Motley Fool Hidden Gems Investing - Motley Fool Money: 07.27.2012

Episode Date: July 27, 2012

Earnings news from Facebook, Apple, Amazon.com, Starbucks, and ExxonMobil.  Motley Fool co-founder Tom Gardner talks investing philosophy, Whole Foods, Zillow, and LinkedIn. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Motley Fool Money. Thanks for being here. I'm your host, Chris Hill. And joining me this week from Motley Fool inside value, Joe Mager, Motley Fool income investor, James early and for Million Dollar Portfolio, Ron Gross. Guys, we are not in the studio. We've got a live audience here at Fool Global Headquarters. Very exciting to have our Motley Fool One members in the house. Earnings Palooza continues this week. We've got the latest on Apple, Starbucks, Exxon Mobile, and more. We've got Motley Fool co-founder and CEO Tom Gardner as our guest this week. And as always, we will give you an inside look at the stocks on our radar. But we begin today with Facebook. Facebook reported earnings for the first time as a public company. It earned 12 cents

a share, which is exactly what the market was expecting. And yet, Joe Mager, shares of Facebook down nearly 20% this week. What happened? Yeah, well, Facebook had a good quarter, but they needed a legendary quarter to justify the stock price. You know, they came in today selling about 15 times sales. For a little context, Apple is at three times sales. So that's a big valuation. The real story is that growth has been slowing. It was around 32% year over year. A year ago, it was 100% year over year. And that is just not going to do for the amount of premium put in the stock price today. And that's why it's down. Ron? Yeah, it's interesting. There's a lot of negatives to being a public company. And Facebook was, in a sense, kind of forced to go public as a result of the

number of shareholders they had as a private company. But if they had stayed private, they would have been able to work out everything they need to work out in private without the scrutiny of the marketplace, and it probably would have been much better for them. I have a feeling they're spending too much time concerned about the stock price and the market cap, and they need to figure out the business model. James, what do you think? Chris, it's not always that I revel in others' misfortunes, but Facebook is sort of in the process of separating the legitimate investors from the illegitimate investors.

There are a lot of people that jump in thinking that all the Facebook users were going to just drive the stock price up. So I think it's good in a way to see the reality coming through. But business-wise, there is also a tremendous demand elasticity on the Internet when you start charging for something. And Facebook is still in kind of the adolescent stage of doing that. So there is a lot unproven here. Yeah, in English, Facebook is having a hard time getting people to give them money. Revenue per user isn't climbing nearly as fast as it should.

It's growing three times faster at LinkedIn. That's a pretty massive difference. But they have roughly the same valuation. So it's just tough to get excited about investing in Facebook. And monthly active users are increasing, increasing significantly, I think 29% for the quarter. The business is moving forward, but they're still in the very early stages of being a company, let alone a public company. And as the business model shifts, they need to shift with it, and it's not always an easy thing to do.

They need to figure it out. Mark Zuckerberg said on the conference call that they are investing heavily in mobile at Facebook. How quickly do they need to get a return on that investment, Joe? Now would be nice. But that's, again, that speaks to the public versus private. If it was private, I would say don't rush. I mean, get this right. Spend the money.

Spend the money correctly. And, you know, think about five or ten years down the road, not next quarter. And the fact that we're talking about how quickly do they need a return on capital is the perfect. We're here in the media talking about that, and they need to focus on getting it right. Well, I'm going to hold you to that, Wayne, and talk about Amazon later. I get what you're saying, man. And I think part of it is just that the problem started six, seven years ago. You know, Facebook is a desktop platform, ultimately, and that's what it was designed for.

Whereas Twitter was built entirely for mobile, and not surprisingly, Twitter is doing really well monetizing on mobile, and Facebook has struggled to do it. And the same you could say with Google. Google was obviously a desktop, and we have Android and Google all over mobile platforms now, and they're figuring it out. What do you think of the valuation, just to wrap up on Facebook, the stock? Again, shares down about 20% this week. Is it getting closer to fairly valued, do you think? By the day, yeah. It would pay much less than the current price.

I don't like seeing sales growth falling off the way that it is. I think Facebook is a stock I would buy at the right price. It's just a long way below this one. For only the second time in 10 years, Apple missed on earnings. Shares down slightly this week. Ron Gross, what happened? It's doubly surprising because they're notorious sandbaggers. Sandbaggers is the term used for companies that under-promise and usually over-perform as a result.

