Motley Fool Hidden Gems Investing - Motley Fool Money: 06.20.2014

Episode Date: June 20, 2014

The Fed continues tapering. Amazon introduces a smartphone. And FedEx hits a new high.  Our analysts discuss those stories and share three stocks on their radar.  Plus, Jordan Ellenberg shares some insights from his book, How Not to Be Wrong: The Power of Mathematical Thinking. 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. It's the Motley Fool Money Radio Show. I'm Chris Hill. Joining me in studio this week from Motley Fool One, Jason Moser. From Motley Fool Supernova, Matt Argersinger. And from Motley Fool Pro and Options, Jeff Fisher. Good to see you, gents. We will break down the latest on tech stocks, bellwether stocks, and more. We will dig into the power of thinking mathematically with best-selling author Jordan Ellenberg.

And as always, we'll give you an inside look at the stocks on our radar. But we begin this week with the big macro. Fed Chief Janet Yellen announced this week what was widely expected, Maddie, another $10 billion taper in the Fed's bond-buying program. Once again, the sky did not fall. Right. And we talked about this earlier in the week. The thing that gets me about the Fed now is exactly what you said, widely expected. Everything about the Fed now is so telegraphed.

Everyone knows what's coming. And I feel like the Fed is missing a little bit of its independence. I mean, since basically the end of Greenspan, Bernanke, now Yellen, we've had this very scripted Fed. And everything is telegraphed well in advance. No surprises, nothing out of left field. And I just feel like, in a way, they lay the carpet for the market for Wall Street every single time now. And I wonder when the Fed recaptures independence and actually surprise us. Yeah, and it probably won't happen anytime soon because they're now down to $35 billion a month in stimulus.

And at the rate the taper is going, of course, it doesn't take a genius to figure out by the end of this year, September, October, it may be done. The bigger question is when will they finally raise interest rates? And that's not expected until maybe the end of 2015, maybe later. And that's when things may really start to change. Yeah, I think Jeff Keaton on something there is just, I think that's probably the most important takeaway for us, at least in the investing world, is that rates are going to stay low for some time to come, which means really, again, the market is still the place to be for returns. So while we've witnessed this tremendous bull run here, the market

just keeps on chugging up, I don't see any reason for it to stop. And so, you know, I mean, if folks out there who sold in May and went away have got to be feeling pretty bad about things right now. And I think this serves as a great example as to why it's a neat little rhyme, and we love to say it every May, but it's certainly not advice that really makes any sense in the long run. Now, back to the Fed, I mean, there have been, if you look at some of the inflation numbers, they have been a little bit higher on some of the year-over-year numbers now. So, you know, again, back to Jeff's point, it's just, that's going to be the next big question, when do those rates come up? And if the inflation numbers continue the way they're going,

that actually might happen sooner than later. That would be your surprise. That would be a surprise. Well, if the Fed's $10 billion taper was the worst-kept secret in the business world, the second worst-kept secret was the unveiling of Amazon's new smartphone. The Fire Phone can be yours for just $199. It comes with a one-year subscription to Amazon's Prime service. Jason, the 3D interface is getting a lot of buzz, but is this device going to sell in an increasingly competitive mobile phone market?

I would say I am initially skeptical that it will gain a lot of traction. I think there were a couple of big surprises from this announcement. I mean, number one, you said the most important word right there, prime. I mean, the pot of gold at the end of the rainbow for Amazon is prime members. And so they're going to figure out, they're going to try to pull every lever they can to grow that membership base. So this phone, the surprising things about this phone, number one, it actually is a very quality device. It looks like a really good device. Looks like an iPhone.

I'm a little bit surprised by that, honestly. But the second surprise is the pricing. I just don't think it's a price point that makes it a must-get for many out there. Now, it's worth noting, I think there are probably all of the bells and whistles on there. The Firefly, the Perspective. I think that there's a learning curve with this phone that might scare some people away initially. It's probably more attractive for someone who's just jumping in to buy their first smartphone. I think they're going to have a very hard time convincing someone who's already established with their phone behavior, so to speak, to switch. But with that said, it's a nice device. It's a small bet.

