Motley Fool Hidden Gems Investing - Motley Fool Money: 04.05.2013

Episode Date: April 5, 2013

Samsung partners with Best Buy. Panera hits a new high. And Samoa Air makes a weighty decision. Our analysts discuss those stories. Plus, author Dan Heath talks about his new book, Decisive: How To Make Better Choices In Life And Work. Learn more about your ad choices. Visit megaphone.fm/adchoices

This family is on the brink of civil war. On September 18th, Mobland, the hit original series, is back on Paramount+. We are the Honeigans. Don't know them yet? Then Google us. From the underworld of Guy Ritchie. Do you want to step up the ladder? I want Comet dead.

Starring Tom Hardy, Pierce Brosnan, and Helen Mirren. Do I have to do everything myself? You want more? I'll give you more! Mobland, new season hits September 18th on Paramount+. everybody needs money that's why they call it money from fool global headquarters this is motley fool money welcome to motley fool money thanks for being here i'm your host chris hill joining me in studio this week for motley fool income investor james early and for million dollar portfolio charlie travers and ron gross good to see you

as always gentlemen we've got the latest from big retail big technology and more we have got the most exciting innovation in air travel since little bags of peanuts and as always we've got a few stocks on our radar but we begin this week with the cell phone industry because i don't know if you knew this ron but this week marked the 40th anniversary i know of the cell phone back in the day you probably had like like the old really old school phone do you know who the first The first guy who made the first call was Motorola? Alexander Graham Bell? Martin Cooper was the gentleman's name.

Never would have got that. Good little trivia there. We got a lot going on in the industry this week. And let's start with the fact that Facebook unveiled Facebook Home, a new experience for Android phones. And, Ron, if I understand this correctly, based on the photographs, it just seems like if I had an Android phone, Facebook would be my homepage. So I'm always on Facebook. Oh, you understand it correctly, Chris. Is that exciting to you?

Not to me. Is it exciting to you? It is not exciting to me. We do own Facebook in Million Dollar Portfolio, and we do think it's an interesting company with a long growth runway ahead of it. This is underwhelming to me. People were waiting to see if Facebook was going to create their own phone. The answer is no. They're going to create this neat homepage instead.

I'm not an early adopter of things like this, so I might not be the right guy to ask, but it doesn't sound that interesting to me to be always connected to Facebook, for it to be my homepage, for me to be able to constantly click and like things and look at pictures. Not what I'm looking for. It's creepy, too. Let's just say it, right? It's creepy. They want to know everything about you.

Our own opinions on this aside, the stock went up on Thursday after the announcement was made when people, presumably institutional investors among them, had the chance to digest this idea. As a shareholder of Facebook, do you think this is going to help them make more money? Well, the key to Facebook is to increase their presence in mobile. That's what everyone's been saying for I can't remember how long. And so people, I guess, think that this helps to do that. I think it probably will help.

I don't think it's an endgame, though. I just don't think it's where – it took me by surprise, and I'm not that excited about it. You're still coming to terms emotionally with it. Exactly. It's new. It's new for me. I hear you. Okay.

Also this week, Samsung announced it is going to open 1,400 mini stores inside Best Buy locations across America this summer. It's going to be called the Samsung Experience Shop. And, Charlie, each one of them, if you go into a Best Buy, each one, it's going to be an entire section. It's all Samsung products, TVs, smartphones, tablets. They really seem like they are just taking the fight to Apple. I think this is win-win for both Samsung and especially for Best Buy, which desperately needed something to get people in the doors and excited about coming to Best Buy and not just shopping on Amazon. Let's hope they do a better job of it than Apple and Best Buy did when you walked in the store

and all the Apple-like laptops and tablets were essentially on a folding table with no support. Samsung does look like they're going to do it right. They are going to have their own trained personnel to explain how all the devices work together from the TVs to the tablets to the phones. So I think this is very compelling. This is mostly about the phones, though, right? Well, they do have – their tablets are very highly regarded as well. Gotcha.

