Motley Fool Hidden Gems Investing - Mid-Year Review, Stocks with Upside Potential

Episode Date: July 1, 2022

Halfway through 2022 it's time for investors to see where we've been and what to look for in the 2nd half of the year. (0:30) Ron Gross and Jason Moser discuss: - Investing headlines for the 1st half of the year - Early frontrunners for "CEO of the Year" - Who needs a stronger 2nd half of 2022 - 3 stocks poised for upside (19:00) We're dipping into the vault for one of our favorite conversations. Recorded in front of a live audience, best-selling author David Epstein discusses Tiger Woods, predictors of success in the business world, and other takeaways from his book Range: Why Generalists Triumph in a Specialized World. Our free investing starter kit includes research on 15 stocks and 5 ETFs. Get a copy by going to http://fool.com/starterkit Stocks discussed on the show: PFE, TTD, SBUX, TWTR, TGT, DIS, NFLX, DOCU, ADBE, MSFT, ZM, MAR, ABNB, UBER Host: Chris Hill Guests: Jason Moser, Ron Gross, David Epstein Engineer: Dan Boyd   Learn more about your ad choices. Visit megaphone.fm/adchoices

The 2026 Chevrolet Equinox, awarded the most dependable compact SUV in the U.S. by J.D. Power, is designed for your everyday. And with available all-wheel drive, you can handle your to-do list with total confidence. Start your build at Chevrolet.ca. Details at JDPower.com. We've got some early voting on CEO of the Year and a few stocks that are poised for upside. Motley Fool Money starts now. Everybody needs money. That's why they call it money. The best things in life are free.

But you can give them to the birds and bees. From Fool Global Headquarters, this is Motley Fool Money. It's the Motley Fool Money radio show. I'm Chris Hill, and joining me this week, senior analysts Jason Moser and Ron Gross. Good to see you as always, gentlemen. How are you doing, Chris? It is our mid-year review special. We're recording this a little earlier than usual, a little before the start of the holiday weekend, so I just wanted to timestamp that, Ron, in case there's any late-breaking news. With that, Jason Moser, let me start with you. What is your

business slash investing headline for the first half of 2022? Well, Chris, I'm going to take you back to our 2022 preview show when I offered up a, I think, somewhat unpopular, I wouldn't be surprised if, and I said I wouldn't be surprised if next year we have a down year in the market. And I said, I do think we're going to see some level of inflation impacting our economy. Stimulus, I think, is going to become a thing of the past. We're going to see interest rates continuing to go up. And Chris, we are in the throes of a bear market now. I don't mean to serve as a bee in anyone's bonnet, but unfortunately, the market is down. I think that really is the headline here. It's the bear market.

What's going on and when are we going to get ourselves out of this? Now, I also said, that doesn't mean you should stop investing. You shouldn't, and I still stand by that. If you look at the data, you go back to 1929, on average, since 1929, bear markets, the S&P has lost 36%. Now, we're at around 22% in the S&P now. Granted, the NASDAQ has lost around 30%. So, we could be in for some additional downside. Who really knows? I mean, there is a lot going on in the world impacting our economy that's simply out of our control. But I will encourage investors to stay the course and try to stay optimistic. If you look back to 2008, when the market lost 36.5% just in that year alone. It then went on to return 25.9%

and 14.8% in 2009 and 2010, respectively. My point there, if you remember the mood in 2008, it was dour, to say the least. Remember what Shelby Davis said. I always go back to this. You make most of your money in a bear market. You just don't realize it at the time. As bad as things feel right now, remember, they will get better. But the bear market, that feels top of list for me here so far this year. Ron, so Jason admitting that he caused this bear market by speaking it into existence on our preview show. What's your headline for the first half of the year? Well, since Jason's bear market headline basically covered everything, I will still drill down for the listening audience on inflation and recession. 8.6%

inflation reading in May, highest increase since December 1981. What a good year that was. Consumers definitely feeling the pinch. Fuel oil up more than 100%. Average price of gas per gallon around $4.92, which is actually down a bit. Maybe we have a trend of somewhat lower prices for fuel. but the price of everyday foods like cereal and eggs are up double-digit percentages as well. Wage is not coming close to keeping up with inflation, and the Fed is raising interest rates aggressively to slow the economy and bring down that inflation. They're trying to engineer a soft landing. Investors are concerned that it's going to throw us into a recession. JPMorgan's Jamie Dimon said we should brace for an economic hurricane. Just recently,