This phone could totally flop. It won't matter because Amazon's core business is e-commerce, and that continues to perform very well. Yeah, Jeff, the Firefly feature that Jason mentioned, for those who don't know, this is a feature that recognizes photos you take with the phone and can provide information about the photograph you've just taken. And because it's Amazon, if you've taken a photo of a shirt or a movie or whatever, one of the bits of information you get is, hey, do you want to buy this thing? One click and you're off to Amazon's website to buy it. Exactly. They should really call Firefly Fire Wallet because it's going to burn through your money. And that's really what this phone is about.

It's for Amazon right now anyway. It's a stake in the ground in the mobile phone arena. But I don't think they expect to take on Apple and Samsung anytime soon. Those two just dominate the whole smartphone market, and to really make headway into there will be very difficult. But if they get enough loyal Amazon users to use this thing, who then buy even more on it, and then over the years get more and more smartphone buyers, it's all a way to sell more through Amazon, really. Jason, the event was held at 2 o'clock Eastern time. From the time the event started to the close of the trading day, Amazon shares up 2.5%.

So, in the very short term, the market seemed pretty bullish on this move. Where is Amazon stock right now when you look at it on a valuation basis? Jeff Bezos is kind of the new Steve Jobs, right? I mean, he's sort of taken over that role of offering up these neat events. I think that when you look at Amazon stock today, I mean, you hear people argue about it being expensive. I'm not going to sit here and say it's cheap, but I think you need to understand its business model first and foremost before you start calling it expensive, because it's actually pretty reasonable.

I mean, it sells at somewhere in the neighborhood of 32 times operating cash flow, and it makes a lot of money. The thing is, the reason why Wall Street is giving Amazon a pass is because we know how Bezos is running this business. He doesn't care about net income earnings per share. That's not how he runs his business. And so, you may not agree with that, and that's fine. Don't buy the stock.

he's running this business on a cash flow basis, and he's one of the biggest long-term thinkers out there today. And so, if you look at that, take it for what it's worth, and understand that if you want to own Amazon shares, you're going to hold on to them essentially indefinitely. Today, I think the stock actually still looks very attractive, considering e-commerce is just in the very beginning stages. Shares of FedEx hitting an all-time high this week, after fourth quarter profits more than doubled from a year ago. Matty, third quarter, they were dealing with the bad weather, but they have bounced back nicely.

Very nicely. This was the test. I mean, we know what happened with the winter and how bad it was for companies like FedEx. So this was the test. How good is the U.S. economy, for one? And FedEx is a great bellwether for that. And the fact that they came out and had a strong quarter,

beat on revenue, beat on earnings, that tells you that the economy is pretty strong. And we were just talking about e-commerce with Amazon. FedEx's ground shipping volumes were up 8%. And that's, I think, a testament to the power of e-commerce. This is where a lot of the goods are transacted and shipped through ground shipping. One interesting thing out of the quarter for FedEx is that they're talking about the idea of starting to charge more for the size of packages. And if you think about it, a lot of people buying stuff online, they often come, they're light, but they come in these bulky packages.

And that takes up space in the FedEx truck. And FedEx is starting to see if they can price for that. So moving to a price per size versus, or volume, I should say, versus weight, which is going to be an interesting move. Kroger is the biggest grocery chain in America, and Kroger's stock hit an all-time high this week after first quarter profits came in higher than expected. Jason, that Harris Teeter acquisition seems to already be paying dividends for them. Kroger was upgraded to neutral. I mean, if that's not a buy signal, I don't know what is.

But it's interesting to look at Kroger and compare it to something like Whole Foods. You're right. I think the acquisition of Harris Teeter was a smart one. Kroger is already a big player in an industry where scale matters a lot. They did note where food cost inflation was playing out on their consumers' choices a little bit, so they're seeing more of the sort of trading down on the meat side of things, more chicken and pork, for example, along with more store-bought brands. The nice thing about Kroger is that they don't have to make this transition to a value offering.

