Motley Fool Hidden Gems Investing - Motley Fool Money: 02.03.2012

Episode Date: February 3, 2012

The Government reports better than expected unemployment numbers. Facebook files to go public.  And Clorox cleans up with its quarterly earnings.   Our analysts discuss those stories and share three stocks on their radar.  Plus,  we talk money mistakes with Carl Richards, author of The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Motley Fool Money. Thanks for being here. I'm your host, Chris Hill. And joining me in studio this week, from Motley Fool Inside Value, Joe Maeger, from Motley Fool Income investor James Early, and for Million Dollar Portfolio, Ron Gross. Gentlemen, good to see you as always. Good to see you, Chris, as always. We have got earnings from The Gap, Abercrombie, and Amazon. You may have heard something this week about Facebook going public. We will dig into that as well. And as always, we've got a few stocks on our radar. But we will begin with the big macro. On Friday, the Labor Department released the latest unemployment numbers, 243,000 new jobs. The unemployment rate drops to 8.3%. James Early, I'll start

with you. What do you think? Well, Chris, as a minor drill down, these are, of course, non-farm jobs. I kind of feel bad for the farm jobs because they're always deliberately excluded from every survey. The farm workers or the jobs? The farm worker or the jobs. Either one, I guess. They just count them in order to exclude them. But this is obviously good news. The unemployment rate ticked down from 8.5% to 8.3%. The big question, though, and I will also add that December is traditionally a volatile month. So these results are going to matter because they're going to tell us whether the trend is real or not. It looks good so far. We are sort of at an economic crossroads. So the big question is, what are the policy implications going

to be from this? Ron, fifth straight month that the unemployment rate has dropped. What do you think? I'm getting more cautiously optimistic each week. I like it. It looks good to me. That number I always talk about, that underemployment rate or the real employment rate, ticked down only slightly to 15.1% from 15.2%. I'd like to see that number come down more aggressively. I think it will. I hasten to add, though, stimulus after stimulus after stimulus has come our way. QE3 is being talked about. The Fed is keeping interest rates low until 2014 now. I don't know where the economy goes without all of that.

Can I just add, Ron, I kind of thought Ron was full of a little bit of baloney on that point about the closet real unemployment rate for a long time, because I assumed that whenever there had been a high unemployment, we also had high sort of closet unemployment. But then I think it was on the Barry Riddles blog or something, I saw a chart that shows it actually is much, much higher now than it has ever been. So you are 100% right. So you thought I was baloney this whole time, but you just kept your mouth shut? I'm sorry for that. No, I'm being polite.

I guess that's nice of you. Well, I'll bring in the baloney. So it sounds like you're basically saying you're not going to get back into anything until unemployment is low. In terms of stocks? Yeah. I'm fully invested from a million-dollar portfolio perspective, so I can't go in any more than that, but it doesn't mean I'm not nervous. What's low enough for your liking? Low enough interest rates, you mean?

Yeah, no, unemployment. I think we're on the right track. The track, to me, is what's important. As long as things trend positive. Are you running for office? Joe, what do you think? Yeah, I thought they were good numbers and definitely a sign of what's to come. And I think the general trend is the more important thing than the individual month that comes up.

And I think James made a great point about December numbers being volatile. So, overall, I'm optimistic, and it's another just rolling sign of good things. The most anticipated IPO of 2012 is one step closer to happening. This week, Facebook filed the required paperwork with the SEC. Shares are expected to begin trading in May. Ron Gross, I'll start with you. Anything jump out at you in Facebook's filing? What do you think? I mean, you've got to give it to them. It's quite impressive. A billion dollars of net income, a billion and a half dollars of cash flow from operations, 850 million active monthly

users. It's an incredible success story. They don't necessarily need to go public. They don't need the cash. I don't like when companies go public unless they need to access the capital markets for cash. Zuckerberg's explicitly said, we're going public for our employees and our investors. I don't like that statement. It is what it is, though. I'm not naive. That does occur. Suffice to say, you're not going to be rushing out to buy shares when they begin trading? It's quite possible this stock is going up, and going up quite a bit. At 100 times

