Motley Fool Hidden Gems Investing - Motley Fool Money: 04.06.2012

Episode Date: April 2, 2012

On this week's Motley Fool Money Spring Break Special,  our analysts share three stocks for the next ten years.  Plus, we talk about the business of creativity with Jonah Lehrer, author of Imagine:  How Creativity Works. Learn more about your ad choices. Visit megaphone.fm/adchoices

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. 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 Mager. And from Million Dollar Portfolio, Charlie Travers and Ron Gross. Gentlemen, good to see you. Howdy.

Good to see you, Chris. This week, we've got bestselling author Jonah Lehrer to talk about his new book, Imagine How Creativity Works. Now, long-time listeners know we kick off the show each week by breaking down the business news of the week, but today, we're going to take a step back from our normal routine and get some insight on how you guys approach investing. Joe, I'm going to start with you. You're a working analyst. What is your process? I'm a working class, working analyst. You're a working analyst? Wow.

Seriously, when you're thinking about stocks, what process do you use? Give me an example of a company or two that fits into that. Sure. On a high level, I'm trying to buy companies that everyone else hates, or they think there's a lot of uncertainty around the stock. One of the first things I'll do in looking for new ideas, I'll flip on CNBC or look at magazine covers at the airport to see what's hot, and then I'll look in the complete opposite direction then. That's usually a pretty good idea for finding new ones. O' If you're not at the airport, the whole process falls apart.

It does. That's why I have to fly every week. Yeah, I'm typically looking for high-quality businesses at out-of-favor prices. That's the go-to move. But, ideally, I'm looking for some sort of catalyst on that. It's not just good enough to buy a stock, selling it at a discount to what I think is its fair value. I need something that's actually going to drive the stock to achieving that. O' Give me an example of a company that fits that. Sure. Right now, Berkshire Hathaway would be a good example. I think the underwriting cycle, insurance pricing is very soft right now, and I think that's going to get harder,

which equates to bigger value for Berkshire. I also think the share repurchase program that Buffett has put in is going to be really valuable and puts in a nice downside limit on the stock. Ron, what about you? As a value investor, my primary goal is to buy a company for less than I think it's actually worth. It can be all different types of companies. It can be a company that's firing on all cylinders, as I like to say, that's just really doing great things. Or it can be a company that's troubled. I like to look everywhere, but the primary thing is I want to buy it cheaply, as Joe said, for less than what I think it's worth.

O' Okay. And what do you got? So, if you want to go for a company that's doing wonderful things, Apple. Apple, we think, is undervalued, even at this current price of $600. O' I was going to say, it's definitely not a value stock. What is the thesis for that one? I haven't heard it. If you define a value stock as a stock that is trading for less than you think it's worth, then I would say Apple is a value stock. It's not what Joe would call a dirty value stock or what I would call a deep value stock. For that, I would look at maybe a company

such as Skechers, the shoe company, which is a small-cap company going through some trouble right now. That's dirty value. Right, exactly. But we think it's really undervalued here and that you'll be rewarded for taking the risk of investing in a company that is not doing that well at the moment. Charlie, what about you? What's your process, and are there particular industries that you focus on? Well, I know you're a basketball guy, so you're going to be familiar with the phrase, defense wins championships. Absolutely.

And three years into a bull market, those are the kind of companies I'm looking at right now. I'm looking to control my downside and my risk first and let the returns take care of themselves second. I'm not looking at growth companies at 40, 50 times earnings. I'm more looking at companies trading closer to their tangible book value, and they generate a lot of profits. One example would be MFC Industrial. The stock is trading at a 10% discount to Tangible Book, which is mostly cash. And interestingly, they're very cash flow positive, pay a nice 2.7% dividend, and have a chairman who's got a multi-decade track record of creating value for shareholders. So I don't see a lot of downside in that kind of situation, and the upside will be what it'll be, and I don't have to worry about what the market's doing. What do they do with that company?

Right now, they get a royalty interest off an iron ore mine out of Canada, and they have a merchant banking operation on top of that, where they kind of provide supplies for manufacturers. We're a quarter into 2012. Stock market is off to a good start so far. Just quickly, we'll go down the table. What's one question you have? It could be about an industry.