Fed Chairman Powell acknowledged that recession is, quote, certainly a possibility. So we're going to have to wait and see what they engineer here. Hold on tight, though, and everything that Jason said I would agree with about investing in good times and bad, as long as you have a long-term horizon. Ron, let me stick with you. Long-time listeners know at the end of the year, we do our full year in review show. We hand out the award for CEO of the year. Who is your early frontrunner at this point. This could be controversial because it's big pharma, but I like Albert Borla from Pfizer. Last year, obviously, his company's vaccines basically helped save the world. That's pretty special, I think. Pfizer vaccines continue to

get FDA approval, additional boosters, younger children. He's using a lot of the cash generated during COVID to aggressively make acquisitions to position the company in a good place for the future. I would expect to see him buy back a bunch of stock. Stock is trading only at seven times earnings. In May, the company said it will make 23 of its medicines, many of them are patented, available to 45 low-income countries at what they call a not-for-profit price. They're not going to make any money on those medicines. Great to see, especially in the age where big farmer certainly gets criticized on the pricing side. Borla said he would want to reduce by 50% the number of people on the planet who cannot afford our medicines. I like that mission as well.

Jason, who's your early front runner for CEO of the year? Yeah, I'm going to give a hat tip to the trade desk's Jeff Green. I think stock performance aside, I mean, all stocks out there are getting bubbled these days. And so honestly, we need to take a little bit of a longer view here, I think, in what he's done setting this business up for success. But if you look at the tailwinds that are forming in ad-based video on demand, he's really been building this business to capitalize on that opportunity. As inflation persists, consumers show they're more than willing to use AVOD, that ad-based video on demand. Virtually everyone out there now is developing an ad-based offering with programmatic advertising

playing a much larger role. Programmatic advertising plays right into the trade desk's specialty there. Like I said, he's been setting this business up over the past several years to capitalize on this. He's developed partnerships with Peacock, Paramount+, Discovery+, Sky just announced a partnership with HBO Max. There'll be some questions as to a potential relationship there with Netflix as they assess the landscape on how they're going to roll out their ad-supported model. You've got Disney coming out with an ad-supported model as well here very soon. You see the tailwinds growing there in ad-supported video, connected TV in general becoming a bigger part of the Trade Desk's business, now accounting for better than 40%, overtaking mobile this

most recent quarter. The company just has a track record of really doing right by their customers. The customer retention is still over 95%. That is the eight consecutive years now they've maintained that metric. For me, separate yourself from the stock price. You look at what Jeff Green is done for this business to get to this point. It really feels like they're in a good position going forward. Ron, I don't think any of us are surprised that inflation continued through the first half of the year, but we did have some surprises so far. What would you say is the most surprising company news? One thing that shocked me a bit was when in April, Starbucks announced that Kevin Johnson was out and Howard Schultz was back in as interim CEO. The announcement

seemed very abrupt to me, especially because a new CEO search hadn't even begun yet. It felt like something was going on that we weren't really privy to behind the scenes. It was surprising to me. Starbucks had hit an all-time high in July of 2021. Johnson executed several strategies that were successful. He expanded in China, expanded the rewards program. He navigated the pandemic pretty well. He improved the technology at the company. And yes, he was criticized for his handling of potential unionization of some of the stores. His compensation package had been scrutinized quite a bit. So I was overall pretty surprised. Schultz immediately suspended the company's stock buyback program, choosing to refocus on investing in people and stores.