earnings right off the bat, that's actually similar to where Apple went out, interestingly enough and Apple continued to skyrocket. Probably not for me, I'll keep an eye on it, but very well could go up. O' Joe, what do you think? I think it's grossly overvalued. I mean, when you dig into the numbers, you basically see that compared to Google, they get about a quarter of the dollars in revenue that Google pulls down per user. So, they're not nearly as efficient at monetizing their base of active users. Now, you could say that that's an opportunity, that if they improve the way they deliver

and I think they will, that they'll be able to bring in a lot more dollars. But at the same time, it's going to IPO between 24 or 28 times sales. Google's selling for about five times sales. The NASDAQ 100's at two times sales. So, there are great expectations priced into this, and it will pop in a huge way on the first day, and it'll probably have a big run, but that doesn't mean that it's a great long-term hold-in. A possibly underappreciated difference is that Google, or even going back to Yahoo a long time ago, they had their business models, sort of the main thrust of it, a little bit more fleshed out. Facebook does largely, but on a scale, it wouldn't be quite as far along.

So it's not as proven. Another thing is, how many people use Facebook? It's almost like a billion. I don't know how many people. Well, what did you say, Ron? 850 million. There's a hundred billion friendships. How are... That's a lot of friendships. That's a lot of friendships.

It's more than I've got real friendships. How much more can they go before they really max out in terms of diminishing returns? It's going to happen. It's going to happen. Well, I think you have to think outside of the box. Maybe like a rule breaker service would be, what other areas of revenue can they go? They have 10 different potential futures out there, and we can only see two or three of them. But we don't see that now. I don't see it.

That would be my gripe, too. Well, and as I said, the shares don't begin trading until sometime in May. But it did have a material effect on some other stocks this week. shares of Zynga and Groupon and LinkedIn all popped the day after Facebook made this filing with the SEC. Obviously, Zynga is tied in very closely to Facebook because of Farmville and Mafia Wars and all that sort of thing. But I don't know. Joe, you're talking about how Facebook is probably going to pop on the opening day. It's a low-float IPO. Right, it's rigged.

Only 5% of the company is going to be offered to the public, so it's essentially rigged to pop that opening day. But is this also going to have a nice ripple effect for other companies? It is. Part of it is just building general excitement about social media. Another part of it is, some people are getting excited about the idea of Facebook with all its cash and its wildly overvalued stock, using that wildly overvalued stock as currency to make acquisitions. Zynga, for example, represents about 12% of Facebook's revenue, a lot of people think, not unreasonably, that they might step in and be like, hey, we'll swap you some shares, selling for 30 times sales, which is crazy to

buy out your business at a much lower price. I don't know that that'll happen. I think they would end up scaring away a lot of other third-party developers, and they won't make that move. But I can see why people would get excited about the potential for that. Maybe Zynga could be an acquisition candidate, but I would argue that the other ones, I mean, I mean, I'd say the main economic reason for these other companies going up is that there is no economic reason. People are just excited about this, which sort of is really the whole story here. It's just an excitement IPO just back to the old days. So we'll see if economics match up.

Well, and it is one of those things, I mean, obviously joking at the beginning of the show about how you may have heard something about this. This story was everywhere this week, and it seemed like people were coming out of the woodwork. Ron was coming out of the woodwork? No, not Ron. I'm out of the woodwork. Your personal trainer, just out of the blue. A nice gentleman that I happen to work out with is inquiring from me, how do I get rich? How do I make money on this Facebook IPO?

So, yes, it is pervasive among everyone. That is a little scary that this is the thing that is getting people interested in the stock market. But on a more material level, let's talk about Mark Zuckerberg for a minute. Because the founder and CEO, he's got about 28% of the company that he owns. But he's going to have 50% or just over 50% of the voting shares. Is that right? I mean, is that? He controls the company.