It could be about the market in general. Sort of a question that you have as an analyst, Joe. Yeah, I'm thinking about when interest rates are going to rise. because that's going to have a really big impact on a lot of companies that rely on borrowing. And it's also going to say a lot about what you should be buying today. So, some companies benefit from higher interest rates and some will get slammed. And it also affects how you think about stocks versus bonds. You know, interest rates go up. If you're a bondholder today, you're going to get a hit with that. I think that's kind of

a defining question for us over the next couple of years. Ron? I try not to focus too much on the macro economy, because I am a bottoms-up analyst. are important and the economy is really too hard to predict. However, I am keeping a very close eye on unemployment. We're at about 8.3% now. That number has got to come down. Otherwise, our economy will go off the rails and stock valuations won't be supported and we'll get a sell-off. So, we need to do better there. Charlie? I'm also a bottoms-up guy, but we are in a globally connected world and I spend a lot of

my time watching what's going on in Europe. They have a very narrow tightrope to walk on policy as to how they fix their sovereign debt and their banking issues. It's a balance of inherent growth that they need, along with some debt restructuring and fiscal responsibility to government level. And that's very hard to manage. And I'm just making sure that doesn't spiral out of control. You're listening to Motley Fool Money. We're here every week on radio stations across America and on iTunes. But for market commentary and analysis each day, check out Market Foolery, our daily podcast on iTunes. In the couple of minutes we have left, every week you guys give a stock that's on your radar, but because we're mixing it up, let's look out 10 years. Joe Mager,

what's a stock you're looking at for the next 10 years? Markel. It's a stock I own. We recommend it at Inside Value. Markel is like a mini Berkshire Hathaway. It's very conservatively run. It's a good underwriter. Let's say they do really well as insurance policy writers. And the guys who are investing the capital at Markel, namely Tom Gaynor, the CIO, great investor, great long-term thinker, high-insider ownership, love everything about the business, and I think it's going to do very well over the long haul. O' And the ticker? MKL. O' Ron Gross?

Not surprisingly for regular listeners of the show, I'm going to go with Costco, ticker symbol C-O-S-T. Fantastic management team, great cash flow generating model, plenty of growth left in its future, will probably be opening stores for the next 15 years or So, not dirt cheap at $90. I think it's worth about $100. You buy it at this price, I still think you get market-beating returns. Okay. Charlie Travers? Well, since Ron and Joe stole my top two ideas, I'm going to go with Boston Beer. They are slowly but surely eroding the market share of the large mega-brewers. Craft Beer

is a very strong segment, and they are the market leader. They are the largest brewer. They're the largest American brewer remaining. They do about two million barrels a year. Strong brand, great management, and I love the company. Are you a consumer of their product? I'm a little familiar with it, by what you know, right? A little familiar. Let's bring in our man, Steve Broido, from the other side of the glass. Steve, you've heard three stocks for the next 10 years, what do you like?

I think I like Markel. The concept of a giant holding company that holds all sorts of other businesses sounds very appealing. Joe Mager, Ron Gross, Charlie Travers, guys, thanks for being here. Thanks, Gross. Coming up next, bestselling author Jonah Lehrer on how creativity works and which companies are the best at innovation. Stay right here, you're listening to Motley Full Money. Welcome back to Motley Full Money. I'm Chris Hill. Daydreaming can be productive and brainstorming meetings are a waste of time. So says Jonah Lehrer, contributing editor at Wired,

New York Times bestselling author and author of the new book, Imagine How Creativity Works. Jonah, welcome. The rare in-studio guest here on Motley Full Money. Thanks for being here. Thanks so much for having me. You've written about the science behind decision making. what first and foremost what got you interested in the science of creativity you know the imagination just seems so mysterious i mean it's one of these defining traits of human nature what makes us so special we live in a world surrounded by our own inventions and yet when you ask someone where their good ideas come from they often have no idea we can't explain why we have the epiphany in the shower and so i was just drawn to the mystery of it drawn drawn to the fact that it