Obviously, Schultz knows this company very, very well. I'm sure it's in good hands. But that announcement seemed rather abrupt and surprising to me. Jason, anything surprise you so far? this year? Yeah, a lot of things. But I think one thing that really stands out so far is Elon Musk announcing he wants to buy Twitter. That really was kind of like a what? But it's turned into quite the soap opera. And I think we all initially were somewhat skeptical that this would actually work out or play out the way it has. I think actually, though, it looks like it may work and it feels like he could give Twitter its best shot. He says he has no interest in being the CEO, but he wants half of the world on Twitter. Now, that's a big goal, but that's

also his style. He's a proponent of free speech, but by the same token, he notes that it doesn't mean Twitter needs to promote that bad stuff. It's just the enforcement of the policies that they have today seem extremely arbitrary. Tightening that up, getting rid of the bots, it seems like there's a lot there that he could clean up to make it a better experience. The board has unanimously approved it. You look at Jack Dorsey, one of the founders of the business, speaking of Twitter, he said, and I quote, it has been owned by Wall Street and the ad model. Taking it back from Wall Street is the correct first step, end quote. I feel like there's something to this. I think before anything happens to make Twitter a better

platform for all, it really feels like it will function better out of that public company spotlight, so to speak. It's a polarizing subject, I'm sure. I actually wouldn't mind seeing this deal play out because I do feel like he has the opportunity to make Twitter a much better platform because it certainly seems like a very resilient and useful one. Up next, we're going to have some predictions about the second half of 2022. Stay right here. You're listening to Motley Fool money. As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. Welcome back to Motley Fool Money. Chris Hill here with Jason Moser

and Ron Gross. It is our mid-year review special. All right, Ron, we're going to play a round of fill in the blank. For this first one, you can go with a company, a CEO, or something else altogether. Blank really needs a strong second half of the year. I've got to go with Target, or Target, as it's called in my family. Stock's down 46% from its 52-week high. A couple of weeks ago, Target explained that it had a merchandise problem. It overordered big, bulky home goods like patio furniture, TVs, kitchen appliances. Those items are costly to ship. They're costly to store in warehouses. Basically, from a merchandising perspective, they thought the COVID purchase patterns would continue. They were wrong. Inventory was up 43%. They issued

weak guidance. Stock got whacked. A week later, they said it was even worse than expected. Brian Cornell, the CEO, said, we have to be decisive. Get out in front of this. Make sure this doesn't linger through the back half of the year. They're ripping off the Band-Aid, they're severely cutting prices, they're getting rid of excess inventory in the hopes that they can put this behind them. At the same time, they raised their dividend 20% as to say, we're okay here, folks. That yield is now 3.1%. Shares are trading at only 15 times forward earnings. Don't sleep on Target. As a shareholder, I hope you're right, and they have a strong second half of the year. Jason, what about you?

Yeah, it feels like Bob Chapek, CEO at Disney, he needs a strong finish to the year, right? All stocks are down, as we've noted, but Disney being down 40% seems excessive, giving the company's assets and diverse revenue streams. And the fact that people are back out traveling and life is more or less back to normal. You look at the numbers trailing 12-month revenue is up 10% from 2019. Granted, profitability is still recovering, but domestic park per capita spending was up by more than 40% versus 2019, which is also very encouraging. And they believe they're still on track to reach that milestone of 230, 260 million Disney Plus subscribers by fiscal 2024. And as I mentioned, they're going to be rolling out an ad-supported version of that

service. But of course, he got into hot water earlier in the year with the way he handled the parental rights and education bill in Florida. He put himself and the company square in the politicians crosshairs. And then you got this big back and forth with the whole special tax status and whatnot. So it's going to be interesting to see how he handles these types of situations in the future, because you look at the company itself. I mean, there's 165,000 employees there at Disney. You have to be careful jumping into these hot button political issues when a company actually takes a firm stance on what is honestly a debatable issue in many cases that only creates division. It puts the business in an untenable position. Bob Iger, he is not, but he's going to

have to figure out his identity as a CEO going forward because Disney is going to be in the spotlight for sure. Ron, we've already seen some M&A activity in the first half of the year. In terms of the second half, fill in the blank, don't be surprised if blank gets acquired. Netflix, Chris. They've stumbled. Things are not great at the moment. Subscriber growth is going the wrong way. The stock is down from 700 to 180, but they still have over 220 million subscribers, making it the biggest subscription video on-demand service in the world. That alone could make Netflix an attractive takeover candidate for some folks in this arena. I'm thinking Amazon, I'm thinking Apple.