And what he says goes. So you have to buy into his stewardship and believe that he will do what's in the best interest of shareholders. We have no reason necessarily to doubt that he won't. He's very old and alive. But he's got 1% of the company about for every year he's been alive. He's only 27 years old. But when I was 27, I couldn't have been the CEO of anything. But I think there are reasons to doubt that, right?

I mean, you've seen the social network and everything in movies is true. But kidding aside, I mean, there have been a lot of questions about how this guy has treated his business partners in the past. Doesn't make the deal any more warm and fuzzy, though. But just removing Zuckerberg from the equation, that situation where one person has a greater control over the company than they have in terms of ownership, Is that, on balance, something you'd like to see, or does that give you pause? No, I like to see management teams, CEOs with a nice amount of skin in the game, so their interests are aligned with shareholders, but not too much to where, if he would like to, he could run it as a private company,

and we would be powerless to do anything about it. All right, exit question on Facebook. We're talking about a valuation of $100 billion a year from now. Are we going to look back and say that that was overvalued, undervalued, or fairly valued? What do you think, Ron? I'm going to answer about where I think the stock is going to be, not about overvalued or undervalued. I think the stock will be higher than it is today, a year from now. I think it'll be higher also, but in three years, it'll decline.

Joe? What James said. Shares of Amazon fell 10% on Wednesday. Fourth quarter earnings, the revenue was up 35%, but profit was down 57%. Joe, by Friday, the shares had recovered some of that loss, but what did you make of the big sell-off? Well, I thought it was a complete overreaction. I mean, Amazon has said so many times, look, we're focused on long-term profits and we're willing to take short-term hits to make that happen. Everyone knew that they were selling a bunch of Kindles this quarter

at low margins because they're trying to basically sell a razor blade or a razor so that you'll come back and buy the blades later. Negative margins, yeah. Right. Well, the blades, exactly. And the blades are really valuable, which are the books. And you'll come back and buy those later, maybe over a period of years. And you'll get hooked into using the Kindle store as your home for buying books for a lifetime. So, despite this, everyone freaked out when the numbers came in below expectations, but if you're a long-term investor, I think that was a perfect quarter in terms of your long-term thesis. Ron?

I'd love to see everyone continue to freak out, quite frankly, from a selfish perspective. The stock's off 26% from its 52-week high. Still too rich for me to get in. I would love to be an owner, though. The lower it goes, the more interested I get. What if this model just isn't working? I mean, you're not concerned about that? The razors and blades model with the Kindle? I mean, maybe that's actually true. Maybe the market's right.

No, I do believe that they're a preeminent discount retailer. Yeah. But they have so many other areas to pursue, like we were talking about Facebook, that I think growth will be tremendous in the future. It's hard for me to actually see the growth or project the growth. That's why I need to see the valuation. I need to have a cheaper valuation to make that bet. Coming up, the price of cotton is rising, but only one retail clothing company is choosing to whine about it.

We'll tell you which one. Stay right here. You're listening to Motley Fool Money. As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. Welcome back to Motley Fool Money. Chris Hill here in the studio with Joe Mager, James Early, and Ron Gross. Let's get to some more earnings, guys. Shares of Clorox up this week on some strong second quarter earnings. The company also raised guidance for the rest

of the fiscal year. James Early, what do you think? Well, Clorox has been really beaten down for blue chip. It's sort of like the dorky kid who finally gets on the dance floor and everybody cheers when it finally delivers some good results. They were coming off sort of an easier comp last year, if you factor in a Burt's Bees write-down, you know, that chapstick-type stuff they bought. But bottom line, you know, they raised prices on their bleach, which they were able to do. It's just a cheap product. It has pricing power, whereas Procter & Gamble, Unilever, Kimberly-Clark, and some of the other consumer products companies are really struggling with that same issue. But Clorox

