Motley Fool Hidden Gems Investing - Michael Lewis on Wall Street

Episode Date: April 3, 2015

With the 1st quarter of 2015 in the books, what should investors be watching in Q2?McDonald’s joins Wal-Mart and Target in increasing wages for workers. We analyze Amazon’s new “Dash Button”, GoDaddy’s hot IPO, and the latest questions in the Fool Mailbag. Plus, best-selling author Michael Lewis reflects on his first book “Liar’s Poker”, the current landscape on Wall Street, and what advice he has for college graduates.   Learn more about your ad choices. Visit megaphone.fm/adchoices

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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. Joining me in studio this week from Million Dollar Portfolio, Jason Moser. from Motley Fool income investor James Early, and from Motley Fool deep value Ron Gross. Good to see you as always, gentlemen. Good to see you, Chris.

We've got a hot IPO and a brand new definition of home shopping. Best-selling author Michael Lewis is our guest this week. Plus, as always, we'll give you an inside look at the stocks on our radar. But we begin with the market in general on what was a short week, with the market closed on Friday. But Ron, this week we closed the book on 2015's first quarter. all three major indices in the plus column, ranging from up 1% to up around 5%. So, with that, let's start looking ahead to Q2. What is one thing you're going to be watching? Well, I can't do one thing. You know me. I did find it interesting that the Russell 2000

was up around 4%, and the S&P barely eked out a gain. That was interesting to me. But going forward, I think I'm selfishly going to be really keeping an eye on commodity stocks and some cyclical industries in general, and that's because I have a lot of investments tied up in those theses, specifically things like steel and zinc prices, agricultural and mining industries. I need these industries to firm up. I need these commodities to firm up, and that way these investments will kind of come to fruition and be where I think they should be. Oil? You want to make a prediction on oil, or is that just on the back burner for now? In our lifetimes, it will be higher than it is now.

Bold. James Early, what about you? I'm going deep and heavy, and it's going to say the RMB. China, if you don't know, has been campaigning to make the RMB a reserve currency, similar to how the dollar is. The U.S. has been opposed to that, but the U.K., Australia, France, Germany, and some other countries. So basically, we see it as stab this in the back and gone to support China on this. It'll be a gradual process, nothing immediate. But the quick takeaway is that your RMB investments, if you do buy Chinese stocks, are likely to go up over the next couple of years. Jason, what about you?

Sure. The more the market goes up, the more everybody starts clamoring for the need for the market to pull back here. Honestly, I just want to see these companies that report here in the coming quarter, I want to see top-line revenue growth. I want to see that these companies are continuing to grow sales. Because I think that's really the overall indicator that can tell us whether these multiples, which, yeah, seem to be pretty lofty today, but it can help us understand whether they're really warranted. Because, yeah, it does seem like everybody's really screaming for a correction here at some point or another. And, you know, it's bound to happen, I guess.

Do you think there's a lot of anxiety over people? We know there's a correction coming at some point. It's almost like, all right, let's just do it. Let's get this over with versus waiting and waiting and waiting. I don't know what it's going to take for that to come, whether it's something like earnings or economic related. I tend to think it's something geopolitical. We'll get some kind of a shock somewhere, God forbid, but it'll happen.

I tend to agree with you right there. I said the same thing to Matty Argersinger yesterday. It doesn't seem like there is any one thing that really sticks out here. These companies are all really performing well and growing sales. I think it is going to be something geopolitical, some sort of event that throws this thing into a tizzy. Let's just do it. Moving on to specific companies. McDonald's is planning to raise the average pay of 90,000 workers in the U.S. to around $10 an hour.

McDonald's is only the latest company to increase wages in the past two months. and James, they joined the likes of Walmart, Target, Gap, Aetna Insurance. We were talking about this a little earlier. Wage growth is something we've talked about on this show for a while now. From an investing standpoint, I'm sure there are some people who are saying, wait a minute, isn't that going to cut into margins? It's a big question, Chris. Obviously, it's going to affect a lot of people. One person who it probably won't affect is the man to my right, Ron Gross, who's actually never been in a Walmart. I still have never been.

Your wife said you were in a Kmart parking lot once. No, I was actually in a Kmart itself. I've shopped online at Walmart quite a bit. But, you know, I think we've got three factors kind of coming together to make this happen. First is sort of the Costco effect, right? You pay your workers well. They're going to be loyal. You don't have that high turnover cost.