And the fact that they didn't here was surprising, and the stock took a little bit of a hit. But I like to kind of look through the noise of the stock market and say, how is the business doing? And look, a 23% revenue increase, $35 billion in revenue for the quarter alone, 21% increase in net income. This is unbelievable numbers for a company of this size. So they continue to do well. is there competition coming? Of course there is. Are certain market shares being challenged? Of course it

is but this is not a company unlike Facebook that is priced for that perfection 11 times forward earnings for a company the size and quality of Apple is still very cheap So you're still bullish? I am definitely still bullish It's just going to conquer the world in 30 years now instead of 29 We do own it in a billion dollar portfolio

and we have it still rated as a buy I think it easily could be worth $850 a share Joe, Ron mentioned market share. Samsung just came out with earnings. And one of the things in the report is that Samsung's market share in the smartphone industry increased over Apple from 5% to 13%. That gap is getting wider. How much is that a problem for Apple? And does it mean that Apple is increasingly dependent on the iPad? I don't think it's that big a problem. They'll gain it back in the later quarters this year when iPhone 5 rolls out. But I think it speaks to the bigger problem of consumer

electronics where it's just so slick so cyclical and it's so tough to stay on top and i think that's the bigger issue that's the overhang on apple yeah a big part of what invest why investors sold the stock off a bit was the iphone kind of miss if you will and that is as joe said because i think people are suspending or delaying their purchase for waiting for the iphone 5 to come out but it all is important because of this ecosystem the company really depends on the ecosystem between the desktop, the phone, and the iPad, and the cloud. So we certainly want all these pieces, segments to be healthy, and I think they still are.

And you're an Apple guy, Ron, is that right? I have both in my home, because I think Macs cannot do everything. There are certain websites that I still need a PC for, but I have PCs, phones, tablets, yeah, I have it all. Some of the so-called bellwether stocks reported this week. Caterpillar's profits up 67%, 3M's profits rose, But UPS cut its full-year forecast and said the U.S. economy will only grow about 1% for the rest of the year. And, James, we were talking about this before the show.

The financial media really plays up this angle. What do you make of bellwethers? Well, Chris, I think the economy is in the process of outgrowing the notion of a bellwether. It's so globally interconnected now. There are so many different things. You can read into results whatever you want. Case in point here, we have Caterpillar's strong results, stronger in mining than in construction. 3M was, you know, decent overall, better on the profit side.

But UPS didn't really have great results. Volumes were pretty weak. And maybe that's arguably the most bellwether of these bellwethers. But even still, these three stocks don't paint a cohesive picture. Ron, what do you think? I think bellwethers are interesting, and that's kind of – it ends at interesting. When Caterpillar reports, to me, it's an indication of emerging markets or infrastructure, industrial, what we maybe see coming down the pike. Like when the retailers report, that's important to me

because I want to see what the health of the retailers is like. But the whole notion that one company is... No, I think you have to take it all in. Each data point drives a little other piece of information, and you take it all as a whole. Do you have a metric? Because we hear all kinds of metrics, and certainly they're all available to investors,

but do you have a metric that you like to use to gauge either the health of the economy or a particular industry? I like retail sales when the numbers come out because retail, the consumer, is such a huge part of the economy that it's always interesting to me. But do I make investment decisions solely on the metric? No, I don't. James, what about you? I'm with Ron. I mean, you know, something like GDP is obvious, but that's ex post facto.

I mean, I don't. It's what? Ex post facto. Wow. It's a Latin term. I never took Latin. Fancy show. I bring my A game.

Yeah, it's not something that I think. I mean, you show me a confident economist and I'll show you an idiot. I mean, it's just not something that you can really predict accurately. Joe? Waste volume. So waste management and public services both report how much trash they're actually hauling off. And there's a study out there that shows there's an 82% correlation between waste volumes and GDP. So it's a nice little way to see how construction is moving.

Amazon delivered $12.8 billion in sales but only $7 million in profit. Joe Mager, you were eager before to talk about Amazon. Ron, we're all about the long term here, right? What did you make of Amazon's quarter? Well, I was a little spooked at first. They lowered guidance, and sales weren't as great as some people expected. But, you know, all in all, I think things are going very well. They added more users over the last year than in the first nine years of business.

So clearly they are still growing at a healthy clip despite their size. The earnings miss was really related to marketing. They spent more marketing the business over the past year than they have previously. I think that's a great investment for the long term, as Ron, I'm sure, would support. Ron? Yeah, the thing for Amazon for me is I absolutely love Amazon as a fantastic discount retailer. But five or ten years down the road from now, that is not going to be all Amazon is. They're going to be something much different, greater.