has been able to do it, ironically enough. How important is that ability, the ability to really wield pricing power? How much does that factor into your investment thesis when you're looking at any stock? It's pretty important for me. In the case right now, we have a lot of generic competition. The worry with all these firms is, are people going to permanently switch to generics? The emerging markets are really where the brand is stronger, or the power of the brand, I guess, is a little bit stronger. So, yeah, pricing power is really what matters in the more developed markets as well, I would say. We have a tale of two retailers. Shares of Gap up more than 15% this week on its latest

earnings. Shares of Abercrombie down more than 10% after the company lowered guidance for fourth quarter earnings. Ron, what do you make of the retailers? Well, nobody had a stellar quarter. It was a very promotional quarter, discounting, cleaning out old inventory, really across the board. It's also now, it's an expectations game. What were people looking for and how did the company come in relative to that? Gap outperformed expectations. Abercrombie came in light. Stocks sell off as a result. It's a near-term reaction. I prefer to just look at how is the business doing? How does the inventory look now? How will things look a year, two, three from now? Not in one or two days.

You know, I think Abercrombie's problem, too, is, I went in a store recently, you can't even see any merchandise. It's so dark. How are you supposed to buy it? I'm not sure you're the target. They had a hot guy out front, Ron, in his boxer shorts. It's pretty interesting, too. Interesting. Abercrombie, I have to mention this. They also, in giving their guidance, they also blamed higher cotton costs. Yeah, I mean ... I mean, come on.

I think everyone is experiencing that. Obviously, it's a main raw material for many of these retailers. Right, but not everyone is choosing to whine about it. They did highlight it as a major effect on their margins. But I think everyone is feeling that. All right. In the time we have left, let's move on to the stocks on our radar. Let's bring in our man Steve Broido from the other side of the glass with a question for each one of you. Ron Gross, you are up first.

A company I mentioned maybe a year ago, I think looks interesting now, Caterpillar, C-A-T, industrial equipment company. Their Q4 earnings were really strong, up 60%, beating estimates. They're seeing really strong demand in developing countries. and they're making really positive comments about both the domestic economy as well as Europe, which I find interesting. Stock is not really cheap at only 15 times earnings, 11 times cash flow, so it could be interesting, especially if for some reason we got a little pullback. So I'm going to dig in.

Steve? Sure. What sort of new product development do you like to see from a company like Caterpillar? It seems like if it's a backhoe or some large machine, are those changing that much? I think there is some technology that goes into these things. certainly a backhoe isn't the same now as it was 20 years ago. I don't really think of it in those terms from a technology perspective. It's more, can these machines get the job done and can they go into areas where they need to go, where the building has the most growth? And that's what I look for. James Early, your stock this week? Chris, I'm going with AstraZeneca. This is more

of an on-the-radar than a recommendation per se, but it is an interesting company. It's a pharmaceutical company, just raised its dividend 10%. It's known for having the second worst pipeline cliff in the industry, patent cliff in the industry. In other words, got a lot of drugs going off patent. It has no idea what it's going to do to replace them. It might make a dumb decision and make a costly acquisition, or it might just shrink gracefully and just be a smaller yet profitable company. So depending on what it does, it could end up being a pretty good company. Pharmaceuticals never shrink gracefully though, right? I mean, look at Pfizer. Rather than shrink. They went out and paid top dollar for Wyeth. Steve, a question for James about AstraZeneca?