And that's a big cost. The second one is keeping up with the Joneses. There is, with unemployment dropping, there's a lot of competition for entry-level labor, believe it or not. And if other companies are paying them more, you know, Gap is doing it, TJ Maxx, Ikea. It's not just McDonald's and Walmart. The third thing is Obama has been talking about raising the minimum wage to, I think, $10.10 nationally. So I think there's an element of these big companies wanting to get in and say, hey, look, you don't have to police us. We're going to do this ourselves.

I'm glad you mentioned Costco because I think that does provide an example for investors who are looking at a situation like this and thinking, how's this going to affect my stock? Because for years, Costco has gone out of their way to pay their employees much higher than the industry average, in part because they want to reduce turnover and they want greater loyalty. And that hasn't hurt their stock performance at all. And good for Costco. I think you're absolutely right, Chris. And now, I would almost say it's more dismal now. The other companies don't have the choice. If you're the one big retailer now who's not going to raise your pay, you're going to be stuck with the dregs, the people who don't want to work or just can't get jobs at the better places.

Amazon wants to make it even easier for you to shop for household items. It has unveiled the Dash button, a small branded button that enables you to buy a single product with one touch. Each button is tied to a specific brand. For now, Jason, current choices include Bounty, Tide, Clorox, Huggies, and Gatorade. Amazon says this is a limited-time, invitation-only offer for members to their Prime service. My first question is, is this going to work? Yes. Yes, I think it does, and it absolutely works. Amazon, with any of these companies, I think it's really important to look at a company's mission. If you can find

out what the company's mission is and then understand that that's what should be guiding their decision-making, that they can give you a lot of insight into whether this is a company that you want to be invested in. With Amazon, it's very clear their mission is to become Earth's most customer-centric company, and this is another decision that is right in line with that mission. The pot of gold at the end of the rainbow for Amazon is Prime members. They're doing whatever they can to grow that membership base. We were just talking about Costco and how great a job they've done over the course of time in growing a loyal customer base. Amazon has done very much the same thing. I think that

with this button, they've keyed in on something that is just one more way to potentially make your life a little bit more convenient. I mean, I can envision this thing as, and certainly I've submitted my request for an invitation, I could see one of these things going right on my washing machine and being, you know, hey, when we run out of laundry detergent, boom, just hit the button. I mean, we already subscribe to having paper towels and toilet paper and stuff like that delivered on a routine basis. So, this is one of those sort of little products here. It doesn't cost you anything as a consumer to try. I know the big question out there was if people continue to hit this button over and over and over again, isn't

that going to result in a big problem? And I actually did a little research into that. It appears that they will not duplicate any orders. In other words, if I press the button to have something delivered and then I have a kid who's button happy who presses the button as well, they won't duplicate any orders until the first order has been delivered. So the kid should just press one button of everything instead of one button again and You have to ask for an invitation. Is it really an invitation? I don't know. I mean, you know, I asked for the invitation on the Amazon Echo a little while back, and we ended up getting ours. I'm still waiting for mine. Did you get it?

We got it, and, you know, I find it to be very handy. I mean, one of the things I find, it's, you know, Broido's back there behind the glass asking, what's Amazon? I'm wondering, I think it's like Broido living in your home, but you and I were obviously not invited to that. It's like a tennis ball container-sized cylinder that sits in your home, and it's voice-activated. You can ask it questions, you can command it to do things, you can ask what the weather is going to be like for the course of the next week. One thing I find very handy with that, you get an app on your phone that you install with this product. And so, whenever I am in the kitchen and I notice we're low on something, I can say, add this to the shopping

list. And so, then I can have an ongoing shopping list on my phone that is very handy as one who does a lot of cooking around the house. So, yeah, just another decision Amazon has made to become more and more customer-centric. I think it will work. As we get one step closer to the rise of the machines. Shares of Perialis up this week, despite the fact that fourth quarter results for the apparel retailer were worse than expected. Ron, they've got some labor problems, they've got some currency problems. What's going on here? Well, so they announced preliminary results in February. So, we theoretically knew what this report was going to look like. And in fact, it was better than expected when you compare it