They've always been a value offering. That's how they've been running that grocery store forever, really. We saw the other side of the coin there last month with Whole Foods earnings. They're making this transition to becoming more of a value proposition for shoppers. And it's obviously playing out on Whole Foods stock today. I think they still have plenty of runway to go as far as growing the store base. But when you look at Kroger, I mean, Kroger trades at 17 times earnings. Whole Foods is at like 28.

And that's after just getting shellacked last earnings season. And Kroger, there's no secrets here. You know what you're getting, and it's a business that's run on razor-thin margins. When I see something like that, I would much rather invest in something like a Costco, which runs on those same razor-thin margins, but has a wonderful membership model that just brings in a lot of cash up front. Yeah, and Whole Foods is, as Jason said, it's really in the doghouse, and that showed up Friday morning, and shares got clocked just because Kroger, I presume, had decent results.

But Whole Foods is growing same-store sales and expects to at a higher rate than Kroger does. Whole Foods expects 5% or higher same-store sales growth. Kroger was around 4.5%. So when you want to buy a company is when it's in the doghouse. And with Whole Foods, if you have a long time horizon, they have much more room to grow their store count. Co-CEO John Mackey, I'm obliged to say, is a member of our board of directors here at The Motley Fool. All right, guys, thanks. coming up. The latest move by one visionary CEO has investors asking if he's a genius

or just plain crazy. Stay right here. You're listening to Motley Fool Money. As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. Welcome back to Motley Fool Money. Chris Hill here in studio with Jason Moser, Matt Argersinger, and Jeff Fisher. Shares of tech giant Oracle falling on Friday after fourth quarter profits fell more than 4% due to higher expenses. Jeff, last week we were talking about how great Intel's business was looking. That's sort of a tech bellwether.

Do we need to rethink that in the wake of Oracle's results? So one thing that's happening at Oracle is they're going from their old-fashioned license business model where they sell you software on a license that then grants you the software for years at a time. And the customer pays all that up front, and Oracle books it as revenue. They're moving to now a subscription-based model for all of their cloud services. So that, naturally, you pay a small amount up front, and then you pay each year. Or, more appropriately said, Oracle only recognizes the revenue on a quarterly and then annually basis, not all up front. So that's going to ding revenue as this subscription business grows.

But I think overall, Oracle is in a great spot, and they're going to become the largest cloud provider in the world, in my opinion. And they're doing everything right. They're maintaining high margins. The stock is inexpensive at 12 times more or less free cash flow. So we are an owner in Motley Fool Pro, and the stock is up 20% the past year, and we're going to keep owning it. So do you look at this dip as a buying opportunity? If I didn't own shares, I certainly would. Tesla Motors CEO Elon Musk made headlines this week after he announced he was opening the company's entire patent portfolio to anyone who asks for it.

What is he doing, Matt? It is absolutely crazy, Chris. No, but that's what makes Elon Musk great. I mean, this is a crazy move. Most technology companies, and Tesla is absolutely a technology company, would look at this and say, wow, you've essentially just destroyed any competitive advantage you might have had with your patents. But actually, it's not the case. I mean, this could turn out to be a very, very good move for Tesla. If you think about it, Tesla is in the process of building this gigafactory.

Here's just one example. And they're going to be producing batteries, car batteries, on a massive scale in the next few years. Well, if everyone starts using their patents and starts building electric cars that utilize Tesla as the standard for battery power, all of a sudden, Tesla turns into not only a really huge seller of electric vehicles in a few years, It also turns into the world's largest seller of batteries, potentially. So that's a huge potential business. There's also the idea that by standardizing, if we can standardize on the supercharger network across the country, that makes it easier for people to own electric cars and people to buy Model S,

which is a highly rated luxury sedan in the market. So a lot of reasons why this is a great move, very long-term. Short-term, it looks a little crazy, but that is what we come to expect from Elon Musk. Yeah, Matty, I was trying to see if there was an analogy with Microsoft back in the day when they put their operating system on every computer, basically, and how they took over the market that way. Can you draw any parallels there? Well, I think so. I mean, it's all about becoming the standard, the industry standard, right? And if Tesla looks at that as like, well, we can release that, we can essentially become every person's way to build electric cars using Tesla, that just helps their brand and helps their products down the road for sure.