The gaming angle could also potentially be interesting. I'm thinking Microsoft or Sony. at current prices, still would be an $80 billion acquisition, so not for the faint of heart, but trading at only 16X forward earnings, so it's not expensive. That's a big one. Jason, what about you? Yeah, that is a big one. One that I think is a lot of people have had fun kicking this around recently, DocuSign. Don't be surprised if DocuSign gets acquired. There are a number of reasons why Dan Springer, the former CEO, recently agreed to step down. It may not be related to potentially shopping the company around at all. But I could certainly see, given where the stock is today in relation

to the fundamentals of the business, a suitor really taking a close look. True, it is still working its way to profitability, but it is cash flow positive. It's got a massive user base and a very user-friendly interface. What kinds of suitors might exist? You look at competitor like Adobe, they could easily digest this, but with their own offering, I'm not sure they really need something like a DocuSign. You look at Microsoft, that would be a candidate were it not for this Activision Blizzard deal that they're trying to push through. The one thing that comes back to mind, Chris, it's Zoom. This could be a total wildcard here, but Zoom wanted to make a deal earlier. They tried to buy Five9 for around $15 billion, so they have the wherewithal

to get this done. It's something that they don't have currently. DocuSign can be very complementary to their overall offering and the new way that we're doing business in many cases. DocuSign management sees the opportunity to be a $5 billion revenue business over the course of the next several years if they execute, which is essentially where Zoom is today. I'm not saying it will happen, Chris, but I wouldn't be surprised if it does. All right. Got just a couple minutes left. this is going to count as a stand-in for radar stocks, Ron. I think blank is poised for upside the rest of this year. I like the hospitality sector right here. Consumers continue to move away from buying things like outdoor patio furniture and televisions, just ask Target,

and they're moving on to experiences such as travel. We're getting back out there. Yes, inflation will push back against this. We don't know if another COVID variant is around the corner. But I like companies like Marriott, Airbnb here at this current prices for the next several years. Jason? I think a little bit in line with Ron's hospitality angle there. Uber, to me, is a business that stands to benefit from a recovering economy as things get better. People are traveling again. The world has opened back up. And the neat thing about Uber is they benefit from three key drivers in mobility, delivery, and freight. And the cross-platform the nature of the business leads to lower customer acquisition costs and ultimately

higher retention over time, which is encouraging as well. And so you've got management there that continues to roll out new initiatives with things like high-capacity vehicles, partnering with Avis to offer Uber Valet, person-to-person car rentals. I mean, it goes on. And they're even building out a little advertising driver of the business as well. So with a renewed focus now on cash flow and profitability and whittling down those costs to maximize efficiency, it feels like there's a pretty attractive risk-reward scenario setting up for Uber long-term. All right. Drop us an email, podcastsatfool.com. That's podcastsatfool.com. We want to hear from you. What do you think is poised for upside in the rest of 2022? Jason Moser, Ron Gross,

guys, thanks so much for being here. Thank you, Chris. Coming up after the break, we are dipping into the Motley Fool Money audio vault for a conversation with bestselling author David Epstein. We talk about Tiger Woods, predictors of success in the business world, Epstein's memorable encounter with fellow bestselling author Malcolm Gladwell, and why it might be time to dramatically scale back travel soccer here in America. I really think you're going to enjoy it, so stay right here. You're listening to Motley Fool Money. Just a little something to break the monotony of all that hardcore dance

that has gotten to be a little bit out of control. It's cool to dance, but what about a groove that soothes and moves romance? Give me a soft, subtle mix. And if it ain't broke, then don't try to fix it. And think of the summers of the past. Adjust the bass and let the alpine blast. Pop in my CD and let me run a rhyme and put your car on cruise. Welcome back to Motley Fool Money. I'm Chris Hill. I hope you're enjoying the start of the