to the pre-announcement in February. The main problem that is going on here is that there were labor disputes on the West Coast, the ports on the West Coast, and retailers of all stripes had trouble bringing in merchandise. Macy's, one of the larger ones, for example, had 12% of their first quarter merchandise delayed because of the disputes on the West Coast. Our Secretary of Labor stepped in, brokered a deal between the unions and management, and that is now behind us, but the problem still existed, and it will take a little bit of time for the merchandise to come off the boats and into the stores. It's especially troubling if you're in the apparel business or the fashion business, because if you miss a season, you don't really get it back until next year, and the same stuff might not be in fashion. But all of that considered, Perry Ellis is actually doing quite well. Despite that, they have a number of initiatives in place that they've been working on over the last couple of years to improve profitability, drive growth.

Those all seem to really be bearing fruit. This disruption on the West Coast was an unfortunate stumbling block, but it's not a long-term problem. Are you a Perry Ellis customer? I'm looking at their website right now, and I'm trying to visualize you wearing some of this merchandise. They're very fashionable. Why are you on the boxers section? I'm not visualizing that. Well, I am on the box.

I have owned Perialis at times, but I'm not sure I do now. I do own the stock. In terms of the stock, up more than 65% in the past year. You're a value guy. How expensive is this stock getting? It's a $23 stock right now. I think it's worth probably $31. It's our largest position currently, partly as a result of the appreciation that's occurred in the deep value service.

Coming up, we'll dip into the Fool mailbag. This is 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 Jason Moser, James Early, and Ron Gross. Shares of GoDaddy up 30% on its first day of trading.

GoDaddy is probably the best-known company for securing a domain name and setting up a website. I know where to go if I want a website, Jason. Should I be interested in the stock, too? I'm not terribly certain that you should be, at least not yet. They've done a wonderful job through the years of really creating awareness of that brand, right? I mean, it is something we're all familiar with, particularly come Super Bowl time. They always seem to bring a new commercial to turn our heads. But, you know, these guys, it's unbelievable.

This is a company that was founded in 1997. they're still actually not profitable. They brought in $1.1 billion in sales in 2013, and yet they're still not profitable. It's a very cutthroat business that they're in. It's a low-margin, cutthroat business. It's not like they're the only player out there in that space. And so, the IPO, they IPO-ed at a great time, right? The market's at all-time highs, and they were able to make a good amount of money. It seems like they priced it relatively well, because you didn't see shares double the day of the IPO. I think they were up about 25-30% but

I think that they're paying down some of the debt with this IPO I am not sold on this business I just don't, it doesn't strike me as being one that is going to be able to I will say, I'm actually a GoDaddy customer and a customer of competitors, you are what is your domain?

I have for my children a lot of different things the customer service and the simplicity, the ease of use is like head and shoulders above kind of the more technical domain providers. It's much easier. And cheap.

Probably guys like us to figure it out. Yeah. So one thing I've used before, and I'd be curious to know, is Weebly to build a website. Do you know anything about Weebly? Well, that's a different thing than GoDaddy. That's a building.

Interesting. That's the whole new industry of like kind of a self-building or either build-it-yourself websites. Yeah. Radio at fool.com is our email address. Question from Grant Tunkel in New York. My question is about the super sexy industry

of public utilities. With California's drastic water reduction measure, how do you see this affecting companies that operate in this space? We've seen how declining oil prices and inactive rigs have hurt oil-related companies. Will a similar scenario play out here? Thanks for all the great work you guys do. James Early, what do you think? Well, first of all, Grant, you are right. Public utilities are super sexy.

I'm saying that as a dividend investor. And anyone who asks about them is super sexy in my book, but in like a healthy, respectful kind of a way. I like how you used his name when you were answering this. That's just how I roll. Personalized. That's what you get here at Motley Fool Money. You get personalized email answering services. Sierra snowpack is 16% to 20% of normal.

That's like really pathetic. So California is going to put like a 25% cut on its water usage or something like that. So colleges, people can't water their lawn. All these people are affected. The question is, will it affect utilities? Answer is no, not really. California water is an income investor recommendation. Its stock has barely budged.