And I did appreciate, and I believe it's sincere, Musk's comment that electric vehicles were just not taking off quickly enough. They want to do everything they can to make the industry much, much larger, even beyond Tesla. Right, and so there's a little bit of a sort of making the world better aspect to this, too, which I think is a reason also to be excited about Tesla. There's no concern that some rival automaker just says, thanks for the information. We're going to start cranking out our own version of the model. Well, I don't think it's going to be GM. I'm going to venture against and say GM's going to probably take a pass on this one. Yeah, GM's got some other issues they have to deal with.

They're looking into that. the sports world and even beyond the sports world around the world people are focused on the world cup but is it too early to talk college football i hope not because for the past few years the post-season bowl game in st petersburg florida had been sponsored by the beefo brady's restaurant chain that sponsorship has ended but the bowl committee has a new title sponsor bit pay a Bitcoin payments processor based in Atlanta. So for the next three years, we can look forward to, I swear this is the name, the Bitcoin St. Petersburg Bowl.

Now can we call a market top? Will the bowl outlast the Bitcoin? That's a great question, because I think that if you assume that this, if BitPay is paying roughly what Bifo Brady's was paying for their sponsorship, somewhere in the neighborhood of $400 million, $500 million a year. I don't know how much money they're making in their own business to warrant that. What's the over and under here? Two years for the sponsorship? I mean, they're not going to make it through the full three.

So, what scares me from a serious point of view here, I've had a couple of people hit me up on Twitter asking about this. And I think you just need to remember that Bitcoin, this is not an investment. Don't treat it like an investment. And if you don't understand it, just avoid it. I mean, it's a headline. We'll tune in for the bowl game, though. I was just checking the price right now. I haven't looked for months. Bitcoin is around $5.97 right now. That's a steal. All right, let's bring in our man Steve Broido from the other side of the glass, because it is time for the stocks on our radar.

Jeff Fisher, you're up first. What do you got? Well, I know it's kind of cheating, but Oracle. I think the stock is of value at around 12 times free cash flow, as I said. And I'd love to buy a business that is changing its business model in even small ways or big ways like this in such a way that it makes the future look brighter than right now, even as they're doing well right now. And the ticker? O-R-C-L. Steve? Maybe a silly question, but what does Oracle do? They sell software to enterprises that can do everything, mainly database, but everything from manage your HR to manage your processing.

but it's mainly a database enterprise software seller as well as hardware. Nice to know you were listening to the show, Steve. I thought Jeff covered that a segment ago. We didn't talk about it, though. Jason, what do you got this week? I started digging into Covance, ticker CVD. It's a drug development services company, meaning it provides early and late-stage services to big pharmaceuticals and biotech industries, even the food industry.

But they develop long-term contracts with businesses like Sanofi and Kellogg. You know, it is a cash flow rich business that I think has a market opportunity that is growing. Steve? How will health care reform affect this company? Well, that's the beauty of it because they're not directly involved with the health care reform. They're basically making their money from all of the bio farms and the companies that are spending their R&D dollars. So those companies are going to continue to spend their R&D dollars, and Covance will continue to benefit from that. Matty, we've got a minute left.

Yeah, my stock is Yandex. When I brought up before, it's Russia's largest internet search engine. YNDX is the ticker. Just beating the heck out of this stock with the recent Russia-Ukraine crisis. But they've bounced back in a big way, recently made some good investments in the business. I like Yandex. Steve? Are there different keyboards in Russia for typing in searches?