Yeah. When we were talking about this earlier in the week, James, I mean, one of the points you made was, hey, look, Apple still has their own retail stores. They still have a retail presence. So it sounds like if you're representing the opinion of Apple, you're not that worried about this. Yeah, Apple stores obviously have massive profitability per square foot. They're cool to go to. Apple does have kiosks in Best Buy, so it's not like they're missing out. This is a gradual encroachment, though, by Samsung, by Android more broadly on the Apple ecosystem. So for that, given Apple's momentum now, that could be a slight sign of worry. We also saw earlier this week the apology that the CEO, Tim Cook, issued in China. There was some media attention a couple of weeks ago, Ron, where basically Apple was accused of having second-rate customer service in China. And it seems like it was the right move by Tim Cook, and yet he still got criticized for it by some in the media. It kind of seems like this has been a horrible six months for this company, whereas for so long they could do no wrong. And now it's almost like they can't do anything right. But that's kind of the way these things go.

People love to knock the top guy down a peg. And once the momentum shifts, it just continues to roll downhill. And I think that's mostly what we've seen. The fact that we haven't seen a new product come out from them is exacerbating the issue. But, I mean, the Mini, it wasn't that long ago. People get very, very impatient very quickly. Add a couple missteps in, and you have the stock where it is now. But I continue to think it's a really great bargain here.

What is the next thing that you are watching in this space? And it can be Apple, it can be Samsung, Google, Facebook, anyone in the cell phone space. Is it just sort of what is the next big event? Because when we look at Apple, it seems like to the extent that they're going to have a new product to unveil, it could be maybe six months away from now. Is it the next quarter? What are you watching next in this space? I think the fact that we see the iPad being slashed 30% in Best Buy stores this week is perhaps an indication that it won't be that long until we see the next Apple product.

And we don't know what that is, whether it's an operating system or a new iPad or an iWatch or what have you. But that, for me, is the next thing because I want to see the stock turn. Are you an Apple man personally? We own many iPads, Macs, phones, yeah. Charlie, what about you in the cell phone space? What are you watching over the next couple of months? So it was interesting to see that Windows phone market share actually doubled this quarter year over year. So they're approaching the mid to high single digits.

And I think if they creep over 10%, they have to be regarded as a legitimate third player. And so they are having, rumoredly, a new operating system come out later this year that could be the catalyst. But I don't think you can count them out. I'll be honest. It didn't even occur to me to mention Microsoft in this segment. So thank you for reminding me they're still around. In a surprise move this week, Japan's central bank announced it would double its monetary supply in an effort to spur the economy. And at least in the short term, James, when you look at the Nikkei Index, it seems to have had the desired effect.

What is this going to mean for Japan's economy? And selfishly, what is the ripple effect, if any, for U.S. investors? Well, there's a short-term and a long-term effect, Chris. Obviously, for the past, what, 25 years, Japan has had deflation and deflation and deflation. They've just had more and more and more debt. So now they're devaluing their currency. It makes it easier for them to pay back that debt, and it makes it easier for them to export because their products are cheaper for other countries. So on the surface, it's good for Toyota.

It's good for Sony, those types of companies. Toyota stock is up several percent today on this news. Long term, we don't know if this is going to work. We don't know also what's going to happen with Japan's population. They've got fewer and fewer people. I think the death rate is higher than the birth rate. Wow, that was an ominous note. Yeah.

Well, on the flip side, it makes their imports more expensive, right? Because they are energy dependent and they have to buy oil with depreciated gas. Yeah, they're doing the wrong materials. They don't have a ton there. Right. It's going to be cheaper to go to Japan to travel. I'd love to do that. Okay, so maybe, at least in the short to near term, maybe a win for U.S. consumers,

but the jury's still out for U.S. investors? Correct, correct. Shares of Panera hit an all-time high this week, in part due to an upgrade from Goldman Sachs. And, Charlie, to be fair, they're not the only one upgrading this stock. This has really been a great two- to three-year run for this company. It should be. It's a phenomenal company. I love going there.