You might wonder if the hydroelectric generation and capacity of some of the electric utilities is going to go down. It will because of this, but they'll have to buy more expensive power on the merchant market. But they're able to pass through all those costs to consumers, or basically all. So for that reason, utilities are sort of insulated from, quote-unquote, the input prices. A question from Jonathan Smith in Cleveland, Ohio. He writes, for many years I've been using index funds. Now I'm wondering if there's an advantage to owning an S&P 500 index mutual fund. or an ETF mimicking the same index? I think Vanguard offers both. Keep up the good work.

Thanks. Ron Gross? Well, Jonathan, that's actually a very good question. I actually own both ETFs and index funds, and the strategy is the same. It allows you to participate in a broader index, but the mechanics of them are different. The main two areas are in trading and expenses. ETFs trade like stocks. You can buy and sell them any second of any day that the stock market is open. There's a bid price and an ask price, and you have more flexibility in that regard. Mutual funds, you can only trade at the end of the day at the net asset value of the fund, and you don't really know what price you're getting until the close of the market on that day. Not as flexible. For the long-term investor who's going to buy something

and hold it for years and years and years, perhaps that flexibility isn't that important. you move to the expenses, in general, ETFs are cheaper to run than mutual funds. So you save money, and that compounds over time. You will pay an upfront commission fee when you buy the ETF, like you do when you buy a stock, but you do save money on an annual basis, and that will compound. And so those are the main differences. All right, we've got a couple minutes left. Let's get to the stocks on our radar this week, and Steve will hit you with a quick question from the other side of the glass. Ron Gross, what's on your radar?

I'm going to stick with what I said I was watching for the rest of this year, which was the commodity businesses. And I'm going to go with Amco Pittsburgh, ticker symbol AP, a very small company, less than $200 million in market cap, maker of steel rolls, big rolling pins for steel sheets, stocks $17.50, I think it's worth $23.50. Steve? How does steel do when oil does poorly?

How does steel do when oil does poorly? Pretty complicated question. That was his question. I don't know that there's a direct- I don't know if there is a direct correlation. I would think worse. That's my guess. The prices of the commodity are probably worth, but the inputs to run your business are lower,

and you save on expenses in that regard, and that could offset. James Early with The Assist. James, what's on your radar? I'm going with FISI, F-I-S-I, Financial Institutions. This is an income investor recommendation. It's a boring little bank in western New York, kind of a slow economic area, but it pays a 3.4% yield. Small cap. It's something that might do better than average if we do see rising interest rates. Steve?

How did you find this company? I probably found it by screening. I just look for good ROE, good financial characteristics. Nothing exciting about it, but it's just not like a risky, big money center bank. Jason, we've got about a minute left. What do you got this week? Yeah, dipping back into the TripAdvisor bag, ticker TRIP. This is a business that really shines through on its treasure trove. of reviews and content that users like me, for example, or like I, submit. Like me, right? That's correct. Is it me?

Like me, yeah. Not sure. Just want to make sure to get the grammar folks out there. But yeah, I really do think this is a business that's becoming more and more like Priceline in that it is beyond just reviews. You can now actually start booking travel arrangements via TripAdvisor. And so I think this is just an encouraging business and a tremendous market opportunity. Steve? How can I tell when someone is totally insane on TripAdvisor?

Typically, those reviews don't make it to publish. Three stocks, Steve. You got one you like better than the others? TripAdvisor does sound appealing. I will say that. So does just taking a trip. I agree. Take a little vacation, Steve.

All right, guys. Ron Gross, James Early, Jason Moser. Guys, thanks for being here. Thank you, Chris. Coming up next, a conversation with bestselling author Michael Lewis. Stay right here. You're listening to Motley Fool Money. welcome back to motley fool money i'm chris hill michael lewis is the best-selling author of money

ball the blind side and the big short lewis became a household name and a wall street icon back in 1989 with his first book liars poker our man morgan housel sat down with lewis last week in new york city we were just talking it's it's been 25 years since liars poker came out not many books especially business books, have that much influence or longevity to the last 25 years where it's still being sold quite a bit and still has an influence on the people reading it. What do you think about that? Did you have any idea that that was going to occur when you wrote it?