You bet. They are. Have you ever looked at a Russian keyboard? I have never looked at a Russian keyboard. It's crazy. The Cyrillic alphabet is just nuts. We learned Russian in Kazakhstan. It's a difficult language to get a grip on.

There's a Putin key. Steve, three stocks. Anyone you're interested in there? I don't know. Russia sounds pretty interesting right now. Particularly the keyboard. We might have to Google image that. All right.

Jeff Fisher, Jason Moser, Matt Argersinger. Guys, thanks for being here. Up next, the power of thinking mathematically. Stay right here. This is Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. For many people, the subject of math was not particularly enjoyable back in our school

days, but our guest this week says that knowledge of math is like a pair of x-ray specs that reveal hidden structures underneath the messy and chaotic surface of the world. Jordan Ellenberg is a professor of mathematics at the University of Wisconsin, and he is the author of the brand new book, How Not to Be Wrong, The Power of Mathematical Thinking. Jordan, thanks for being here. Thanks for having me on. First, what is it about math that fills so many people with dread? Because it really does seem like, apart from any other topic that we learned when we were kids,

math is the one that some people almost have a physical reaction to, where they just say, well, I'm not a math person. Right, and it is very different from other areas, right? Like some people are really into reading books and some are not, but people wouldn't say, I'm not a reading person, as if there was a kind of person to whom books made sense. And I think people do have that reaction to math. I think one reason is that the way we teach math is as if it was this kind of completely separate alien construct from everything else that we do with our minds and do with our lives, like as if it was something invented, like just to make eighth graders lives more unpleasant.

And that's not why math was invented, right? That's not why we have algebra and why we have geometry. Those things were invented to solve real problems. And I think sometimes in the classroom, we can lose sight of what's actually going on. Let me work backwards in your title. I'll start with the subtitle, The Power of Mathematical Thinking. What does that mean, to think mathematically? Well, it can mean all kinds of things.

One thing I would say is that, I mean, many things in the book don't have formulas, don't have equations, don't have calculus or trigonometry or something like that. I think a reader may say, well, it looks like it means thinking reasonably, thinking with common sense. And in many ways, that actually is what mathematical thinking is. It starts from our common sense, but it builds on it, and it extends it to apply to situations where maybe our common sense is not as helpful. How not to be wrong. First, was there any debate with your publisher about the wording of that title well you know when i was first pitching the book and talking to different publishers one guy asked me what was actually a very deep question he's like why is the

book not called how to be right since that's what people want right they want to be right about stuff um which is actually something i had never considered and what i thought was a rather profound question to be asked and um maybe one way to put it is that to not be wrong is a more modest goal, right? I'm not a math supremacist. I don't hold the position that you can figure everything out by computing and calculating and reasoning logically, right? That's one of the tools that we bring to bear on our world, but only one, and it doesn't give us the final answer. So I don't think you can be right about everything by doing math, but I hope that it's a way to inoculate yourself against certain kinds of mistakes that you might otherwise make.

That is kind of a refreshing take in our current environment because it certainly seems like more and more, whether it's politics or even especially sports, where numbers come into play almost to the point where no one is willing to be surprised. I think a couple of years ago when Jeremy Lin, the basketball player who just appeared seemingly out of nowhere as a star for the New York Knicks, I think part of what people liked about that story was just the surprise aspect that in a world where so many people are measured by various statistics, here's a guy who sort of fell through the cracks and surprised everyone. Right. And people love that. And they're right to love that, right? The emotion of surprise, it's like the joy of a good joke, or like a great line of poetry, or for that matter, a great mathematical proof, right? I mean, one of the things I want to do in the book is to show you that to think mathematically is not to be a robot. In some sense, it's the exact opposite, right? It's not to kind of just like look out at the world and constantly say that does not compute about everything that's like slightly surprising or weird or irrational. I mean, in math, we're