Absolutely. Is it concerning that pretty much every ad you see on 60 Minutes is for a pharmaceutical company? I feel like every single ad is for some kind of pharmaceutical company that is, I don't know what the products are doing. It's just, check with your doctor. And you don't even know what the product is, but you know how you're supposed to feel about it, which is kind of strange. And I love all of them. Target marketing. Target marketing. Joe Mager, what's your stock this week? I'm looking at Google. What's pulled back after having a great quarter, but analysts read the wrong signals out of it. So, cost per click, which is how much Google gets paid for every time someone clicks on an ad for

them, fell 8% year over year. And sell-side analysts got really worked up on that on Wall Street because they viewed that as weakness in the business. But really, what was happening was that Google was testing lower-priced ads to generate more clicks, to generate more total revenue. And total clicks were up over 30% year over year, which drove more revenue. Instead of focusing on the real thing that matters, which is more total revenue, Wall Street got all worked up on this lower operating metric and just missed the forest for the trees. Steve? Who's their primary competitor right now? Well, I guess it depends on how you define them, but Bing would probably be the main one over at Microsoft in terms of search.

And then you've also got Facebook, which is a big competitor on display ads and just general mindshare for internet users. Gotcha. Yeah, it seems like that market has totally changed. Do people even use Yahoo for search much? I certainly don't. What's Yahoo? Microsoft actually powers Yahoo's search. It does, yeah. So it's basically the same.

You ever use Bing, Steve? I have not. I know that there's very nice photos on it. I should check it out. All right. Joe Vigor at Motley Fool Inside Value, James Early, Motley Fool Income Investor, and Ron Gross, Million Dollar Portfolio.

Guys, thanks for being here. Thank you, Chris. Coming up, want to stop doing dumb things with your money? Our guest this week has a few ideas you just might want to consider. Stay right here. This is Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. Hey, do you ever do dumb things with your money?

Carl Richards is a certified financial planner and he's the author of the new book, The Behavior Gap, Simple Ways to Stop Doing Dumb Things with Your Money. Carl, welcome to the show. Chris, it's a pleasure. Thank you. I want to get to your book in a minute. There's a lot of great stuff in it. But first, I've got to start with what seems to be the topic of the week, and that is all the kerfluffle over the Facebook IPO. You're a certified financial planner. Client comes into your office next week and says, listen, whenever Facebook goes public, I want to get in on it. What do you say to your client?

You're right. That is the question of the day or the week or the month or maybe even the year so far. Look, I think it's the case no matter if it's the hottest IPO of the year, but we've been through this before. I think what I say to the client is, let's see how that works into your plan. It's not about trying to get in. We want to be careful not to confuse entertainment with investing, and I think investment decisions are best made in the context of your plan.

So if there's some little allocation of your plan that you've just decided you want to have as your sort of play or gambling money, well, then sure. But if there's not a piece of that, if that's not accounted for in your plan, then why don't we just sort of go to the movies instead and stick with the plan that we have? All right. Let's jump into your book, The Behavior Gap, Simple Ways to Stop Doing Dumb Things with Money. I want to spot you up with a few chapter headings and have you expound on them. uh and the first chapter in your book we don't beat the market the market beats us wow that's that's a little depressing yeah i i mean there's a there's a lot to talk about there but i think one of the um the mistakes we make a lot is we we think like you know that's a bad investment

and i remember in fact i think the story in the book is when i was eight years old i remember hitting a sprinkler head with a lawnmower and running inside and saying to my mom, the lawnmower hit a sprinkler head. And she patiently explained to me, lawnmowers don't hit sprinkler heads. Eight-year-old boys hit sprinkler heads. And so I think sometimes we have a tendency to blame investments. The stock market's bad. This investment was bad. Well, in the end, most of the time, it's the investors making the mistake, with the exception of, obviously, some of the fraudulent activities we've seen. But most of the time, it's us making mistakes ourselves. And I think whenever we really try to spend a bunch of time and energy trying to outsmart the market, we end up hurting ourselves.

You also blog for the New York Times. And one of your recent blog entries, you wrote that everyone should use the overnight test. For our listeners, if you could, please explain the overnight test. So often we get emotionally attached to an investment. Maybe we inherited it. Maybe we bought it for some reason in the past. And we end up sort of collecting these series of investments, like the 10 hot funds you want to own now, and then next year you buy the next 10 hot.