Independence Day holiday weekend. And now our interview. In 2019, I got the chance to talk with bestselling author David Epstein. He joined me on stage in front of a live audience at our annual FoolFest investing conference. Epstein has master's degrees in journalism and environmental science. He's been a senior writer for Sports Illustrator, and he's the author of the New York Times bestseller, The Sports Gene, Inside the Science of Extraordinary Athletic Performance. On stage, we talked about his latest book, Range, Why Generalists Triumph in a Specialized World. During our time, we discussed a wide range of topics, including Tiger Woods, Roger Federer, and how to predict success in a business setting. But my first question for David was,

where he got the idea for his new book. The idea sort of still did grow out of the first book. So the first book was about the balance of nature, nurture, and athleticism. And I was invited to the MIT Sloan Sports Analytics Conference, co-founded by the general manager of the Houston Rockets, to debate Malcolm Gladwell. It's 10,000 hours versus the sports gene.

It's up on YouTube. I'd never met him before. And he's very clever. And I didn't want to get embarrassed. So I tried to anticipate some of his arguments. I knew he'd have to argue. This was specifically about the development of athletes. I knew he'd have to argue for early specialization in sports and highly technical deliberate practice.

So I said, okay, I'm the science writer at Sports Illustrated. Let's go look at what the science has to say. And it actually found in almost all sports and most places in the world, athletes who go on to become elite actually have these so-called sampling periods where they play a variety of sports. They gain these broad general skills that scaffold later learning. They learn about their interests and abilities, and they systematically delay specializing until later than their peers we we all know the tiger woods story of early specialization that's

like the most famous developmental model but it's actually completely the exception and golf is like an unusual sports skill compared to compared to other ones whereas like with this we all know you know when mark zuckerberg at 22 says young people are just smarter we all hear that story meanwhile the research shows that the typical age on the day of founding not when it becomes a blockbuster on the day of founding is 45 and a half but it's like we don't hear the stories that the science is really telling we just hear the tiger woods mark zuckerberg stuff these much more it's very like daniel kahneman's availability heuristic the dramatic stories that we base our our models of the world on not what the actual science finds and you open the book with a great sports example

because you know as you said everybody i'm not even a big golf fan and i know the tiger woods story of just basically from the time he could walk he's you know his father is drilling him on all these different things and and he's tiger woods he's the dominant golfer of his time and maybe of all time um but the comparison you draw with roger federer who is also the dominant tennis player of his age and probably on the short list of the greatest of all time it's a completely different path yeah yeah roger was exposed to tennis early but he was also doing Swimming, skiing, wrestling, handball, basketball, badminton, rugby, tennis, of course, table tennis. I'm probably forgetting.

Oh, soccer. That was his other biggest one, soccer. And his mother actually was a tennis coach, but she refused to coach him because he wouldn't return balls normally. Like, she couldn't get him to do the normal drills, so she declined. When he got good enough to be pushed up a level with older players, he declined because he just liked talking pro wrestling with his friends after practice. And when he finally got good enough to warrant an interview from a local paper, the reporter asked him if he ever became a pro, what would he buy with his hypothetical first paycheck?

And he says a Mercedes. His mother's totally appalled and asks the reporter if she can hear the interview tape. And the reporter obliges. And it turns out Roger actually said Mercedes in Swiss German. He just wanted more CDs, not a Mercedes. And so then his mother was fine. So one of my colleagues, who was the senior tennis writer at Sports Illustrated, had described rogers parents as pulley not pushy so eventually he did specialize but it was it was

after what we now know is the very typical developmental trajectory for most elite athletes and and golf the people who study skill acquisition in sports kind of view golf as different this sort of non-dynamic domain um where you don't need anticipatory skills like to judge things that are happening quickly and so early specialization may well work in golf i don't know there's kind of a dearth of science. I can believe that it does, but the problem is that we've extrapolated from that to all these other skills. We'll get into some of the business stuff from the book in a second, but I want to stick with sports because it's, and I suppose this ties into business as well, because if you think about youth sports in America, the business of it