very alive to those things um and you're absolutely right that i think part of what's difficult is that there's a discourse around numbers when numbers are thrown around in the public sphere very often they're not thrown around in the correct spirit of uncertainty and approximation and estimation and stuff we really don't know about they're thrown around as if this is the final answer like this is the way it must be i mean i i wish i i think that people who like write about the economy and write about sports and stuff like that i would like them to know that every time they say like we proved something all the mathematicians who are watching are kind of laughing at them because that's not what proof is right so are you in some ways a small nightmare

to watch the news with with your like if i were to get your wife on the phone would she say that you're just constantly dissecting the numbers that are coming out in the news well you know what's good like now that there are blogs we don't have to just sit around and complain to our family when there's something annoying in the newspaper or on TV, right? That's what blogs and Twitter are for. You're listening to Motley Fool Money, talking with Jordan Ellenberg. His new book is How Not to Be Wrong, The Power of Mathematical Thinking. Let's get to some of the examples in your book.

I got to say, this one surprised me just because at The Motley Fool, when it comes to personal finance, there are few topics we are more passionate about than the futility of the state lottery system and how people who are spending their money on lottery tickets really should just get as far away from that as they can and in your book you actually illuminate the idea that you know what there might actually be a good time to play the lottery right it's kind of a sympathy for the devil moment right for the lottery i try to make the

the best case that i can well i mean the example i talk about in the book specifically was a lottery which is not very much like normal lotteries in that uh it was misdesigned so that there actually was a reliably profitable investment that could be made by buying lottery tickets at the right time. And I can tell you, I have checked whether any lotteries that use that system are going right now in the United States, and they are not. All right, so I shouldn't hop a plane and get to Indiana, because that's the one state that's running a profitable lottery for people. Exactly. I mean, you're welcome to keep looking, you never know. I mean, after all this lottery in Massachusetts, I write about, it was based on a similar game in Michigan that closed

down. When the guys had been playing in Michigan, found out that Massachusetts was opening the same game, I can tell you they got right in their car and drove to Massachusetts to buy tickets as fast as they could. Let's get to the world of investing closer to home for people here at the Motley Fool. You write about the performance of mutual funds. How should people think about that? Because roughly half of the United States is invested, and a lot of those people are invested in mutual funds through their 401k plans etc how should we be thinking about our mutual funds well i i think um one thing i write about in the book is that you have to be very careful about judging the performance of a new fund um because of this issue of incubation because if somebody says

hey we developed this new fund you can buy into it now look at these incredible returns it's been beating the market by 5% to 10% over the last five years. What you may not know is they may have been trying out 100 different allocation strategies or 1,000. Out of those 1,000, maybe one of them beat the market five years in a row, and they're showing you that one and not showing you all the others. And if that's the case, it may very well be that this very appealing looking investment vehicle actually was a winner by chance and going forward is not going to be that good. I mean, you know, they always say, what's the watchword? Past performance is no guarantee of future performance. That's like, I think that often people see that and they think

it's like the tag on the mattress, you know, like, oh, they have to put that there, but I'm not really going to pay attention to it. People should pay attention to that because it's really true and it's important. But in the world of math, at least, well, in the world of investing, there are people, whether they are mutual fund managers or people who pick stocks for a living, the longer they do that successfully, should we at least give weight to people who have done it, not necessarily for three years or one year, because anyone can have a good one year, but if someone's able to do that over a 10, 15, 20-year period, should we maybe give them a little bit more credit, a little bit more weight?

Well, I think even there, a vigorous skepticism is warranted, right? Because that somebody would beat the market 10 years in a row. Well, of course somebody's going to, because so many people are playing the market now. There are so many people who are trying. That being said, I mean, this controversy about to what extent there are people who have a skill in consistently beating the market and to what extent it's just luck. I mean, that is a controversy that has been raging in investment circles and in financial mathematics circles for decades.