it is such a fundamental feature of human nature. We are connection machines, and yet we often don't understand how we connect things. And of course, it's an enormously important mental talent. I mean, you know, sustainable economic growth is all about new ideas. It's about new products, new things to sell, new things to buy. So understanding creativity and innovation isn't just a nice intellectual idea. It actually has real important practical benefits. So let's segue into some of the businesses that you write about in your book. And I'll start with Apple, because I think Apple is generally considered one of the most innovative, creative places. And a lot of times you hear about work environments that foster collaboration. But one

of the things in your book is that Steve Jobs, both at Apple and at Pixar, really sort of created this culture that was in some ways based on debate and criticism. How did they make that work? Was Steve Jobs, when someone asked him how one should respond to new ideas, he said with brutal honesty. And that was an ethos that I think he very much put into play at Pixar and at Apple. The idea that we are in the creative business. There is no room here for politeness. We have to be brutally honest. That's how you get to the good ideas.

You know, and I think his real genius was figuring out how to manage innovation, how to manage teams of creative people. And I tell the story, I got to spend some time at Pixar. In the late 1990s, when Steve Jobs was the head of Pixar, he took a very active role in designing their studios. And the original plan for the studios was to have three separate buildings, one building for the computer scientists, one building for the animators, one building for the writers, directors, editors, everyone else. Jobs realized it's a terrible idea,

that the success of Pixar would depend on human friction, would depend upon all that mixing, all that interaction from computer scientists learning from animators and vice versa. And so what he did was he decided there'd be only one building that'd keep the shell of this old Del Monte canning factory. And at the center of this building would be this big loft-like atrium. And he started putting everything important in the atrium, the mailboxes, the gift store, the cafeteria, the coffee shop,

everything you could think of was going to be in the atrium. But he realized even that wasn't enough, that if you built this beautiful cafeteria, that computer scientists would still just have lunch with computer scientists. So instead, he decided that there'd be only two bathrooms in the entire Pixar Studios and that these bathrooms would be in the atrium. Because if there's one place everyone has to go all the time, it's the bathroom. And at first, I think this was really annoying and frustrating for the employees, right? Sure.

Because you've got to walk across this vast cavernous studio to pee. But now so many people at Pixar have their bathroom epiphany stories. They talk about the great idea that occurred to them while washing their hands, and they struck up a conversation with a stranger, a colleague in a completely different field. And it is that constant interaction, that constant mixing, that I think Jobs really was interested in. One of the other companies you write about, you really kick off the book with Procter & Gamble coming up with the Swiffer. It's a little odd for me to wrap my head around Procter & Gamble being a creative force, especially since we were just talking about Apple. I think P&G is an innovation powerhouse.

I mean, fluoride toothpaste, quilted paper towels, soft toilet paper, the Swiffer. I mean, you go down the list. I mean, diapers. I mean, they have pioneered one really, I think, innovative consumer product after another. And at the time the story I'm writing about takes place, early 1990s, P&G had more PhDs on staff than any other company in the world. So P&G really was this factory of innovation.

And the story I write about was how P&G was trying to come up with a new line of soaps for their mops. And they gave it to a team of 30 chemists, and the chemists struggled for years to come up with a new line of soaps, and they just couldn't because you make soaps stronger, But then they're too strong. They peel the varnish off wood floors. They irritate delicate skin.

And so after a couple years of failure, the executives at P&G decide to outsource this problem. They say, OK, our chemists are getting nowhere. Let's just hand it off to a design firm. So the design firm knows they can't, you know, they're not going to know more about chemistry than this team of chemists. So they decide to just spend nine months making house visits, watching people mop their floors. And what this design firm is called Continuum. Yeah, I've seen some of these videos, and I can assure you they're even more tedious than you think they are because it's literally just hours of people mopping their floors. And then you watch them in their narrow, small bathtub splashing around dirty water, and it's really, really boring stuff.