It must be really good. It is really good. No, no, just, you know, the thing that surprised me about, when I hear people still read it, I mean, it does still sell, and the question is why. If you had told me when I wrote it that it was going to have that kind of shelf life, I would have said, no way. Because I thought that was just a moment in financial culture that was going to pass, like a moment in insanity. And instead, inadvertently,

I happened to describe the beginning of a whole financial era. And the phenomenon of the kids going from the top of the class of the best schools onto Wall Street for obscene sums of money right away um the growing complexity of the business the the turning of the of the partnerships the old partnerships into into corporations all that um it happened then so it's the beginning you know so it's still it still feels i mean it's dated in some ways but uh but the business hasn't changed that much uh i mean and so and i think the mark the mark the audience for it is usually young guys, sometimes young women too, who are going into the business

and someone senior hands it to them. Says, you want to know what this place is like? Read this. And you've talked before that maybe when you wrote it, it was exposing the dark side or the culture of Wall Street, but so many young people who read it used it almost as a sales manual or as a how-to guide to get into Wall Street.

So I never thought about it as really exposing anything, and I really didn't think of it as a dark side. I thought of it as, to the extent I had any kind of trouble with Wall Street, the only thing that really irked me was that all sorts of people in my peer group were going into it mindlessly as opposed to doing something they really wanted to do simply because the money seemed so good. And it gave you an answer to the question, what are you doing for a living? And if you said Goldman Sachs, everybody said, oh, you're a success.

Like they said, you're a success if you happen to be at Princeton. So it slaked an anxiety cheaply that should not be cheaply slaked. And I just thought the book might demystify it and make it seem more ordinary and cause people who had some other passion to say, well, now I kind of see what that is. That's not, I don't need to go do that now. And it had the opposite effect. I mean, every now and then someone says to me, thank you, I read the book and I went and became an oceanographer. But usually what they say is, you know, you're the reason I'm working on Wall Street. I read that book and I really wanted to get into that.

Has that changed at all since the 2008 financial crisis when Wall Street became looked down upon across the whole nation? Has the allure to young people changed at all? It seems to have a bit. But we're going through a little period. I mean, the allure to young people seems to be inversely correlated with the price of tech stocks. The more bubbly Silicon Valley is, the more young people discover entrepreneurship as opposed to Wall Street. They did this in the very late 90s. There was this moment where everybody said, ah, Wall Street's no longer the place young people want to go.

And you're seeing stories like that, and the numbers are actually there to back up the stories. You know, I saw a piece the other day that the class of the Harvard Business, graduating class of the Harvard Business School is much less likely to go into finance than it was five or ten years ago. But it's not, having said that,

it's still, it is still kind of the default career for an awful lot of bright young people. And it's not, it doesn't feel to me like the era has ended. And it seems to be the default career because, of course, you can make a tremendous amount of money, more so than other professions. And something a lot of people who aren't familiar with Wall Street will ask is why do these people make so money, so much money? From the outside, it looks like they're not creating that much social value. Maybe a lot of times they're basically rolling the dice. But huge sums of money and compensation generated from it to where a 26-year-old at Goldman Sachs can earn as much as a brain surgeon somewhere else.

Why do people on Wall Street, do you think, make what looks like outsized money? And why hasn't competition whittled that down? It's like that's the question that no one can answer. But I can tell you, I mean, so there is, it is generally true that if you can be present when large sums of money are changing hands, you can take a little for yourself and no one notices because it's such a huge sum of money and you add up those little pieces of big pieces of money and all of a sudden you've got a big piece of money. That's kind of what's going on when you sit in the middle of financial transactions. um the um the other answer is i mean you know it's a question of cultural norms that let's leave to one side why why this started why all of a sudden you know thousands and thousands of young people could be paid hundreds of thousands of dollars millions of dollars a year

um but once it starts it becomes accepted and normal it's sort of like that's what you're supposed to be paid. And I think that's a very powerful force. It sounds silly, but it's sort of like there's something arbitrary in what percentage of the revenues of Goldman Sachs or Morgan Stanley or one of the foreign banks gets devoted to the staff as opposed to the shareholders. And no one wants to test the proposition, feels inclined because it would violate the norms um that you could pay everybody a lot less and get the same results it's amazing to me that there isn't there isn't a money ball for banks that there isn't an oakland a's for banks where someone comes along and says look we can do what goldman sachs does even better than

goldman sachs and we're going to pay people a quarter um because in the response that is well if you do that you're not going to get the best people right but i don't think you actually need the best people to do the job well. I don't think you need people who are rocket scientists to do the job well for a lot of the jobs. In Flash Boys, which is recently out on paperback, you tell the story of Brad Katsuyama. It's a fascinating story about in an industry of high frequency trading that was in a sense exploitive to a certain extent. Brad was one of the people, as we were talking about, who took a different approach and challenged the norms and created this new structure of trading.