They deliver great value to their customers. The food is good. And, I mean, it's not really a shocker that they are the top casual dining chain in the country. They did 30% earnings per share growth last year. And they are pretty close to peak profit margins, which is why the stock has done so well. But that said, they're trading at 30 times earnings and with 1,600 stores, you wonder how much growth they really have left in there. I was just going to say, because they've had double-digit sales and profit growth the last three years. That's a great run, but as an investor, and I don't own shares of this, but I see something like that,

and I just wonder to what extent can they even come close to that over the next three years? Well, they're guiding for high teens earnings growth again this year, so maybe they can surprise on the upside. Do you like the stock at an all-time high? It looks a little rich to me, Chris, but I've been proven wrong here for years running. Coming up, an exciting new innovation in the world of airline ticket pricing. Stay right here. You're listening to Motley Fool Money. Hey, it's Chris here. Is your business protected from data loss? If not, join the 80,000 businesses who trust MOSI to protect their important information.

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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 James Early, Charlie Travers, and Ron Gross. guys. Shares of Zynga were up more than 13% on Wednesday after the company announced it will launch two new real money gambling games in the UK. There's a poker game and a casino game we're on, which is slots and other table games. And hey, we are a long way from Farmville. I love this move. I love this. Yeah, I've criticized Zynga, the company and the stock for so long, it's going to be hard

to get me to turn. But I will say this is really, really interesting for them. It's the beginning, obviously. They seem to indicate that they're going to wait in the U.S. for it to be a national law, for it to be legal nationally versus just for New Jersey, for example. But it could be huge. And in that case, this stock could look interesting here. But I don't know. It's a lot based on a bet on the future. What is your opinion on the ethics of online gambling? I hold no opinion. I want to ask you about two different industries.

And, Charlie, I'll just start with the video gaming industry. If you are Electronic Arts, if you're Activision Blizzard, how closely are you watching this story? Because you have to believe someone within both of those companies is agitating for, hey, you know what? We can make some money here. They both have an online system where they're very tightly connected to their customers already. And importantly, in the gaming market, it's a relationship based on trust. If you are on various poker sites, you're always worried that the site is going to rip you off and cheat. And you don't worry about that with Activision or with Electronic Arts.

So if this does work, they could have the reputational advantage, and they've definitely got the balance sheet and the technological capabilities to get in here. Is this exposed to a lot of litigation risk, though? I mean, is this something that could go away, or is the trend, it sounds like, rolling more in the favor of this stuff? I think overseas they're okay, but, yeah, I agree. In the United States, it would be problematic. Ron, what about the casino industry? Same question, just a different version. If you're Wynn, if you're MGM Grand, how closely are you watching this,

and to what extent are you looking to either just do this on your own or possibly just buy Zynga outright, if you feel like they can do it well? Well, when the tide started to turn with, for example, New Jersey, as I said, passing – kind of legalizing it, I think they probably started in a big way to look into this. It makes perfect sense for them. I don't know if they want to build it from a technological perspective on their own. They would obviously, I think, partner with someone from that perspective. But it would be a huge win for the major casinos, I would imagine. So they've got to be looking hard at it.

Finally, guys, Samoa Air, a small airline in Samoa, has started pricing its international flights based on the weight of its passengers and their bags. So depending on the flight, each kilogram will cost between $0.93 and $1.06. It has been using this weight-based pricing since June. Back in January, the U.S. Department of Transportation approved this pricing for an international route between Samoa and American Samoa. James, I love this. Maybe it's because I don't have to actually fly the airline. I knew Samoa had an airline. They got their own airline?

It seems logistically innovative. It seems fair, right? I mean, they pay for the fuel. We pay already for baggage weight in the U.S. This is just an extension of that, ostensibly. Well, to the fairness issue, I want to read a quote from the CEO, Chris Langdon. He says, when this announcement was made, he said, Planes are run by weight and not by seat, and travelers should be educated on this important issue.

