors and there was one company where not one of their nine directors got over 50% of the vote so what did they do they tendered the resignation to themselves and then they turned themselves down and reappointed themselves so that doesn't always work but generally speaking I think individual investors can have a big

impact especially if you're working with an institution if you have a 401k and you ask them how are you voting your shares just last week Vanguard had an ask Vanguard hashtag on Twitter and a bunch of my friends and I got together and asked them a lot of questions about what a bad job they do I'm voting their proxies and why they don't do what Jack Bogle their founder told them to do and Interestingly, we never got an answer to any of that. It's almost hard to believe. We have, although recently seen a couple of examples of public companies,

Priceline, Lending Club, where the board, I mean, we've talked before about the sometimes way too cozy relationship that the CEO has with the board of directors. But in the case of Priceline and Lending Club, those are situations where the board took an action that ended up with the CEO being shown the door immediately? Yeah, right now I'm looking at Tribune Company, where it looks like the board is mute. I mean, it's ridiculous that the CEO, you know, Gannett made an offer for Tribune.

It seems what you're supposed to do in that situation is the Committee of Independent Directors is supposed to retain counsel and investment banker and look at the offer. Apparently none of that happened, and now the CEO says he's going to buy Gannett. I think he thinks he's going to get in a time machine and have Mike Milken give him some junk bonds. I don't know how he thinks he's going to finance that.

But I have a suspicion that once those board members talk to their lawyers, they may end up growing a spine now and then. Let's talk about succession planning. That's an issue you've written about recently. Why do you think it really seems like it's hard for companies to pull off well? And I'm wondering, first, is that true, or is that just my perception? And secondly, if it is true, why is that? I think it is true. It is getting a little bit better, but generally speaking,

when I worked on a report for the National Association of Corporate Directors about succession planning, we talked to one CEO. We said, what is the plan that you guys have? And he said, I'm going to look for those guys who cloned Dolly the sheep, and I'm going to try to get them to create another me. So that's, you know, basically the ideal. You know, you don't get to be a CEO without having a very healthy ego and a very healthy sense of competition. And those are not qualities that go well with the idea of finding a successor.

And Jeff Sonnenfeld's wonderful book, A Hero's Farewell, is still the key book on kind of the culture of the CEO when it comes to succession planning. But I think the boards are increasingly realizing that it is a constant obligation of the board. It's not something that you do when the CEO is getting near a certain age or when he's getting, looks like he's not as interested anymore. You have to have it all the time. You have to have a short-term succession plan and a long-term succession plan. And one thing that I advocate, which so far I don't think anybody's doing, is that part of the CEO's incentive compensation should be on attracting and retaining top talent who could take over. I'm pretty sure the Walt Disney Company had a succession plan for Bob Iger and it involved Tom Staggs the chief operating officer got elevated and then a year later he was basically

told it's not going to be you yeah so now Walt Disney is in the position of needing to find in the short term a chief operating officer and unless he's changed his mind a replacement for Bob Iger, when he walks out the door in a couple of years, where do you see that going? And to the extent that Bob Iger would pick up the phone and call you and say, what should I do here, what would you tell him? Well, I'm available.

To give advice or be the CEO of the Walt Disney Company? To be the CEO of Walt Disney. You know, I love Disney. As a movie critic, they're having an unbelievable year with Jungle Book was a huge success, Star Wars at the end of last year. I'm telling you right now, Finding Dory is going to be the biggest film of the summer. So they seem to be doing very well.

And while Warners is making terrible superhero movies, they're making great superhero movies. So it shows you that the Disney magic is still very much alive. They've made some great acquisitions. So I think what they need to do, they need to start by getting a stronger board. You know, Disney has historically not had the strongest board. and they need to create a committee that will look right now. It's going to be difficult. They may need to bring somebody in from outside,

but they've got something really special there, and they could, as we've seen with Disney before, they could come close to losing it all if they don't get somebody really good on top. Coming up, more with Nell Minow. Stay right here. This is Motley Fool Moe. I feel so good.

Come pay day. I think of all the things I'm going to buy when I pick up my pace. Welcome back to Motley Fool Money. I'm Chris Hill. Here's more of my conversation with Nell Minow in front of a live audience. What is a red flag? And it can be regarding executives or it can be regarding members of the board of directors and obviously certainly the chairman of the board.

What is a red flag that we should look for as investors to give us a sense that a company that we may own shares of might be in trouble at the corporate level? Every year, Businessweek and the Wall Street Journal come out with articles on CEO pay, who is being overpaid, who is being underpaid. There's a really excellent report that is free that you can download from a group called As You Sow, A-S-Y-O-U-S-O-W, that I helped with a little bit, not on the analysis, but just on the approach. And if you look at that, that is your short-sell Bible. because that will tell you if a board cannot get CEO pay right, they don't know how to say no to the CEO, they don't know how to tell the CEO what the priorities are, and that is a big red flag.