What do you think about that? And are there other people out there in high finance that really are challenging those norms to do things a better way that makes sense? I think Barry Kachiyama is actually a sort of transformative figure in that he was an insider in the system who figures out something has become

deeply broken in the system. the sort of the thing that's broken he could use to exploit himself and make a lot of money from but instead he decides no i'm gonna in a very silicon valley way i'm gonna create a company and repair the problem and disrupt the industry he's been successful so far i mean it looks like it could be really successful i would not bet on them not being i wouldn't bet five years from now against ix being the first or second biggest stock exchange in in the country uh it's on that it feels like it's on that trajectory so um once you set the example if they if they do succeed um venture capital dollars are going to be looking for other disruptive opportunities

entrepreneurs are going to think this is possible um the it'll it'll become more normal in the financial sector to disrupt the status quo it's ripe for happening it's you've got basically an old fashioned intermediary in a world that has been wiping out intermediaries because of technology. I mean, technology has displaced a lot of the functions or should be replacing a lot of the functions that Wall Street historically has served. And Wall Street has been very, very good at resisting change. So I think this is a really big deal and it's one path to reform, sort of market-based reform. Tell me why I'm wrong about this. I'm a long-term investor. I dollar cost average. I don't trade very much. I buy here and there. When I look at high-frequency

trading and think, okay, sure, maybe these guys are skimming off an infinitesimally small slice of money. Maybe they're taking a half a penny or a fifth of a penny. For me, when I look at that for my own investments, I kind of shrug my shoulders and say, well, that looks wrong, But how is this affecting you? How is this affecting you? You're right. No, I say you'd feel differently if you were a massive mutual fund and realized that the slippage in the stock caused by high-frequency trading, anticipating your orders, is costing you a third of a percent of assets. I mean, that's a big deal.

And those sort of numbers are being realized. That kind of cost is being realized by big funds. But if you're you, trading exactly the way you say you trade, your concern really isn't about the sums of money you're losing. It's pennies. I mean, it's just not much. But your concern should be, do I want to live in a world, do I want to invest in a market that's more prone to flash crashes

and outages and so on and so forth? I mean, do I want to endorse or turn a blind eye to the heightened risk of instability caused by this rigged system? If you look at the long arc of history going back to the Joseph Kennedy days in the 1920s to the bucket shop stockbrokers in the 1990s, where do we stand today in terms of fairness in the market and how well the little guy is served? So this is like a grotesque, broad generalization that I probably couldn't support if I had to sit down and support it in writing. But it seems to me that the markets

are better for the ordinary investor. The electronic markets are better for the ordinary investor than the old-fashioned, a lot of people in the middle markets. It costs them less to trade. The technology has been hugely beneficial, but the nature of the unfairness is more offensive. One hedge fund manager said to me, he said when he's comparing the unfairness that exists now with the unfairness that he thought existed back in the old specialist days of the stock exchange when specialists were kind of sitting in the middle, sometimes doing squirrely things, but not all the time. He said, well, one, he said, we now have a system where the incentives of the people of the supposed market makers are worse or bad, because at least back in the old days, the guys who were sitting in the middle of the market had some obligation to buy in a falling market and sell in a rising one, whereas the high frequency traders are out.

I mean, this is why they have the opposite incentive. They actually benefit from volatility. So they want volatility rather than the old specialists prefer to kind of calm market. And so that's a problem. But this guy said to me, he said, you know, my problem used to be there was this guy named Vinny on the stock exchange who would make hundreds of thousands of dollars a year. And he'd drive on the weekends in his Cadillac out to his second home on the beach. and I was paying for that. He says now there's this guy named Sergei

who has a private jet and a $20 million home in Aspen who seems like a much bigger problem. The kind of... The beneficiaries of the unfairness in the old days were much less likely to be... They were likely to come

from the wrong side of the tracks. I like that. I mean, you know, there's something charming about the grift going to people who actually need the money. Vinny. Yeah, going to Vinny. That bothers me much less than the grift going to some billionaire.