The planes can only carry a certain amount of weight, and that weight needs to be paid. And you know what, Ron? Personally, instead of paying full fare for my three children, if I can just pay based on their weight, I'm guessing that's going to be less money for me. I would imagine there must be some minimum, though, right? And once you start going over that minimum, like with your bag, as long as you stay under 50 pounds, you're good with Southwest. But I might have to start exercising a little more if I'm going to fly into Samoa. Do you think any U.S. airline would attempt anything like this, even, Charlie, if it was something along the lines of, hey, listen, we're going to float you the first 200 pounds, combined your weight and your bag weight, and then over that you're going to pay more? Would anyone have the guts to do something like this?

The discrimination lawsuits would be filed before the first passenger got in the air. Fair enough. Let's bring in our man, Steve Broido, from the other side of the glass as we get to the stocks that are on our radar. Ron Gross, you're up first. Horsehead Holdings, Steve, ticker symbol Zinc, Z-I-N-C, producer of zinc-related products, shockingly. The commodity price of zinc has come down recently, and so, therefore, the stock price of Horsehead has followed suit. It's actually allowed me to raise the stock to a buy recently. I think it's a really good opportunity here.

Steve, question about Horsehead Holdings? First off, a statement. That's a very unpleasant name for a company. Second, what do I do with zinc? What do I need zinc for? Most of zinc is used to galvanize steel, but then it's also used in paints and ceramics and rubber. Sunblocks, sunblocks. Well, zinc oxide and sunblocks, sure.

Many, many different uses. Steve, do you have any galvanizing steel projects around the home that you're working on? Nothing going currently, but I will keep you posted. You'll be the first to know. All right. James Early, you're stuck. I'm going back to Xinyuan Real Estate. The ticker is XIN.

These guys make middle class family housing and second tier Chinese cities. These are not the biggest ones that have seen the most price appreciation. Beijing has recently moved to curb buying additional homes. These are things that try to avert a bubble or bubbles worsening. And the stock has traded down a little bit, but I actually see these negatives as long-term positives if they can actually avert some sort of bubble from bursting. And it's very good for a company like this. It's a legitimate Chinese development company.

It pays a dividend, too. Steve, question about negatives turning into long-term positives? What happens if interest rates rise in this country? Xinyuan is Chinese. No, I know. As a Chinese company, interest rates rise significantly here. We can get a mortgage to 3.5%. Let's say you go to 4.5%, 5%.

Will people be fleeing for international real estate investments? Well, Chinese are already doing that to some degree, and Xinyuan is actually getting ahead of the curve by buying up properties in Brooklyn and I think Reno and various places near gambling areas. Those are popular destinations for Chinese moving to the U.S. So I would say the overall migration to the U.S. is another positive trend for these guys. Is that good for humanity? You know, I have to go pull a Ron here.

I have no opinion on that. Charlie Travers, your stock this week. I'm going with Burger King. The company is really reinventing itself. They notably fell behind McDonald's and Wendy's in the United States, but they're investing a lot of money to refresh their stores. They are changing their marketing campaigns to get away from the king. And internationally, yeah, I mean, they had some really creepy commercials there for a while,

but they're appealing to a family audience now. And they're using joint ventures in places like Brazil, Russia, and China to expand their overseas footprint. And this is all going very well for them, and the stock has responded. And they have sweet potato fries. Do they really? Yes. I've never tried this. Now I'm interested.

Between that and the bacon sundae, I'm interested. Steve, question about Burger King? Do you believe the French fries have gotten worse? I think there was a time where they were really advertising, improve fries. We've really fixed our fries. And I thought they just made them worse. I love Burger King, but to be honest, you can't beat McDonald's fries. I got to go there.