Let me put it this way. I think there's, from what I've seen, and I don't think this matter is at all settled, Um, I think there is reasonable evidence that there's some amount of skill, but I think it's completely clear that there's much less skill than people think that there is. I think people tend to vastly overestimate how good people are at picking stocks. So knowing what you know about math and numbers and having done the research you've done, how do you invest your own money? I stick it in a bid, big fat index fund and like never think about it again. I know that's incredibly boring advice. It's like, eat a lot of vegetables and take the stairs at the office.

So it's boring, but I have to admit that that's what I do. Well, eating a lot of vegetables and taking the stairs at the office, that tends to work out as a general rule of thumb. Yeah, there's a reason that that's the standard advice, because it is actually correct. And everybody wants that to be a magic bullet. You know what I mean? Oh, if I eat a kai berries instead, I don't have to do any of that. But you're listening to Motley Fool Money, talking with Jordan Ellenberg, professor of mathematics at the University of Wisconsin. He's also the author of the new book,

how not to be wrong, the power of mathematical thinking. We touched on this a little bit earlier in our conversation, but when you think about how math is taught, not at your level, we'll get to the college level in a minute, but at the grade school level, how should we be teaching kids about math when it's grade school, middle school, that sort of thing? Well, that's the million-dollar question, and it's an incredibly hard question, right? So I should say, do you have kids? My other son is a second grader.

I don't know if you have kids in school. I do. So I will say this. When I see the stuff that's going on in second grade, I feel like somebody out there in curriculum is really thinking hard about what should be in there. Because I think this is pretty different from when we were in elementary school. I mean, kids in kindergarten, first grade, second grade are making histograms and learning about distributions. They're making bar graphs. They're doing little toy markets where they make little art projects and then sell them to their fellow classmates and raise and lower the price and see what happens.

Did you know this stuff was going on in school? I did not. So I think that people really are thinking about what should we be doing in math going forward in the 21st century. There's a huge amount of probability and statistics in the curriculum now, not in second grade, but in junior high school and high school that wasn't there before. um i think all that is great but that is not to say that the situation is perfect i and i think in some sense teachers in k-12 are under tremendous constraints right because their students by and large are subject to high stakes tests and the future of the students and of the teachers and of their principals and of their schools all depends on the results of those tests so i think

we talk a lot about what teachers should be doing but i think we ought to be talking more about what the people who write the tests should be doing because those tests control a lot um they're not going away and if we want things to happen that we care about in the math classroom in k-12 um we have to make sure the tests to the greatest extent possible are testing for those things and i think that's something that's not talked about enough do i have this correct that both of your parents were statisticians we're an r so they're statisticians you're a math professor how much pressure is there on your second grade son to go into the family business i i try not to pressure and he he likes a lot of different stuff he especially i mean he is pretty sure he's going

to be a major league baseball player that's his uh that's his plan right now and i actually suggested to him you know just so he had options i was like you know um you like math and like all the baseball teams now hire people who are interested in math like study the statistics of the players and he said well daddy that's great because most major league players retire when they're 40 and then i can go study statistics for the baseball team right after he walks into the hall of fame then he can get a job crunching numbers for his team exactly so he likes math but i want to make sure that he knows that um he doesn't have to do that You better save your money.

Things gonna get tough again. You better save your money. Things gonna get tough again. When you ain't got... Coming up more with Jordan Ellenberg, This is Motley Fool Money. Welcome back to Motley Fool Money. Chris Hill here talking with Jordan Ellenberg, author of the new book, How Not to Be Wrong, The Power of Mathematical Thinking.