has almost gotten too big. I mean, it's pretty amazing that Roger Federer's parents were not only actively sort of pulling him away from specialization but also his mother was a tennis coach herself in the united states the you know the flip of that is she's the tennis coach and as soon as he can walk she's got him out there you know sort of drilling um and not to pick on soccer but it really does seem like soccer more than any sport in the united states um the youth sports business machine of that is almost too big to overcome no do do pick on soccer because so when i was living in i don't live in brooklyn anymore but when i did there was a u7 travel soccer team that met near where i lived and like i don't think anybody thinks that six

year olds have to travel to find good enough competition in a city of nine million people so no really so i don't think that has anything to do with optimal development for those kids because we know the way to make the best 10 year old soccer player is not the same as the way to make the best to develop best 20 year old soccer player like but those kids are our customers right And someone else has an interest in keeping them away from those other sports. When you talk to elite athletes, they're the ones who know, and they're like the most against, because they know what they did against specialization. But that's a whole other sort of industry.

But some places like France, which just won the World Cup, started decades ago reforming its pipeline, where they get kids exposed early, and they get them in the pipeline early. But then they, because I think multiple sports is really just a proxy for diversity of movement and training. Because there's this classic research finding breadth of training predicts breadth of transfer. This means the broader your training scenarios, the more likely you'll be able to apply your skills to situations you've never seen before. And so they get the kids exposed early, but then they put them in these games where they're playing like on sand one day and cobblestones another day. This game called futsal where they're in small spaces. And the coaches aren't even allowed to talk most of the time.

They're just saying there's no remote control, meaning the coaches shouldn't try to micromanage the players. So they get them exposed early, but they put them in this very free-form sort of kind of development that we know is the best. So I think there's hope because there are models for making this better. Business is sort of one of the through lines of this book because, you know, we just talked about youth sports. But one of the things that comes up is sort of the business implications on scientific research. I was saying before we started, one of the more jarring things to me in the book is how scientific funding has increased over the last, say, 30 years or so. But discovery has actually dropped because it seems like the pressure for economic outcomes immediately or in the short term are taking precedent over just discovery. Yeah, and I think everyone knows we want those outcomes.

The end goal is applications. The question is how best to get there. And to that point, I was reading a lot of Nobel acceptance speeches when I was doing the research. And the funny thing in the more recent years, you start to notice almost every year someone's speech says, well, I wouldn't be able to do my work today because I didn't really know what I was going to find. I just had this interesting question. And now in your grant applications, you have to say, here will be my application. And that's okay, but, like, we have, you know, a venture, a VC community for that that can be sort of more focused on that. And so why, like, squash the diversity of the research endeavor?

Because so many of the biggest breakthroughs have come from questions that someone was interested in that we didn't know where it was leading. Like, Venivar Bush, who, you know, led the scientific research efforts during World War II, wrote a report for the president about a successful research culture. And you see these phrases that are like the free play of free intellects working on questions of their own design. And that led to 30 years of wildly successful progress that led to microwaves and MRIs and the internet and all these other things. And so we have to keep in mind that we know the process is inefficient when we don't exactly know what we're looking for. So it's a problem that we're having this sort of purifying selection where we're forcing people to say the applications before they really know what they're going to find. One of the things I like about your book is we just meet all these people. You know, put aside Tiger Woods and Roger Treader, you know, in your research, all of these people.