You've got this collection. Well, I think occasionally it's really smart for us to say, and this happens to me when clients come in and say, what would you do with these investments? I think if you've decided to build a plan for the future and you've got a collection of investments, it's really smart to say, all right, look, let's figure out if these investments are still appropriate. And one way to do that is to take the overnight test.

Just say to yourself, okay, what happens if somebody sold all these investments overnight and I woke up and I had cash in my account? And again, this is hypothetical. I know nobody needs to yell at me about taxes and commissions. It's just an idea. It's an exercise, people. Come on. You wake up in the morning and you just have cash.

Would you reinvest the money in exactly the same holdings? And chances are the answers are no. And if the answer is no, then we ought to go through the process of dealing with reality, like what implications would that have in taxes? What would it cost us? But at least it's a good way to figure out if your investments are appropriate or they're just emotional attachments. You're listening to Motley Fool Money, talking with Carl Richards, author of the new book,

The Behavior Gap, Simple Ways to Stop Doing Dumb Things with Money. Probably my favorite heading of any of your chapters is chapter six, which is entitled plans are worthless. Carl, you're a certified financial planner. Tell me you're not using that as part of your marketing. No, as I said in the book, it's actually fun to say that out loud. Plans are worthless. It feels slightly liberating. But here's the point. The point is, I think we've gotten used to, or at least people have gotten frustrated with the financial planning sort of industry, because financial plans have almost become like a product. And we think of like this two-inch thick book

that you leave. And we all know the moment you leave, that thing is outdated. And I think the best comparison is flight plans. Like all the pilots I know, they spend a lot of time building a flight plan. But they also know the second they take off, the wind is going to be slightly different than what they projected. And so if you think about all the assumptions that are going into a financial plan. A financial plan is nothing more than a just big pile of assumptions, and there's no way we can get them right. So that doesn't mean we shouldn't do it. And if you read on in the book, of course, it says, you know, financial plans may be worthless, but the process of planning is invaluable.

And we've got to realize it's not a one-time event. It's an ongoing recalibration, an ongoing course correction to make sure you end up in Boston and not Miami if Boston was your goal. You're listening to Motley Fool Money, talking with Carl Richards, certified financial planner and author of the new book, The Behavior Gap, Simple Ways to Stop Doing Dumb Things with Money. When you look at the universe of dumb moves when it comes to money, what do you think is the single dumbest mistake that investors make? It's the one that we repeat the most often.

It didn't, I don't know who taught me this, but I think most of us learned pretty early that the key to investing is buying an asset low, holding on to it, and selling it for a higher price later. But we do the opposite. And so I think the dumbest mistake, and again, you know the word dumb is meant to be tongue-in-cheek slightly. It's hopefully a fun way of helping us all figure this problem out. But we continually want to buy things after they've gone up. and we continually want to sell them after they've gone down that's a plan to buy high and sell low and and we just keep doing it and and i understand it genetically i understand because it feels right we want more of those things that give us safety or um satisfaction

or pleasure and we want to get rid of things that are causing us pain but do you see what problem that is. It's the only thing Americans, stocks are the only thing Americans buy after they've been marked up and want to get rid of when they're on sale. Well, so that leads to a question that we frequently get here at The Motley Fool, and that is the question of when do I sell a stock? So whether it's in your own life or working with a client, what are the questions, the processes that you go through when deciding whether to sell a stock? yeah i well i think that comes back to sort of a fundamental belief right so first we start with building out a a plan for the future and then we define how much should we have an equity exposure

to meet a certain set of goals then we go out once we've determined the equity exposure we then go out and determine okay what how should we get that exposure what's the cleanest efficient way to get exposure to equities, the returns that you get from stocks. Well, my belief is, and I've read lots of stuff on The Motley Fool about this, is for most of us, the cleanest, most efficient way to do that is through index funds. And so I end up most of the time when we're having discussions about individual stocks, unless you're able to spend the time, which there are some people who can. But, you know, the odds are stacked against us if we're honest about it. It's, again, not impossible, just improbable. Unless you're willing to spend the time to do all the research, we've