Steve, Chinese real estate, zinc, and Burger King. Of those three, do you have an investment that's particularly appealing to you? I know very little about zinc, but I have to say I'm interested. Horsehead Holdings? Yeah. Nice. I mean, back to Steve's question, who came up with the name and does it have anything to do with the godfather? It has to do with New Jersey.

I believe the symbol of New Jersey is the horse head, if I'm not mistaken. Wait, what? Where the company – There's a state symbol? Yeah, it has to do with something like that. Google it, folks. I'm going to Google that once we're done with the show. I want to bring Steve back for one question because I should have brought you in a little earlier, Steve.

The whole notion of Samoa Air and the weight-based pricing, how do you feel about that? Is that something you would love to see some U.S. carriers pick up? It is interesting. I had a motto, goldfish fly free. That was my motto there. But for people, I mean, the average male weighs, what, 180 pounds or so? If you're 175 or 165, does it really make any difference? I mean, are you going to get that targeted?

It doesn't seem like a very good time. You could have buckets. You could have broad categories, yeah. And if I bring a bowling ball, I'm just out of luck. We'll wrap it up there. Ron Gross, James Early, Charlie Travers. Guys, thanks for being here. Thanks, Chris.

You got money, and I don't have the time. You got money, and I don't have the time. Coming up, a conversation with bestselling author Dan Heath on how to make better decisions at work and in life. This is Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. Are you looking to make better decisions? Of course you are. Who are you kidding?

Dan Heath is the senior fellow at Duke University's Center for the Advancement of Social Entrepreneurship. And along with his brother, Chip, he is the co-author of bestselling books like Switch and Made to Stick. And their brand new book is Decisive, How to Make Better Choices in Life and Work. Dan, thanks so much for being here. Thanks for having me on, Chris. So, not to dwell on the mistakes, but what are one or two of the biggest mistakes that people make when making decisions? You know, I think there are a lot of candidates for that, but I think my number one might be what psychologists call narrow framing, which is our tendency to limit our options too much, to get trapped in one way of thinking about our dilemmas or to be only considering one alternative.

I think there have been a couple of fascinating studies, one of teenage decision-making. The researchers from Carnegie Mellon studied the process that teenagers use to make decisions, which I suspect a lot of parents are kind of chuckling at the notion that their teenagers are using a process to make decisions. But what they found is that in only 30% of the cases when teens made decisions, were they considering an alternative, that what was far more common was for them to make what the researchers called a whether or not decision, meaning they were considering one thing and the choice was, do I do this or not? Do I go to the party or not?

Do I smoke a cigarette or not? So we might be tempted to say, well, of course, teens act that way. That's why they're teens. But what's interesting is there's a guy named Paul Nutt who did essentially the same study of organizations, And he studied the way managers made decisions. And in one of his studies, he found that only 29% of organizations considered more than one alternative when they made decisions. And so, you know, to the best of the psychology researchers' abilities,

what we have found is that most organizations are making decisions like hormonal teenagers. Fabulous. There is this kind of grand trap that we all fall into to think about our options as being one, rather than the full spectrum of things that might be available to us. You're listening to Motley Fool Money, talking with Dan Heath, co-author of the new book, Decisive, How to Make Better Choices in Life and Work. At the other end of the spectrum, one of the CEOs that you cite in your book is Andy Grove, the great leader of Intel for so many years.

And in a story that I love, he finally figures out a way to get Intel out of the memory chip business and invest everything 100% into microprocessors. How did he do it? This is one of my favorite stories in the book because what it shows us is that to make a better decision doesn't require lots of analysis. It doesn't require a convoluted process. it can often happen in an instant. And so the back story here is that Intel actually started as a manufacturer of memory chips. In fact, for a while in the 70s, they were a monopoly provider. And soon enough, some Japanese competition came into the market

and just started eating everybody's lunch. By the mid-80s, two things had happened. One was Intel was increasingly sliding in the memory business, thanks to the Japanese competitors. But they had also launched this very promising microprocessor business. and, of course, had won the crucial IBM account. And so the question was, what do we do with memories? And, boy, they agonized about this, as you can imagine,

given the history and given the importance of the business. And, you know, there were many different camps inside Intel, and some people were fierce loyalists, and some people thought they should get rid of it. And they went back and forth and back and forth. And, you know, there was lots of politics and infighting involved. And one day, Andy Grove talks about this in his memoir, He says he was in his office with Gordon Moore, who was the chairman at that time, and Grove remembers looking out his window and seeing in the distance the Ferris wheel at the Great America Amusement Park just rotating in the distance, and it triggered a thought for him.