How did the research process for this book affect the way you teach your students at the University of Wisconsin? you know it affected it a lot and it really i feel like it really re-energized me in the classroom to kind of constantly be building this storehouse of stories related to the concepts that i teach you know every day in the classroom um and not just that but also i think you know math is taught in a very historical way right it's taught as if it's just been there forever and when you really i mean in the book i write about a lot of the history because one way to really understand an idea is to try to put yourself in the world where that idea was not there and see it be created, right? That's one way to really get a handle on it. And going back to those worlds

and really seeing just how much the early thinkers in mathematics did not see it as this separate sphere that had nothing to do with the world, but was very tied in with their thinking about philosophy, their thinking about politics, even their thinking about religion in many cases. that was inspiring to me as a teacher, and it made me feel like I want every class I teach to have that and not be as if we sort of go through an airlock into math world when we walk into the classroom. So when do you think we got away from that? Because as we talked about earlier, there really is this separation, you know, the airlock of math, like you just referred to. When do you think, did you discover a point in history where we just started to think differently

about math and the way it's treated that's an interesting question and it's really in a way it's like a question about the history of math education which i don't write about so much in the book um one thing i will say we just got an amazing collection in the library at the university of wisconsin of math textbooks going back to about the 1880s and 1890s um so you can really see you know firsthand how math was being taught and one of the amazing things about looking through these well one thing is that these are like actually used textbooks from wisconsin so you can see that kids in like 1910 wrote the exact same stuff in pencil and their math books as kids do now so that's kind of amazing um various like obscene slogans and all this stuff really

the obscenities haven't improved in 100 years yeah i mean the obscenities we have that's a perfected system man um but the um but the other thing is just that the arguments that we're having now about math teaching like oh how much should it be about following precise algorithms and getting correct answers versus how much should it be about discovery and estimation and conceptual understanding, this back and forth, and people talk about it as if this is an issue about the common core, right, this thing that's been being introduced over the last five years. These arguments are the same arguments that have been being played out in the pages of math textbooks for decades, since before you or I was born, and since before our parents were born.

And it's quite startling to like really see that and see that in the 1930s, people were wrestling with the same thing of like, are the questions going to be kind of socially relevant? Or are they going to be more algorithmic and formulaic and things like that these things are not new and they have nothing to do with the common core for those of us who are parents and are looking to get our kids a little bit more interested in math than they may be at the moment what advice do you have well i think um so one thing is that there's just a vast array of resources both old and new uh that are great for kids and obviously it really depends on the kid and what their interests are so a kid like my son or like i was at that age who's like super obsessed with baseball like

baseball statistics are a great way in you know what i mean like there's still like a huge amount of obsessive writing about baseball and statistics and how we judge players and stuff like that and of course that can be translated into whatever uh sport your kids are interested i don't know maybe your kids are super interested in investing for all i know is that is that how it works when you work remotely fool that is absolutely not the case but there probably are some kids right that have speak heatons of the world who are into that um i would say um you know the martin gardener books which are now 50 years old this guy who wrote a weekly column for many years for scientific american about math um those books are old but they remain classics and i think a lot of

kids i knew who were into math like certainly me among them um obsessively read those books but of course there are also like vastly more online resources that just are of a kind that didn't exist before like all kinds of like youtube channels and online courses and just stuff from where you can really see some of them are made by kids actually just people who are like super enthusiastic about math um i think the challenge though is if it's kind of like eat your vegetables like people are not going to be into it right if you're sort of saying do this because it's good for you most kids don't respond that well to that so sometimes you know there's a game called dragon box have you ever seen this i have not it's a um my kid plays it on ipad i think it's

probably on every platform it's a very interesting game which to some extent teaches part of algebraic thinking and algebraic manipulation but it really looks like a game like you would never know it's kind of the math equivalent of when you like feed your kid uh like kale and lettuce by like grinding it up into a meatball so they don't even know they're getting their vegetables you know it's a bit like that well you already had me at dragons so i'm you know i'm already interested if there are dragons involved great yeah for kids who love dragons absolutely the follow-up book is going to have the word dragon in the title but this book is how not to be wrong the power of mathematical thinking and a lot of people are buying it it's

already made the new york times bestseller list jordan ellenberg thank you so much for being here oh thank you for having me it was great that's going to do it for this week's show our engineer is steve broido our producer is mac greer i'm chris hill thanks for listening we'll see you next week Thanks for watching!