got to ask the question first, should you own an individual stock? I don't care what stock. Should you be owning them or should you just use the default position of owning super clean, efficient, low-cost index funds? Coming up, more with Carl Richards, plus a round of buy, sell, or hold. Stay right here. This is Motley Fool Money. the money. I got the time. We'll go honky-tonking. Welcome back to Motley Fool Money. Chris Hill here in the studio talking with our guest, Carl Richards, about his new book, The Behavior Gap. For someone who is looking to work with a financial planner, what are a couple of questions that they should be asking? I think a lot of people are interested in working with a financial

planner, but maybe aren't really. They feel like they're walking blind into the interview process. What are a couple of key things anyone should ask when it comes to working with someone with their money? Yeah, that's a really good question. That's probably the question I get the most often is like, hey, is there a list of things I could do to find a planner? The challenge, of course, I'll answer your question after this disclaimer. And the challenge, of course, is it's really hard to find somebody to trust. And we've all heard all the news stories. And so I, but the hopeful thing is there is a secret society, and I joke about this,

there's a secret society of real financial advisors out there. The problem is there's no heading like that in the yellow pages. And so finding them can be difficult. And here's a couple of the questions I would ask. I'd really want to be very clear about how they were compensated. Now, what the client is charged and what the advisor is compensated, how the advisor's compensated could be two different things. So I mean it specifically, how is the advisor compensated?

And what you want to know, of course, is that the compensation comes mainly from the client. You know, if they're getting compensated from product or, you know, products or custodians, you'd want to know that. And I'm not saying that you wouldn't want to work with them. I'm just saying you'd want to know it so that you understand where the conflicts may lie. If the only compensation is coming directly from the client, then at least you understand that. The second piece, that's being independent. The other question I think is really interesting, again, it doesn't rule anybody out, but it's good information,

is understanding if they're willing to act as a fiduciary. It's a big word. It simply means you have a legal obligation to put the client's interests ahead of your own. And there are advisors out there that are willing to say, yes, I'm a fiduciary, and there are others that aren't allowed to say that. It's an interesting question for you to know. The other thing I would do, ask for references. We're kind of gun-shy about that, but I would ask for references,

and I would call them and just say, you know, how long have you been working with the advisor? Then the last piece, it always helps, is sort of the last check. Go to the SEC's website and just type in their name. You know, just make sure you're at least comfortable with any disciplinary action that may have been taken, just make sure as your final check that you double-check the SEC's website. You're listening to Motley Fool Money, talking with Carl Richards, author of the new book The Behavior Gap, Simple Ways to Stop Doing Dumb Things with Money. Warren Buffett obviously has

had an amazing track record of success. When you look at his career, what do you think is the secret ingredient. I think the thing that Buffett and I think sums up, he summed it up himself with this great quote of the, there's two quotes that I think are interesting and I may fodder both of them, but the key to investing is being fearful when everyone else is greedy and greedy when everyone else is fearful. And I think most of us are genetically wired to sort of herd mentality. We're genetically wired to buy high and sell low. And I often joke, unless you wake up in the morning and see Warren Buffett in the mirror, you're most likely making those mistakes. He's one of the few individuals we know about publicly. I know there's a lot more, but he's the most

famous person we know that's been able to be really boring and really disciplined and stick with it for years and the other one was the key to our investment process is benign neglect bordering on sloth i hadn't heard that one before yeah and and i somebody better fact check me but i i remember that quote specifically because again it was the idea was look we find great companies and we hold on to them for a long time now do we know my question is about buffett always is do i think it's pretty fair for us to say it's statistically it's really challenging to say whether he was very lucky or very smart i think we could all probably agree guy had a unique talent the question is how would we have known that 15 years ago you know like if we're looking for the