But they spent nine months doing this, and what they discovered is that mopping is a terrible idea, that mopping is a horrible technology, that people spend more than two-thirds of their time mopping, cleaning their cleaning tool, cleaning the actual mop, not even the floor. And that's because over the decades, companies like P&G had come up with all sorts of ways to make mops really good at getting dirt off the floor. This makes it very tough to get the dirt out of the mop head. And so people splash around this dirty water and then they never get the mop clean. So they end up just putting the dirty water back on the floor. It's a total waste of time. And what fascinates me about that story is, you know, I've mopped many floors in my life. And I always kind of had this sense that, God, this is kind of a crappy thing.

There's got to be a better way. It's not fun. There's got to be a better way. But it never occurred to me that there actually might be a better way. It never occurred to me that here's this frustrating chore we all do all the time that one could completely reinvent it. And that's what I admire about the guys at Continuum. They looked at this everyday failure and they said, well, there's got to be a better way.

And then one day, on one of their last house visits, they spilled some coffee on the floor of an elderly lady. And although she said that she always used her vacuum and her mop, But that's not how she picked up this mess of coffee and said she tore a paper towel, wet the paper towel, ran it along the floor, and voila, the coffee was gone. And simply watching that act, an act we've all done thousands of times ourselves, but simply watching someone else do that, that set off a light bulb, and that's where the Swiffer came from. And, of course, the Swiffer's a marvelous product for P&G because you get to charge $10 for what's basically 10 paper towels. You're listening to Motley Fool Money, talking with Jonah Lehrer. His new book is Imagine How Creativity Works.

What surprised you the most when you were working on the book? You know, I think one of the most interesting things that I found came from a conversation with Jeffrey West, who's a theoretical physicist at the Santa Fe Institute. And he's best known for his studies on cities. He data-mines cities, so he collects vast tracts of data from the Patent Office, the Census Bureau, from governments all across the world. And what he's found is that cities are this very amazing phenomenon where as cities get bigger, everyone in that city becomes more productive. They invent more patents per capita, more trademarks per capita.

By every metric of productivity, when you move to a big city, you simply invent more. You make more money on and on down the line. So he's demonstrated that over the previous decade. And, you know, it's a very robust phenomenon. The equations look very, very good. and this is I think it helps explain why urbanization

is the great theme of 21st century life why people keep on moving to cities why cities keep on getting bigger but he also has this very very

provocative question which is that from a certain perspective cities and companies look really similar right? They're both big clusters of people

in a fixed physical space but cities and companies exhibit this one very jarring difference which is that cities never die cities are indestructible you can nuke a city

it comes back you flood a city it comes back terrible earthquake, we still got San Francisco. Companies, on the other hand, are incredibly fragile and fleeting. They die all the time. The average lifespan of a Fortune 100 company is 45 years. 25% of Fortune 500 firms die every decade. So companies come and go. So he's saying, what's the difference? Why do cities live forever and why are companies so ephemeral? And what he's found, and this is again by data mining, so he just takes

these huge, huge resources of data and just analyzes it on his mainframe computer. What he's found is that as cities get bigger, everyone in that city becomes more productive. Companies exhibit the opposite trend. As companies get bigger, every employee becomes less productive. They bring in less profit per capita. They invent fewer patents per capita, fewer trademarks. And in the end, this is why companies die, because they've got bigger and bigger fixed costs. Because Wall Street's always saying, grow the bottom line, get bigger.

There's this endless pressure to expand. And yet as they expand, they become less productive at the per capita level. So over the long run, this drop-off in innovation especially makes them become more reliant on their old ideas. They've got to engage in expensive acquisitions to get some good new ideas inside them. And this makes them very vulnerable because eventually those old ideas aren't going to work anymore. And that's when they go belly up. Now, West argues that the reason this distinction exists, the reason cities become more productive with size and companies become less productive, is because companies get in the way of our natural creativity.

When you think about a city, it's totally freewheeling. We just bump into people. No one tells us where to go or who to talk to or what to work on. We pick our own routes. We strike up random chats. There's lots of just random human jostling, lots of human friction. And that's a good thing. That creates all sorts of knowledge spillovers.