I don't have the vision to know what that is, so it's hard for me to apply a value to Amazon. There are investors even in this building that are so much better than I at really saying this is where they're going to go. They're going to pivot. They're going to move. They're going to attack this marketplace. But it's a tough thing to do. But when you look at Amazon rolling out products like the Kindle, the Kindle Fire tablet, the reports that they may be looking at a smartphone, doesn't that give you some indication of where they're going? It does, but then I have to take one at a time.

So do I think a smartphone is a good idea? Probably not. The Kindle I was excited about. It hasn't really performed as much as I had hoped it would. It's a competitive world out there, and it's changing quickly, and it's hard to see the future. I think the Kindle Fire 2 is going to be really dangerous to the iPad this season. It's rumored to come out at $149. You know, if you're an average family and you're thinking about,

do I buy one iPad for $500 or three Kindle Fire 2s, that's kind of a no-brainer decision. Shares of Amazon were up on Friday after this tiny profit was reported. I was relieved. What is the valuation like for this stock? Well, it looks absurdly expensive at first blush because they're making all these heavy investments in their future. The thing is, I think those are all additive, and even though it's not a classic value stock,

I think it's a great long-term buy. Coming up, Earnings Palooza continues with Starbucks, Baidu, Exxon, Mobil, and more. Stay right here. You're listening to Motley Fool Money. She works hard for the money So hard for it, honey She works hard for the money

So you better treat her right The best things in life are free But you can give them to the birds and bees I want the money What I want It's what I want What I want It's what I want

That's what I want Welcome back to Motley Fool Money. Chris Hill here with Joe Mager, James Early, Ron Gross. In front of our live audience here at Fool Global Headquarters, the musical stylings of Amy Vashel and Anthony Taddeo, our special guests this week, playing us back in the show. Before we get back to the earnings, have to welcome three new radio stations to our affiliate family,

all in Massachusetts, WBNW AM 1120 in Boston, WPLN AM 1390 in Plymouth, and WESO AM 970 in Southridge. Always good to have you. Welcome. Go Sox. Shares of Starbucks fell more than 11% Friday morning after earnings came in lower than expected. And Ron Gross, they also lowered guidance.

Yeah, it's the expectations game. And it's not just analysts' expectations. It was their own that they fell short of, which is actually a little bit more troubling. Analysts miss it all the time. But theoretically, the company should be able to get close. So, again, you've got to look through the noise a little bit and see how's the business doing. and it continues to do quite well with the revenue up 13%, and comp store sales up 6% globally, 7% in the U.S.

So things are doing well. Europe hurts them. The economy hurts them. These are things that it's hard to shake off. It ebbs and flows with the business cycle. They need to continue what they do, and I think they've got it under control. They might close some European stores, but net they're going to continue to open up a ton. They have more than 17,000 stores as it is now.

the company was a little bit expensive going in so when this happens the stock invariably sells off. James? This is a silly question but I'm not a coffee drinker so I don't go into Starbucks. I mean nice clean bathrooms are great but much of the stock's performance is tied

to how it performs in the U.S. I've observed and they want to open 600 new stores in the U.S. this year. Where are they going to put them? When do they run out? Inside the bathrooms of other Starbucks. Right next to Dunkin' Donuts. Well, I was just going to say, along those lines, you look at the growth opportunity in America for Dunkin' Donuts, it appears to be much greater than it is for Starbucks when you look at how many stores they have sort of in New England, New York versus west of the Mississippi. They have not penetrated the U.S., and so Dunkin' is a much more U.S. expansion-based investment, whereas Starbucks has greater opportunities overseas.

Dunkin' is not ignoring overseas, though. It's going there as well. The business models are very different. Dunkin' is a franchise model for the most part. Starbucks is company owned and some licensed stores as well. So they're a little bit different in terms of how they make money, but clearly they're competitors. Baidu's second quarter revenue up 60 percent, shares up more than 10 percent this week. Joe, I thought there was a slowdown in China. What's going on? I guess not. Well, there's a long internet runway in China

where their internet penetration is half what it is in the U.S., but they have four times the population we do. So you can kind of picture the magnitude of the potential ahead of them, and they're gaining share because Google walked out. And, you know, when you post 60% sales growth and your stock's selling at 30 times earnings, you don't have to do that too many times to end up with a great result in the share price, and I think you're going to see a lot more of that.