next warren buffett that's a whole new challenge because identifying them before is really really hard. And I have to plug you for a little bit of free consulting on the financial planning. What are a couple of things that everyone can do in 2012 to get their finances in order? Make a commitment to do it, right? Like it's so, it really starts that we have so, sometimes we make it so complex that we don't even want to touch it. And it's, I know it's boring it is it's complex it's the last thing on your list over the weekend i like i i get it i'd rather most of us would rather spend an hour with a dentist um but i think if you just make a commitment to do two things number one get super clear about your current reality and i used to

think that was the easy part but the more i talk to people the more i realize people don't really even know that build a personal balance sheet and if you don't know how to do that don't be Don't be ashamed, because most people don't. Google, use the Google, and type in personal balance sheet, and it will show you. They'll get really clear about where you are today. And then start having some discussions about money with spouse, partner, family, kids, people that you care about. Start defining what your goals are. It just starts by having these conversations.

I grew up in a, I think most of us grew up in a neighborhood, in homes where money, sex, and politics were not talked about in polite company. And I think if we could do one thing this year to make some change, it would be let's start talking about it. Let's wrap up with a round of buy, sell, or hold. Let's start with something that has certainly had a great run lately in terms of its investment value. Buy, sell, or hold gold. Oh, geez. I, if it fits somehow in your investment plan, you hold it. I'm certainly not, nobody could make the argument to me that gold is less risky at whatever it is now,

what, $1,500 or $1,300? I don't even know where it is. But, but it seems to me that anytime something's done as well as gold, unless you have a specific purpose for it in your plan, that you're selling it. Buy, sell, or hold timeshares. Oh, man, timeshares. That's just a whole big giant. I think you run. If you own one, I don't know what you do.

If you're thinking of buying one, just take the free tour and leave. We touched earlier on relationships and money. Buy, sell, or hold separate checking accounts for spouses. Oh, buy all day long. Separate checking accounts. That's a marriage saver right there. That's a no-brainer?

I think so. And finally, buy, sell, or hold a reality TV show based on the Carl Richards book, The Behavior Gap. Oh, with 10 times leverage. Wow. Yeah, that sounds like a crazy idea to me. I think that would fit. I think you could put that right next to the Facebook IPO and make your decision equally there. Split the money between the Facebook IPO and the reality show.

You're saying if someone comes to you and says, I love this book, I want to do a little reality TV, let me follow you around. You're not going for that? Oh, no. Oh, yeah. No, I'm all over that. We've actually had, funny enough, a discussion about that. I would love to do that. Now, whether or not I was an investor in that show or not, that's another question. I just didn't know if you were running away from it, and maybe there would have to be a stunt double. where, you know, it's like the Bartles and James wine cooler guys. It's like, that's not really Bartles and James.

I would actually only do it if there was no stunt double. I'd have to be involved. The book is The Behavior Gap, Simple Ways to Stop Doing Dumb Things with Money. It's a great, great book about finance, Carl. And I've got to say, I was somewhat stunned by the fact that there are virtually no numbers. This is a finance book with almost no numbers in it. You know, Chris, that was one of the goals. We didn't quite get there. There's one or two, but I specifically said, wouldn't it be fun to write a personal finance book with no numbers?

And we sort of tongue-in-cheek joke around that, like, you know, this group, I turned 40 this year, and this group of sort of like 37 to 55-year-olds, people in my age group that are now having, you know, facing some real serious issues. There may be some money saved, kids, colleges looming, parents. And so suddenly we've got to make some – but none of us want to buy personal finance books, right? So we always sort of joke that this is a personal finance book for people who don't read personal finance books. Carl Richards, thanks so much for being here. Thank you. My pleasure. That's all for this week.

You can check out our daily podcast, Market Foolery. That's on iTunes and online at marketfoolery.com. And for video highlights, go to fooltv.com. That's it for this edition of Motley Fool Money. Our engineer is Steve Broido. Our producer is Mac Greer. I'm Chris Hill. Thanks for listening. We will see you next week.