It's like the Pixar bathroom. Companies, on the other hand, always try to micromanage the innovation process. They tell you who to talk to, which problems to work on. they tell you to brainstorm. That's a terrible idea. They silo knowledge. They erect these hierarchies. And all these rules, this attempt to micromanage this process, that holds us back. Coming up, more with Jonah Lehrer, including why daydreaming is better than brainstorming. Stay right here. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill, talking with Jonah Lehrer,

author of the new book, Imagine How Creativity Works. Why are brainstorming meetings such a waste of time? Because I know that on the rare occasion that I'm invited to a brainstorming meeting, I just sort of shrug and think, okay, I'll do this, but I'm not excited about it. So, I was thrilled to discover this. You've got empirical proof now. Yeah. Basically, I'm going to walk around wielding your book like, no, no, Jonah says we shouldn't have this meeting. Well, so brainstorming was invented by Alex Osborne, a marketing executive, kind of the Don Draper of his day in the late 1940s. And in a series of bestselling business books, he talks about brainstorming. And there are two simple

rules to brainstorming. The first rule is thou shall not criticize. Whatever you do, don't criticize someone else's ideas in a brainstorming meeting. That's because the imagination is very meek and shy. And if it's worried about being criticized, it'll just clam up and go quiet. So don't criticize. Second rule is it's all about quantity, not quality. That can come later. Now, this is a feel-good productivity technique, right, because we can all come into a room, free associate, we fill the whiteboard with our ideas, we leave the room, no one's had their feelings hurt, there's been no criticism, we all contributed. Great for employee morale. The only problem with brainstorming is that it doesn't work, and we've known this for 50 years. Study after study has found that when people engage in brainstorming, they come up with fewer ideas than when they work on the problem by themselves.

So brainstorming actually turns us into less than the sum of our parts. It holds us back. Now, the reason brainstorming doesn't work, I think, gets us back to the first rule, the very first rule, which is thou shall not criticize. Studies by Sharla Namath have shown that constructive criticism, which she calls debate and dissent, they're actually very productive. They unleash the imagination. And when people are in a meeting where there is some debate, there is some dissent, they're more engaged. They dig a little bit deeper. When there is no criticism, we kind of skim along the superficial surface of the imagination.

And our free associations are very predictable and very banal. But when there is some criticism, when you try to build on each other's ideas, we really listen to the ideas of others. And that's when something interesting happens. We've got some skin in the game. We're just more invested, more involved. We're more likely to be surprised. And all those attributes are a key part of a successful creative collaboration.

So it's not that groups aren't effective. I think there's evidence that if anything, creative collaboration, creative teamwork is becoming more important than ever simply because our problems are getting harder and they often exceed the capabilities of the individual imagination. But I also think we need to learn how to work together effectively, that these old methods, which may make us feel good, don't actually work, that creativity requires some tradeoffs. It requires us to make long trips to the bathroom.

It requires us to live in cities which are crowded and noisy and smelly and the schools are bad. It requires us to sometimes get our feelings hurt too. Why do you think daydreaming is a productive exercise when it comes to creativity, unleashing creativity? So these are studies done by Jonathan School at UCSB. He's done a lot of them. And what he's found is that people who daydream more and also notice when they start to daydream. So that's the crucial second part of it.

They don't just kind of lapse into the, you know, fall down the rabbit hole of their own mind. They also realize when they're in the rabbit hole that they score much higher on tests of creativity. They're a much better divergent thinking. And that's because daydreaming turns out to be a very productive mental task. The brain is consuming lots of energy while daydreaming. We spend up to half our life in the midst of our daydream. We're always trying to make connections, to mash up distantly related ideas, and that's what we do when we daydream.

We leave the immediate reality behind. We leave this right here behind. and we start to explore all these associations, these hidden associations inside our head. We think about counterfactuals and these are all very rich techniques for coming up with new ideas. Now, I think one of the problems we have now is that it's tougher than ever to really engage in a productive daydream. You know, I know in my own life, as soon as I get a little bit bored, as soon as I might start to daydream, I get out of my phone and just check my email, you know, check Twitter, do all those things we all do a million times a day. So we're constantly interrupting our daydreams, getting in the way of this very productive mode of thought.