So I don't think there's any more effective, more clear red flag than that. And, in fact, a study some years ago said that in that time repricing options was very popular, that if you just shorted every company that repriced options, you could basically get island money. So I think that's the biggest red flag there is. And we'll have time for questions from the audience, for a couple of questions in just a minute.

But you mentioned some of the big movies this summer. I would be remiss if I did not ask you about an investing movie recommendation. It can be recent. I'm thinking in terms of something that you watch and you think, that actually is a is a great representation of the investor experience well recently of course the big short is the best there is but there's a 1954 movie called the solid gold cadillac about a shareholder who has 10 shares goes to the annual meeting objects to the outrageous ceo pay which was a hundred thousand dollars but if you just if you just add three three zeros onto all

the numbers, you will see that every single thing that that conglomerate does wrong is exactly what companies do wrong today. And you see what the shareholder does to turn it around, and it's absolutely great. So that's my favorite. And then I also want to recommend if any of you out there feel that the only person who could possibly explain the financial meltdown would be a member of Monty Python, you are correct. A member of Monty Python did a great documentary earlier this year about the financial meltdown

called Boom, Bust, Boom, and I really recommend that one. This is something we've talked about before, but not in a while. It seems like when you're watching a superhero movie, the villain is very obvious, it's another person. For a lot of other movies, a lot of other very good movies, the villain is a corporation. Yes, I wrote an article about this, and I had examples in every category,

comedies, thrillers, even horror movies. is the bad guy is always a corporation. And somebody once suggested to me that this is because Hollywood is anti-corporate, they're socialist, et cetera. That's not it. They're corporations. They are, you think Disney is not

the most capitalist enterprise in the world? Of course they are. And they understand that the nice thing about having a corporate bad guy is that generally speaking in movies, the hero is somehow fighting against the man, fighting against the establishment. and a corporation there's no anti-defamation league for corporations it's very hard you know

you got if you're going to if you're going to look for the worst villain of all you got dinosaurs you got nazis but they're not contemporary and so if you're going to have a story that is set now you know we've done colombian drug dealers we've done middle eastern terrorists we've done you know but there's going to be somebody who's going to get offended by that there was a couple of years ago they made a remake of red dawn which is about a communist invasion of the united states and they made it with Chinese. The first one was the Soviets, okay? We can't do them anymore.

So they had this Chinese invading the United States. But in the time that they were making it, somebody figured out that Chinese buy a lot of movie tickets. And so they went in and they digitally changed them all after the movie was shot to North Korean. So if you're looking for a bad guy, The faceless corporation is a reliable one. I'd just like to think that somewhere someone suggested we need to make the villain a corporation

because we don't want to offend dinosaurs or Nazis. A couple of questions before we wrap up. Do you have a favorite company and least favorite company in the corporate governance realm? Wow. Well, I'm going to take the easy way out and say my favorite company is Berkshire Hathaway. Hathaway. I have one share of Berkshire Hathaway stock with a basis of $150. It was from when I was a child. My father owned stock in a company that was bought by Berkshire back when they were giving out stock as an exchange. And so I've met with Warren Buffett. I'm a

big, big, yeah, it's the real deal. So I'm a big, big fan of Berkshire. And there's a guy, you cannot complain about his CEO pay. You cannot complain about his incentive compensation. And I trust him when he says that he's got succession planning on lockdown. So I think that's very, very good. And boy, my worst case scenario, I would say in the history of my studying this over time, Citigroup was probably the very worst. Last question and then we'll let you go because it is graduation season. For anyone in the audience who has a graduate or soon to be graduate in the family, what's one piece of advice you would pass along to young people heading out into the world?

My most important piece of advice, and I wrote not one but two articles for the Huffington Post about my advice to graduates, so you can look that up, but my most important piece of advice is never, ever, ever, ever, ever use the word busy. That's one four-letter word that I would never use. And the reason for that is that people use that word as an excuse. And it's a genuine insult to whoever you're talking to. It pushes them away instead of bringing it in. And it also makes it impossible for you to think honestly to yourself about what your own priorities and choices are. So never use that as an excuse. Never use that as a brag. Very popular here in Washington. Just don't use that word, and you will become much, much more in tune with what

you're doing and much more open to hearing from other people. Thanks for being here, Nell. Thank you. Nell Minow. That's going to do it for this week's edition of Motley Fool Money. Our engineer is Steve Broido. Our producer is Mac Greer. I'm Chris Hill. Thanks for listening, and we'll see you next week. Subtitles by Subtitle Workshop