Coming up, Michael Lewis shares his advice for graduates. This is Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. Let's get back to Morgan Housel's interview with bestselling author Michael Lewis. You wrote a great book called The Blind Side, told this incredible story about this young man who grew up on the wrong side of the track, so to speak, became a very successful football player. One of the big stories in college football right now is whether athletes should be paid.

Do you have any thoughts on that topic? I wrote an op-ed for the New York Times seven years ago called Surf's of the Turf, where I argued that they should be paid like professional athletes. They should just be a market, because it's a complete charade that they're students. um and it just grew out of the blind side because during to report in reporting the blind side i sat in on a bit on the old miss football program's academic side and it was so appalling it was so

it was so clear the kids were not going to get what you would think of as a college education and at the same time they were basically working a full-time job as a football player and it all seems voluntary and all that, but actually they're kids who are being exploited. And even worse, even worse, this artificial barrier between the college football players and the basketball players,

especially the money-making sports, between the athletes and the marketplace creates a barrier between the poor black kids who are often on these college football teams and the rich white supporters of the football, of the school. There'd be a lot of useful and fertile interaction between those two groups. If the poor kid who rolled in to play football for Alabama

was allowed to have summer jobs at the rich guy's car dealerships, he would have something, he'd build relationships, he'd have something he could go to when he got out. But the way the rules are written now, that car dealer, he can't buy the guy lunch. much less give him a job that pays him well in the summer, I think it's a huge opportunity missed.

The NCAA, I think, is corrupt on this subject. I mean, it's very corrupt. It's all about preserving the revenues for the institutions and preventing the revenues from leaking out to the players. The interesting question, then, is in this piece I wrote, I tried to sort of quantify what players might be paid. And it's hard, but I don't think they probably wouldn't be paid quite like professional football players. I mean, even the best ones would probably be getting, you know, some hundreds of thousands of dollars a year rather than millions.

But it would be a much more honest arrangement, much fairer to the people involved. I would just like to see it all commercialized. Do you have any hope for that changing, or do you think it's too established? Well, there are a bunch of things going on at once, right? So football is under is got other problems. I mean, the whole question of whether Princeton or Harvard or Yale should have a football team, I think is going to I think that's a battle that's going to be fought sooner rather than later. Chris Borland leaving the NFL because he doesn't want to, you know, he doesn't want to be addled when he's 45 years old. So I think, so do I think, how do I, I think that, I think 20 years from now, people will look back on college football a bit like they look back on, say, smoking. They looked back on smoking in the 90s.

You know, how could people have allowed those sort of health risks to be run by kids who had no ability to evaluate the risk? And I think then they'll say, and at the same time, exploit them financially for running the risk. So I do think a transformation is coming. I don't know, but it probably won't be as clean as we're just going to professionalize college football and college basketball and let the free market determine what they're paid. There'll probably be some negotiated settlement where some pool of money is set aside for the players. But I do think it's going to change.

I don't know exactly how I think it's going to change. Six weeks from now, there'll be tens of thousands of young Americans graduating from college. What's your best advice for them as they head out into the real world? Well, everybody's circumstances are different. If you've got a huge pile of college loans and people to support and that you got one set of problems and if you don't uh you have another set

of problems and i like i think my advice to uh people who are worrying about what they're going to do for a living when they're in school is what i always say to them is um don't let money always drive totally drive the decision um if you're doing what you're doing just for money you're probably going to end up unhappy doing it and in the end the money side of things doesn't even work when you're unhappy doing something um so it sounds trite to say follow your passion i'd put it a little differently i'd say if there's something that really interests you and it seems useful in the world to do see if you can figure out how to make that pay rather than just take whatever pays and follow that.

Kind of create your own little economy. I think there's enormous, even from a pure financial standpoint, enormous fuel in being genuinely engaged in what you're doing. So just be very careful to be genuinely engaged in what you're doing. Michael Lewis, thank you very much. Sure. That's going to do it for this week's edition of Motley Fool Money.

our engineer is Steve Broido our producer is Matt Greer I'm Chris Hill thanks for listening and we'll see you next week