You know, we also tell second graders, one of the first lessons you learn in school, stop daydreaming, focus, focus, focus. But I think we have to, you know, reevaluate where exactly our good ideas come from because a lot of the time they're going to come from that seemingly random daydream when you're just staring out the window absentmindedly. You know, and so one thing I've tried to do since writing the book is get better at taking a walk and leaving my phone behind. I also don't think it's an accident that people have so many anecdotes about having their best ideas in the shower. Because you think about it, the shower is a very relaxing mode. So that's good for certain kinds of creativity. It's also the one place we can't take our phone. So until Apple comes out with a waterproof iPhone, I think people will continue to believe.

I'm sure they're working on it right now. I'm sure they're working on it. It's a competitive advantage, so no one else can come up with other good products. Exactly. But but until there is this waterproof gadget, I think the shower will continue to become, you know, you only become more and more, you know, part of our creative process simply because we are forced to daydream there. Do you think social media has a negative effect on creativity? I'm not sure it's negative. You know, in fact, I'm pretty sure it's not negative. You know, I don't think like Google's making a stupid and Twitter's the apocalypse and Facebook is ruining human friendship.

I'm definitely not in that camp, but I'm also not in the camp that thinks this is, you know, we've got these online tools, these social media tools, and they're a replacement somehow for the analog interactions of real life. You know, you go back 10 years ago and people are talking about the death of geography. All these futurists are saying cities are going to be obsolete, right, because we can all just telecommute from the excerpts, use email and Skype and video chats, and who needs actual human interaction? We can just do it on our screens. Well, it turns out we still need human interactions. Despite all these wonderful tools, email and Skype, they're really, really great. We still need to meet in the flesh, and that's why people continue to move to cities. It's why since the invention of Skype, it's a fact already told to me by an economist at Harvard,

since the invention of Skype, attendance in business conferences has doubled. Wow. Yeah. We don't actually have to go to the conference. We don't have to put up with airport security or airport delays or crappy hotels. We could just do it remotely. And yet we do it more than ever simply because I think we have this sense that there still is some value in face-to-face interaction and the serendipity of simply too many people in too small a space. So on the one hand, I don't think social media, it's not a net negative.

I think I've had little moments of serendipity on Twitter and Facebook where you're exposed to an idea you can't imagine running into anywhere else. And that's a good thing. They certainly are a waste of time and attention too sometimes. But I also don't think that they're a substitute, that they're a placement for real life, that we'll still need, at least for the foreseeable future, we'll still need cities and business meetings and we'll still need to see people in the flesh. You're listening to Motley Fool Money, talking with Jonah Lehrer about his new book, Imagine How Creativity Works. what are a couple of things that anyone can do to unleash their own creative side because there are a lot of people in the world there are a lot of people in this office who will just if you ask them they'll just say well i'm not a creative type yeah i'm not creative at all

you know the first thing i think is to realize that that we are all creative you know creativity like any other human talent it's a bell curve it's a distribution some people are going to have a little bit more of it than others. But creativity is embedded very deep in our brain. It's an essential part of our programming code. We really are connection machines. We just can't help it. So the first thing to do is to dispel that method.

Somehow there are creative types, and then there's the rest of us who are just doomed to repeat the work of others. You know, the best way for me to answer that question is to talk about how this work has influenced my own kind of work habits, you know, how research and creativity has changed the way I sit down and work every day.

The first thing it's done is, you know, I consider myself to be kind of a shy person, but now I really make an effort to strike up conversations with random strangers. And the study that in particular inspired this, you know, is all the work on cities and the benefits of random interactions and talking to strangers

while washing your hands in the bathroom. But this is a really cool study done by Martin Raff. He's a sociologist now at Princeton where he tracked 766 entrepreneurs, graduates of Sanford Business School, and then wanted to understand how their social network influenced their innovation, so how innovative their companies were. And he looked at a bunch of metrics. He looked at the number of patents, the number of trademarks,

how much money they were making from those patents, and so on. And what he found is that entrepreneurs with what he called entropic social networks, so very diverse, full of surprising connections. So if they were a computer programmer, These were guys who also hung out with molecular biologists, also hung out with people in the movie industry and the music industry. Yeah, just all sorts of unexpected connections that their companies were three times more innovative than people with predictable social networks. So this to me is yet another reminder that when in doubt, ask a question. Don't be afraid to make small talk with the guy sitting next to you on the plane or the train or the subway, that we have so much to learn from each other.