He said, hey, Gordon, what if we were fired today and they brought in successors to take our roles? What do you think they would do with the memory business? And Gordon Moore apparently responded instantly, oh, they'd get us out of memories for sure. And Andy Groove said, well, why shouldn't we walk out the front door together right now, turn around and come back in and do it ourselves? And that was the epiphany. That was the moment when he realized this is what we have to do, and that was the moment when he kind of divorced himself from the short-term pressures and emotions and stresses that were pulling him towards keeping that business, even when, from an outside perspective, the merits of the business case meant that they should probably get rid of it, and they did, and we all know the rest of that story. It was an enormous success. And that really seems like one of the keys in your book, the whole notion of, as you put it, attaining distance to the extent possible that people either in business or in their personal life are able to depersonalize or distance themselves from the decision they're trying to make and almost cast it in alternative terms like, well, what if someone else were faced with this decision? i think this is this is a really important point and this is something that the decision-making

literature is a little bit weak on because the decision-making literature deals with such kind of rational analytical terms uh and and anybody who's ever made a hard decision in life knows it just ain't that easy it's not something that can often be solved in a spreadsheet and and what happens to us is that the short-term emotion in our lives starts to overwhelm what's good for us in the long term. You know, we get stressed out. We get caught in visceral emotions of, you know, anger or outrage, or we just get caught in the politics of the situation. And so what we've got to be able to do is not to eliminate emotion. That's not the goal of this at all. It's rather to try to kind of equalize short-term emotion and long-term. And so what

Andy Grove did, in essence, with that thought experiment of what would our successors do, was he was basically doing this perspective shift that allowed him to see the big picture and to get out of the muck of this intense and hard-fought debate within Intel. I'll tell you as a follow-up to that, if any of your listeners are struggling with a personal decision right now, there's something inspired by the Andy Grove question that Chip and I have just been amazed. I mean, this is the closest thing to decision-making magic that we've come across. And it's a very simple question, which is, if you're struggling with a personal dilemma, ask yourself, what would I tell my best friend to do if they were in this situation?

And I know that sounds so simple, but I've been on calls with people who are telling me about intensely personal dilemmas that they've struggled with by their accounts, you know, for months or even years. And I asked that question, and I'll tell you, nine times out of 10, they've got an answer popping out of their mouth in 10 or 15 seconds. I mean, it is just unreal what happens when we're able to make that quick switch and kind of take a step out of the muck and see the big picture. You're listening to Motley Fool Money, talking with Dan Heath. His new book with his brother Chip is Decisive, How to Make Better Choices in Life and Work. You cite some wonderful examples from some, not just great business leaders, but I would argue

historically great business leaders, Sam Walton, Andy Grove, Indra Nooyi, the CEO over at Pepsi. But you also find some wisdom in some unlikely places. David Lee Roth, the former frontman for Van Halen, has been called many things, some of which cannot be repeated on broadcast radio. But you and your brother refer to him as an operations master. i have become i'll tell you i was a i was a van halen fan as a kid i think 1984 was one of the first 10 albums i bought but as an adult i have grown to respect his decision-making genius and i'll tell you why so in the 80s you know during their heyday the 1984 era they were touring like crazy you know 100 dates a year and they were they were one of the first rock bands to bring

really sophisticated shows to second and third tier markets. And so, you know, they'd pull up in some local town like Chapel Hill, North Carolina with, you know, nine 18-wheelers full of gear. Just an incredibly complex production rider that went with this, you know, the technical setup and the specs and so forth. And so they were always terrified that some of these local venues and their stagehands would screw something up and put the band at risk. You know, this is the same era when stages collapsed at a couple of big public concerts, and Michael Jackson set his hair on fire in that Pepsi commercial, and so they were worried, you know, what happens if we get caught in the situation?