You just touched on something from one of my favorite people in the book, Arturo Casadevall, who's the scientist, who speaks to that and talks about the very nature of sort of pushing boundaries is that you're out there, you're probing, you're not really sure what you're going to find. And by definition, it's an inefficient process. Yeah, Arturo is one of the most prominent immunologists in the world. So if specialization continues, he wins no matter what happens, basically. He has no problem getting funding. But he decided to leave sort of a cushy post in New York

to go to Johns Hopkins School of Public Health because they were allowing him to start a new education program where he's essentially trying to de-specialize the training of future scientists because he's saying, look, he arrived and showed this graph where he said the rate of retractions of science, the acceleration is now outpacing the rate of new publications, so if we continue this trend, we will have retracted all of science in a couple years. And so sort of science gallows humor, right? But there is this retraction problem now where we're recognizing there's been a lot of bad work.

And by the way, I contributed to that bad work. So I have a master's degree in science, and only as an investigative reporter writing about how science works did I realize that I, too, committed statistical malpractice of the variety he's talking about because I was rushed into, not purposely, I was rushed into very didactic, specialized material about Arctic plant physiology before I knew how my statistical tools worked. And you can get these big databases, hit a button to run this incredibly complicated statistic, say, statistically significant, master's degree. And this research is still published. and it's crazy that only later did I learn how scientific thinking is supposed to work. And so we're having this problem. So he's trying to de-specialize the research

and get people to sort of think more broadly. He described science as becoming a system of parallel trenches where everyone's in their own trench and not standing up to look over the next trench even though that's often where their solution is. And there's all these perverse effects like women are much more likely to write grants for interdisciplinary proposals

but interdisciplinary proposals are systematically marked down because they always go to one discipline or the other. And so they're about less likely to get funded. So we're kind of like, but the world is interdisciplinary. Disciplines are a necessary evil for breaking down how we study. And so we're docking people who are asking questions about how the world really is. Well, and one of the things you get at is, you know, sort of, and Arturo does it with science. We've seen it, you know, in the military where basically leaders are trying to figure out

what's the best way to mentor people, what's the best way to educate people, and along the way they find out, oh, we've been doing it wrong. Not only have we achieved short-term success in education, we've deluded ourselves into thinking, well, pat ourselves on the back, everything's fine, and in fact, we've set those people back. Yeah, that gets to some themes in the book, so they can jump into that one in a couple of places, But one of the themes to me was that there are things you can do that cause the most rapid immediate progress that systematically undermine long-term development. So I'm going to use that cue to get into one of the studies that was the most surprising to me in the book, which was done at the U.S. Air Force Academy, that you could never set up.

Like, they have this amazing scenario where they bring in their freshman class, you know, whatever, a thousand students or whatever it is. And they have to all take a sequence of three math courses, start calculus one, calculus two, and then a follow-on course. and they are randomized to professors for Calculus 1 and they are randomized to the next course and then re-randomized again to the next course. So you can really see the impact of teaching and that's what these researchers wanted to see. And what they found was that the teachers

who were the best at promoting contemporaneous overachievement compared to the characteristics that the students came in with in Calculus 1, those students then systematically underperformed in the follow-on courses. So the teacher whose students performed 6th best out of 100 in his Calculus 1 got the seventh best ratings because the the kids feel like they're learning they rate them higher

was dead last in how his students then did in the follow-on courses and it turned out that professors whose students did the best contemporaneously were teaching a very narrow curriculum and their their students were learning so-called using procedures knowledge that they could execute when the test came but when you get into a different class and you're facing different stuff breadth of training predicts breadth of transfer you don't have those broader conceptual models. And so you don't have what's called making connections knowledge, which is the broader frames where you learn how to match a strategy to a type of problem instead of just executing procedures. So it's really deceptive, right? Because the learners rate their learning

as faster. They rate the professors as better. They do better. And then in the long run, they're undermined, which is deeply counterintuitive to me. Coming up, David Epstein talks birds, frogs, and LinkedIn. Stay right here. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. This week, we're revisiting my conversation in front of a live audience with bestselling author David Epstein about his latest book, Range, Why Generalists Triumph in a Specialized World. So, in terms of business and leadership, and one of the things I think you touched on in the book had to do with sort of like maybe using LinkedIn

to figure out how do people get promoted. It really does seem like the people who have the widest breadth of experience, they're the ones most likely to move on. Yeah, and I should say, we absolutely need specialists. I don't want to denigrate specialists. I like Freeman Dyson, the mathematician and physicist and writer's framing of it, where he said,