And to seek out people who especially know different things than us, who come from different places, come from different backgrounds, speak in different languages, use different acronyms. Those are the people who are going to tell you something interesting. That's one way I've tried to incorporate this research into my own life. The second way, and this comes from the first part of the book where I talk about moments of insight and epiphanies and why they tend to happen in warm showers and surprising places, is that before when I was really stuck on a problem, just totally stumped, didn't know how to structure a chapter or an article, just didn't know how to finish or start a sentence, I would just, you know, chug caffeine.

I'd just chain myself to my desk and try to power through it. The tried and true method. Yeah. And then, of course, you wake up the next day and you're like, that was a waste of time. That didn't fix anything. I'm back to where I began. I'm just now hung over on caffeine.

So, you know, now I try to use this research, And what I do when I feel stuck is I take a break. I go for a long walk. I take a shower. I play some ping pong. I find some way to relax myself. And I often think about this great Einstein line that creativity is the residue of wasted time. So I guess one way this book has made me more productive is I've gotten a lot better at wasting time.

Coming up, we'll talk about the genius behind the magic of Penn and Teller. And we'll play a round of buy, sell, or hold. Stay right here. This is Motley Fool Money. Welcome back to Motley Fool Money. Chris Hill talking with Jonah Lehrer, author of the new book, Imagine How Creativity Works. Before we wrap up with a round of buy, sell, or hold, I want to go back to something you and I were talking about during the break, which was this article in the March issue of Smithsonian Magazine. You had put it out on Twitter. That's

how I came across it. It was something of an epiphany for me. It was about Teller, the magician, half of the Penn and Teller team, who, on the times that I've seen Penn and Teller, really enjoyed them, but never really thought of either one of them beyond their magic. You were telling me Teller is actually really into neuroscience. Yeah. Teller is this wonderful intellectual, just the smartest guy. I mean, he never talks on stage. I was going to say, he's the one who never talks on tape. He's the one who never talks.

Yeah, yeah. He's the short, mute one. But he is astonishingly eloquent about so many subjects. And I had the pleasure of profiling him a few years ago and talking to him about neuroscience. And he really sees magicians as these intuitive psychologists, as these people who understand how the mind works because they have to deceive the mind every single night. And there's really no margin for error. I mean, a mediocre magic trick isn't magic at all. It either completely works, we're all fooled, or it's really embarrassing.

So it's a very fine line. And so they really have to understand all the weak spots in perception, all those blind spots in the visual cortex. They know how to distract us perfectly. So they really understand human nature. And Teller is very eloquent talking about this. So in recent years, I think he has tried to make this intuitive understanding that magicians have about how the mind works a little bit more explicit.

So he's actually teamed up with some neuroscientists to study how exactly magicians, you know, throw wrenches into our perceptual systems. And they've done some interesting experiments. I actually end the book by talking about a great magic trick, which is, you know, really one of the things that made Penn and Teller famous, which is the old cups and ball routine, which, you know, is used by conjurers for centuries and centuries where you have a couple balls in these different cups and you move around the balls. and the audience has no idea where the ball ends up and you're constantly moving it back and forth between the cups and it's very, very confusing. Well, one day Teller was in this cafeteria, this diner, this highway diner.

At this point, Penn and Teller were still working the Renaissance Faire circuit, so not the most glamorous time. And he wanted to practice this trick to get a little bit better at it, but they were in this diner, and so all he had was crumpled up napkins and clear water glasses. But he decides, you know, I can still practice it here. So what he does is with these clear cups and these crumpled up napkins, he starts practicing cups and balls, this ancient trick.