And during the same era, Van Halen acquired, and I know this will shock your listeners to their core, but they acquired a reputation as being quite the party band. Yeah, I know. It defies belief. Those clean-cut young kids? and and by the way i highly recommend david lee roth autobiography where he talks about these things in in detail and he's actually a very very good storyteller uh but there was one story that people told about van halen that that really gave them a bad rap and it was this this notion that in

their contract rider the band requested a bowl of m&ms put backstage with all the brown ones removed And people were just horrified by this, because, I mean, what a power play, right? You know, these band members, these divas, they're getting, imagine these, you know, poor stagehands backstage kind of manually picking the brown M&Ms out of the bowl, and what a nasty thing to do to another human being. So we researched this, and in David Lee Roth's autobiography, he admits it. He admits it was true, and in fact, it was called Article 126. It was in their contract writer, and it said that, you know,

there shall be a bowl of M&M's backstage with all the brown ones removed upon penalty of forfeiture of the show with full compensation. But it wasn't about them being a diva. The real point of that was they had buried this contract right, or this clause rather, right in the middle of that big, thick technical contract. And so whenever David Lee Roth would get to a local venue, he would march right backstage, and he'd try to find the bowl of M&M's. And if he saw even one brown M&M in the bowl, he would immediately demand a technical line check of the whole production.

Because he said, they haven't read the contract. You know, they haven't read the thing. And if they haven't read it, that puts the show at risk and it puts us at personal risk. And so the band had managed to put this kind of canary in the coal mine in their contract that told them in this very visible way whether their contract was being taken seriously. And I just think that that is absolute genius. Coming up, more with Dan Heath, including advice for investors. You're listening to Motley Fool Money. If you've got the money, I've got the time.

We'll go honky-tonking and we'll have a time. Welcome back to Motley Fool Money. Chris Hill talking with Dan Heath, bestselling author of the new book, Decisive, How to Make Better Choices in Life and Work. I want to ask you a couple of questions with an eye towards investing. One of your big pieces of advice in the book, as you've talked about, is the whole notion of widening your options. And for investors today, there is no shortage of information available to them

and, frankly, no shortage of options when it comes to investing. What would you say, what advice would you have for someone who wants to widen their options but to do so in such a way that they're not paralyzed from having too many options? Yeah, it's a good question. And I'll tell you, a lot of investors are not going to like the answer that I'm about to give. Well, that's all the time we have, Dan. I'm sorry. Thank you for saving me, yes. Commercial break.

I think one of the hallmarks of a good decision is that they happen when we trust the experience of other people over our own predictions. And so, you know, if you and I were going out to a restaurant tonight, we might go to Yelp and look at the reviews because we know, hey, if 128 people have eaten at this place, we should probably trust their actual experience over our ability to guess at how good this restaurant will be based on the menu or what have you. But what's interesting is this concept, which seems so obvious when it comes to picking restaurants or picking books or what have you, we don't apply that logic to our investments. And in fact, the research is very clear that over the years,

thousands and thousands of people have eaten at the mutual fund restaurant and found it sorely lacking. And here's what I mean. There was a study of every mutual fund over a 20-year period. This is every mutual fund that had more than $100 million in assets under management. Followed them for 20 years, less than 4% of these funds outperformed the Vanguard 500 index funds. Now, to put that 4% in context, if you're playing blackjack and the dealer deals out two face cards to you and your inner idiot shouts, hit me, you've got an 8% chance of winning that hand. So in essence, by investing in mutual funds, what investors are doing is they are dining at a restaurant with 96% negative reviews. And so that's one example, I think, of where there might actually be more choice in the world than people really need,