we need frogs and birds. The frogs are down in the mud looking at all the little details. The birds are up above. they don't see those details but they can integrate the work of the frogs and he said we need both for a healthy ecosystem the problem is we're telling everyone to be frogs and we're not telling anyone to be birds and in the linkedin research you're referring to where they were looking at they looked at about a half million members because they have these amazing database what are the

best predictors of someone who goes on to become an executive and one of the best predictors was the number of different job functions that an individual has worked across in their industry and their chief economist thinks that's because they get this much more holistic view of the industry. Each additional job function saved them about three years of experience in moving toward the C-suite. And that kind of resonated with me because I sort of saw that as I was visiting different companies. I know it's only been out for a week or so, but I'm curious, what's been the reaction that you've gotten from, not necessarily from readers, who I'm sure are enjoying the book, but to the extent that you've heard from communities or leaders, whether it's

an industry or youth sports or something else yeah more positive than i expected and maybe maybe that's because like the blowback part takes a little longer um but this book got out of the gate faster than my last one did and the last one there was a lot of pushback about the 10 000 hour rule stuff helpfully this time um malcolm gladwell and i were recently at a conference in march the same one where we first did the debate and this is on youtube in a minute 54 he says i now believe i conflated two ideas the idea that it takes a lot of practice to get good at something with the idea that in order to become good at x you should do only x x and only x starting as early as possible and i thought that was like a very astute thing for him to say and i think that

might have softened some of the blow a little bit for me um but it but it really has been interesting to hear people identify with it um and and some of the executives so i started getting invited to some business things and the executives would tell me like this really resonates and and some of Okay, and one, so I just met a woman who was the head of executive search for a really big company. And she, this really resonated with her. And she was telling me, I think in the age of LinkedIn, for all its good things, we are getting too narrow in describing our job functions. Because if you look at research on serial innovators, for example, this woman, Abby Griffin, whose research is in range, she says to HR people, like, you have to keep it broad. Because the serial innovators, they often zigzag.

They've had other domain experience. They have a wide range of interests. They tend to have hobbies. They read a lot. They need to communicate with people outside their domain. And when you define the job too narrowly, you accidentally screen them out. And so some of the people who do sort of executive search, apparently that's resonated with them because they've sort of reached out to me and said,

we are increasingly making this square hole and we have the square peg we want to fit it, but those aren't necessarily actually the people who are set up to make the biggest contributions. I've actually experienced that on LinkedIn because I host a radio show and a podcast, and that's what I list on LinkedIn. And once a month, I get an email from LinkedIn, and it's, here are some jobs you might be interested in. And all of them are host jobs, but it's like at a restaurant. And I'm like, maybe I need to do a better job of getting across what I actually do, because... Well, that would be a transfer of skill.

It would be a transfer of skills. You know what? I'm too specialized. I should branch out and do that sort of thing. The book is Range, Why Generalists Triumph in a Specialized World. You can find it wherever you find books. And unlike when I interviewed David Epstein in 2019, now it's available in paperback. You get to save a couple of bucks. Hey, if you're just starting out or you know someone who's just looking to get started investing, we have a free investing starter kit. It covers everything from saving money

to 401k plans to how to buy your first stock. And it comes with a built-in watch list of 15 stocks and five ETFs that were selected by our investing team. And it's free. Just go to fool.com slash starter kit. That's fool.com slash starter kit. Check it out when you get a chance. On behalf of everyone at The Motley Fool, I hope you have a safe and fun Independence Day weekend. And please be safe with the fireworks, okay? Don't be one of those people who ends up trending on social media because it did something really stupid with fireworks and ended up in the emergency room. And look out for your friends, too. You know who I'm talking about, that one friend. Yeah, that guy. Keep an eye on him. That's going to do it for this week's Motley

Fool Money radio show. The show is mixed by Dan Boyd. I'm Chris Hill. Thanks for listening. We'll see you next time.