With Google essentially out of the picture, what is the big threat to Baidu? The Chinese government, both because they're hardcore about nudging Baidu on adjusting the results, to put it nicely, but they've also actually rolled out their own search offering, so they haven't taken, not surprisingly. ExxonMobil's second quarter profit up 49%, but James Early, I'm guessing we shouldn't get too excited about that number. That is correct, Chris.

Technically, they sold the Japanese refinery, which just boosted profits. It was a one-time thing. The real profits were down a little bit. Basically, Exxon is now the largest natural gas producer in the U.S., and that's because in 2010, they paid $31 billion for a company called XTO Energy. And this was kind of like buying a sprinkler company just as a flood was starting because XTO is huge into natural gas, and the prices of natural gas just cratered. So now Exxon has just massive access to this cheap commodity. The question is, you know, five, ten years down the road, is this going to help them?

Because we are starting to build out the infrastructure to make use of this. So probably, but in the short term, I think it's dead money. What's the dividend like on that? Is it three, a little, one or four percent, three-something percent? Is that really the thesis, if you're looking at shares of ExxonMobil today, that you really shouldn't expect a whole lot from the natural gas side and it's more a dividend play? Yeah, I mean, if you want a trusted name, go with Exxon, but I would send somebody to Chevron over Exxon. And finally, guys, we have the 2012 Summer Olympic Games starting in London, and I want you to basically put your analyst rigor to the Olympic events, because we talk about stocks in terms of their valuation, overvalued, undervalued.

Let's just go around. Give me an Olympic event that you think is overvalued and one that's undervalued. Ron? I'm going to get e-mails for this one, but I think basketball is overvalued. Why? Merely because the U.S. is so dominant and it is a foregone conclusion, at least I think this year, that the U.S. will take it. So that's not that exciting.

It's more exciting to see something competitive. But undervalued, I mean, clearly table tennis. A, who doesn't like a good game of ping pong. I mean, come on. And B, those are some athletes there. It's pretty impressive. So those are my two. Radio at fool.com.

That's where you send the hate mail. James, what about you? I actually think basketball, valuation depends on perspective, right? I think the basketball might be almost undervalued because these guys are volunteering their time. You know, it's a huge source of revenue for the Olympics, and they're just doing it for free. overvalued. I've got to say dressage, that horse trotting thing. The equestrian. The horse does all the work, really. I'm sure it's not quite like that, but it kind of is, right? I used to know a competitive dressage Olympic guy, and he said it's very difficult from an athletic

perspective. I'm not sure. I would have never thought that. Joe, what about you? Wrestling overvalued. I'm sure it's difficult, but it just looks like some sweaty dudes flopping around on the floor to me. And bobsled, I know that's winter, but it's just awesome. Because of the danger factor yeah all right joe meager james early ron gross guys we'll see you later in the show coming up he has put together one of the most impressive investment track records over the past decade he's also the co-founder and ceo of the motley fool tom gardner up next stay right here this is motley fool money Money, money, money, money

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Welcome back to Motley Fool Money. The musical stylings of Amy Batchel and Anthony Tadale. We've got a live audience here at Fool Global Headquarters. It was 19 years ago this month that The Motley Fool first appeared as a printed newsletter with 37 subscribers. Today, The Motley Fool has 250 employees, a suite of premium membership services,

an asset management division, and offices in Australia, the UK, and right here in Alexandria, Virginia, where co-founder and CEO Tom Gardner joins me now. Good to see you. Thanks, Chris. We had an expectation that we would have more than 37 subscribers out of the gate. We sent about 2,000 issues of the first Motley Fool print newsletter out to friends and family, our summer camp mailing list, high school, my cousin's wedding in North Dakota with 250 people,

most of whom we did not know. They all got a copy of the Motley Fool newsletter. I was going to say, you just sort of clipped that list, didn't you? Yeah, and I think we got, yeah, we had about 20 subscribers the first month out of 2,000 people. So that hurt us with friends and family. We had to get in touch with some people about that. But overall, it's been a great 19 years since. I want to talk about your investment philosophy and strategy in a minute.

But first, as you know, it's been a huge week for earnings, Facebook, Apple, and so many others. What jumps out at you in a week like this in terms of those companies or any others? What sort of is noteworthy to you? Well, the first thing is just to always maintain a long-term perspective. Even with technology companies, you know, you have to have a slightly shorter leash depending on your investment approach given how much technological change there is. But I think it's too early to judge Facebook based on their first earnings report. The two reasons that I think about selling a company, one of them is when there's a leadership change that either doesn't make me feel comfortable, often because they've gone outside their company to find a new leader. So that is an evaluation period for me.