because the research suggests that we'd be a lot smarter to have that boring meal at the index fund cafe. Along those same lines, and we talked about this with Intel and Andy Grove and the whole notion of attaining distance, when you consider so much information in the world of investing is really tied to the short term. Any suggestions for how we can attain distance as investors? I think one of the most important things that, well, really for decisions of any kind is that we've got to start avoiding decisions that we can't handle. So, you know, whenever I'm on a diet, I make darn sure that I don't put myself in situations that are going to tempt me. If my buddies are going out for a pizza buffet at lunch, I'm a lot smarter to avoid that situation than take myself to the pizza buffet and try to get away with eating a salad because I know I'm just not that strong. And I think it's similar with investments where some of the smartest investors are those who just set up smart defaults for themselves and tune out.

You know, they get their 401k match set up. They get themselves in a target date fund or a collection of index funds. They set up auto-escalate where each year their contribution will increase. And then they just leave it alone. And what I would say is opposed to that is this idea that every day we're checking our stocks, we're following the news, we're watching the ups and downs. And, you know, there's a writer named Carl Richards who has this great graph that shows the way most investors behave. It's this, imagine kind of a sine curve.

And he says what happens is when the market goes up, people get greedy and they rush in and buy. And then when the market goes down, they get fearful and so they sell. And then the sine curve continues and eventually at the end it says repeat until broke. And I think that's a good example of how our day-to-day emotions and being on that rollercoaster ride can actually be our enemy, and that's a good reason to attain some distance. How has researching and writing this book changed the way that you make decisions? I think the thing that has made the most difference in my life

is something we call in the book ooching, which is spelled O-O-C-H. This is a term that we got from a company called National Instruments. And it basically just means to run an experiment. So if you're considering a particular decision, rather than stew about it in your head, rather than agonize about it, can you just try something? And I think the classic example of this, and this is appropriate for this time of year with college graduates, you know, about to go on their way, is career choices. I mean, every year we get thousands of students enrolling in graduate schools of law and medicine, pharmacy, having never spent a day in a hospital or a law firm or a pharmacy. And that is just absolutely bonkers as a decision-making process. And yet, you know, I can testify I did it myself.

At one point in my life, I was signed up to go to law school. I had these kind of romantic ideas of what it would be like. You know, it was going to be just like L.A. Law or Ally McBeal, as far as I knew. And so that's a situation that cries out for an ooch, that cries out for a sample. So if you've got someone in your clan that, you know, is considering a graduate program, the best favor you can do for them is to encourage them to spend, you know, a week shadowing a lawyer or a month, you know, doing grunt work at a hospital or anything that will give them a more vivid picture

of what that profession is like because a hallmark of good decisions is that they happen when we start getting outside of our head and we start gathering real-world information. The book is Decisive, How to Make Better Choices in Life and Work. It is already an Amazon bestseller and by this time next week, I'm sure it'll be a New York Times bestseller.

Dan Heath, thanks so much for being here. Thank you. It's been a pleasure. That's going to do it for this week's show, but the conversation continues each day throughout the week on fool.com. If you have questions, if you have comments, if there are stocks you're wondering about, anything to do with investing, hey, drop us an email. Radio at fool.com is our email address 24-7. Just drop us an email, radio at fool.com. For more commentary throughout the week, check out our daily business news podcast, Market Foolery. It's our take on what's happening in the stock market each day throughout the week. That's MarketFoolery. It's rated number

one on iTunes among all business news podcasts. Check it out. And while you're there, you can get the Motley Fool's free app for your iPhone or your Android smartphone. That's the Motley Fool's free app. Go ahead and get it on iTunes today. That's going to do it for this edition of Motley Fool Money. Our engineer is Steve Broido. Our producer is Matt Greer. I'm Chris Hill. Thanks for listening. We'll see you next week.