But these cups are clear, so you can actually see the crumpled up napkins the entire time. So at first you'd think like, oh my God, this is going to destroy the magic, right? Now I'll be able to see where the balls are at every possible moment. You're showing me the trick. But the magic of the trick is that even when you know how it's done, because he's showing you how it's done, the cups are clear, you still can't figure it out. the magic is still there that tell in particular is such a master slight of hand magician that you still can't figure out how it's done and for me that's a great metaphor for you know understanding

the science of creativity that even when we break open the black box and and we can understand how the brain produces aha moments um you know all the rest that that it's a bit like performing that trick with clear plastic glasses that even when you can see and we're beginning to see how it's done the magic remains there's still this inherent wonder this this this majesty to coming up with new ideas all right let's wrap up with a round of buy sell or hold some people say this is a big determinant of behavior in children buy sell or hold the importance of birth order hold i mean you know here's one of those things that like sibling order seems seems so important it plays such a big role in how we think about our own lives and personalities. And yet the science is

really shaky. I think people have been looking at this for years and there's very little, I think, solid evidence that birth order plays a really big role in temperament and personality. There's so much other noise dictating who we are and what we become that it's tough to really come up with reliable correlations for firstborns are like this, secondborn sons are like this, and so on. That's going to be disappointing when I break that to my mom because she's a big, big believer in the birth order thing. We love telling these stories. And it really does contradict so many, you know, my own intuitions about what it means to be second born and so on. But, you know, the data is messy. He's been the star of the NBA this year,

buy, sell, or hold? Jeremy Lin. Buy. And here's why. I think what Jeremy Lin really teaches us is that we are really bad at evaluating talent. Really bad or just kind of bad? Pretty bad, pretty bad. Okay. You know, my favorite example of just how bad we are at evaluating talent comes from the NFL Combine, which NFL Combine is this, you know, it's like this two-day festival of tests, right? Right, all these physical tests. 40-yard dash, vertical leap, you know, bench press.

They give you short versions of the IQ test, all these personality tests. The assumption being that, like, they're going to see what you're made of. They're going to see just what you're capable of. We can measure everything. We can measure everything, and that's going to help us predict what you're going to do when it counts in the pros. Last year, two economists at the University of Utah looked at all these tests at the Combine, tried to see if they correlate with performance in the NFL, and what they found is that they were all worthless.

The NFL Combine was a total waste of time. The sole exception, the 40-yard dash for running backs. Every other test at every other position was a waste of time. So, you know, if I were an NFL owner, that would keep me up at night. That single study would give me nightmares, simply because you are forced to make huge, risky bets. on these players entering the draft, and yet the evidence suggests that it's really tough to figure out who to pick, and that all the tests we currently use, these tests that led so many

NBA teams to say, oh, Jeremy Lin, he came from Harvard, not quick enough, not enough athletic talent there, that all these tests that led team after team to pass him over, that they're really leading us astray. And finally, since you're a best-selling non-fiction author, buy, sell, hold imagine how creativity works the movie bye bye bye i mean that's that's that's the easiest one now who's who's playing joan alera in the movie oh well i'm not a character see that's that's the beauty of it i think you i think you kind of have to be you know this i i can't think of a book which is less cinematic than my own i mean you know i enjoy telling the stories and hopefully they're not too dry but just just you know for me it's about uh connecting the

science lab, which is not the most cinematic of environments to the real world. So by all means, go ahead and pay me a bloody fortune for the screen rights to my book, but good luck turning into a script. For what it's worth, I pulled a couple of women in the office. I got names like Christian Bale and Jude Law to play you. Flattery gets you everywhere. The book is Imagine How Creativity Works. It is already an Amazon bestseller. Go out, pick it up. John Allaire, Thanks so much for being here. Thanks so much for having me. You can always drop us an email.

Radioatfool.com is the email address to get us at. That's radioatfool.com. Got an email from Willie in Vienna, Virginia. Just wanted to throw out an idea. Have you ever considered doing a show live on location? Just like sports talk radio stations do a pregame show from a local bar, I think you guys could get some great publicity from doing a live show maybe after an EU summit or Ben Bernanke announcement.

Instant analysis and interactions with some or maybe just one of your dozens of listeners would be memorable. Steve Broido, what do you think? I think it sounds like a great idea. I love going on the road. Do we have the budget to go to an EU summit? To my knowledge, we have no budget, but I would be happy to pay my own way. It sounds delightful.

Let's start with a local bar and go from there. All right, that's 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.