But the second one is when there's a change in the technology platform, which I think Joe mentioned. If you take Facebook, started as a desktop company, now it's mobile. And you really want to see Facebook out there talking about how important mobile is and that they want to have the best app. And if they're not making money on it right now, it doesn't matter to them. They want to migrate everyone from desktop to mobile as much as possible. And I'm not really hearing that from them. And, you know, maybe I just haven't heard all the messages that they're sending out of their quarterly call, et cetera. But I guess I'd say that for me, right now it feels like kind of everybody hates Facebook.

Users are wondering about privacy issues. There was the kind of blown IPO in a way. And that can be a wonderful time to buy a stock, as we know, when everyone sort of turns on it and people are still using it. But I counterbalance that with the technology platform question about how well they do with mobile. One of the companies that we didn't get to earlier in the show that reported this week was Whole Foods. and you've had the chance to sit down with John Mackey, the chairman, and really get a sense of how he thinks. What do you make of that company's success?

Because it really kind of stood out this week in terms of how well they did, raising guidance, and really their growing dominance in that category. I guess I'd say that one thing to look for as an investor is what is going to be a long-term disruptive trend, something that really signals a shift in the way we're living our lives. And if you think about the population of baby boomers and the number of people that are meeting with their doctor who's telling them, let's change how you're eating a little bit here, and let's start moving you to a healthier diet, that really plays into Whole Foods' strategy over the last 20-plus years. And, you know, as an investor, I love to find the founder, CEO, who's put their entire life into their organization. I'm not as excited by an executive that has flipped from one company to the next

and one industry to the next as a trained executive. That doesn't really excite me. What I love are the stories where Jeff Bezos could have stepped down from Amazon a long time ago. I mean, he has more money than anyone would ever need for 100 lifetimes, and yet he's working every day as the CEO at Amazon because, obviously, he loves the company, believes in what he's doing, and he's put his life behind it. Same thing is true of John Mackey. Same thing with Howard Schultz at Starbucks.

same thing with Warren Buffett at Berkshire Hathaway I think that if people learn to just narrow their focus down on those companies where the founders after all when a company goes public if the founder is still the executive it is almost automatic that that person has more money than they'll ever need and they could just turn and sell or step down if they stay that's a that's a really good simple screen looking for companies where the founder is still the CEO and I say that as a founder so maybe I am biased just trying to hold my job with our board I first met you 15 years ago and the first time

I ever heard the phrase cash is king it was it was from you and that was really a big part of your investment strategy looking for those cash rich companies how is your investment strategy changed over time well I guess I'd start by saying I do think that what happened in 2008 was a we all learned the risk of leverage and particularly in the financial industry where there are just so many incentives short-term incentives that cause people to jack up leverage to try and boost their bonus in any given year and i think in many cases people working in wall street firms don't really have a passion for the firm and brand and reputation of that firm they're more concerned about their

bonus in february and so if they could borrow three times what they were borrowing the prior a year and take risks, speculative risks, to boost their bonus, they'll do that. And that's what put those organizations at risk. So I think fundamentally you still want to find companies that are looking to save and build for the long term rather than borrow and put it at risk in the short term for a big bonus. So that's definitely stuck with me. I'd say I certainly changed from, let's say, the late 90s to 2004 when we launched Hidden

Gems to focus on smaller companies and less well-known companies in many cases. I remember when I found Middleby, which is a commercial oven business that has done extremely well because with two incomes in households, more and more people are eating out. Restaurants are taking more of the wallet, and the commercial oven business has been a great business. But that's a company no one had ever heard of. I think I recommended that stock at 7 or 8 or 10, and I think it's around 90 now. It's been a great stock over the last 7 or 8 years. But for me, that was a shift.

The stock market does act as an auction market. And so if there are tables where the auctioneer is yelling out prices for merchandise that looks good but nobody's bidding on it, that's generally a good place for investors to look for some of their – to build out their portfolio. The last time you were on the show, you had just met with Jim Senegal from Costco. You had sat down and had a chance to talk with him. You were just recently out in San Francisco, and I want to ask you about a couple of the people that you met with. One of them, Jeff Wiener from LinkedIn, that's a company that you watch pretty closely. What do you think of him and that company in general? Well, first I'll use this as an opportunity to give props to my father who just turned 75 years of age on July 24th a few days ago.

And the reason I mention dad in this context is that when we were kids, periodically on our family vacations, when we thought we were going to go swimming that day, dad would let us know, actually this afternoon we're not going swimming. we're going to go meet the executive team of a semiconductor wafer design company. And what kid doesn't love that? Absolutely. And, you know, people in technology with hairnets walking around in, like, secure areas. It was a bizarre visit, that particular visit. But overall, Dad did that to connect us with the game of investing, the fun of investing,

but in that case, really the people behind the companies. Because I think the average person who doesn't have that experience, which is most people in the world, can think that a corporation is some big, nasty entity that is run by people in suits who are cold-hearted and have no creative instincts. And the reality is some businesses are run that way, but the reality is companies are run by people. And getting an opportunity to meet and get to know those people can only benefit you as an investor and also can open your eyes to some ideas in terms of being an entrepreneur. So San Francisco, we have a leadership development program. I've decided to give a 12-minute answer to this question, Chris.

Thank you. Thank you for just sitting there and letting me go. But Jeff Wiener is the CEO of LinkedIn. And LinkedIn is an unbelievable company. It has a great growth story. I don't think that any recruiter of any company who doesn't make LinkedIn their primary source for finding talent has made a very serious mistake at this point. Just because every data entry, every bit of data that any individual enters into LinkedIn is then searchable by recruiters. So if you're looking for somebody who has a computer science degree, has worked in enterprise software for six years, and has connections to these other areas of talent in that company that they're at or in their industry, you can really pinpoint talent very well with LinkedIn.

So Jeff Wiener is a very impressive CEO, and, of course, we were delighted when we sat down and he said, I think the reason I'm CEO at LinkedIn is because of the Motley Fool. That's a little plug for us. Jeff has been a big Motley Fool user over the years, and I think LinkedIn is an incredible company. One of the other companies you met with, I believe, was Zillow, and that's another company that you follow closely. I've got to be honest. I don't really get Zillow, in part because I just typed in my own address into Zillow, the online real estate site for people who aren't familiar. And some of the basic information about my home was incorrect.

So, you know, sell me on Zillow as a company and a business. They value your home at $8.1 million? Not even close. Well, you know, there is some mockery of Zillow's estimate value for homes, which they call their Zestimate. And I would say this about the Zestimate. In a lot of cases when we evaluate a business or any technology out there, it's as important to look at the present location of that organization or that offering as it is the direction of where it's going. So you can have a really successful company that's fighting a defensive battle, which I think is true of Netflix.

Very tough to put yourself in a defensive position in technology where other people are coming at you from a number of different sides. In the case of Zillow's estimate, that data is getting smarter with every passing week as people enter more data and they correct it and they realize their problem. So I think that this estimate may have been 96% wrong, making that number up, so I'll say 96.42% wrong three years ago, and maybe now it's 61% wrong. Directionally, it's getting more and more effective. And I would say, I don't think this is part of Zillow's game plan, but I think the realtor is going to start getting threatened

by all of the information that is available to people to list and sell their homes. I think the realtor still will play a role. I'm just not sure it's a 6% cut of every transaction given what technology can do. And I think Zillow indirectly or maybe ultimately directly will play a role in that. Last question before we wrap up. One of the other people you met with, not really the leader of a company per se, but for anyone who has read the book or seen the movie Moneyball, They probably have some sense of Billy Bean, the leader of the Oakland A's.

What was that like, meeting with him? That was an incredible experience for me personally as a huge baseball fan. I think even if you're not a baseball fan, Moneyball is a great book if you're interested in investing. A lot of the principles apply. And if you haven't seen the movie, that's a terrific movie. Billy Bean is an extremely genuine person. He was totally open, stood in the booth that we were all in watching the game for 40 minutes with us. He hates to watch the game.

And this is a good lesson for investors. So we're all talking to him, and you're hearing shouts and boos or cheers behind us, and you're watching Billy talking to us, trying not to look, and then he has to lean and look out to the right and to the left to see what's happened. And if you saw the movie or read the book, you know that he does not like to watch the game live. So one of our fools there asked him, why is that the case? And he said, because, number one, I can't control it. So I can't control anything.

It's difficult to put ourselves in those situations, like when you're on an airplane in a thunderstorm. You have to just relax and realize, I can't control this situation. So tensing up or doing anything, it's not going to benefit me or this situation in any way. So that's number one for Billy Bean. I can't change the situation. Number two, I can change the situation right after the game. I can start wheeling and dealing, sending people down to the minors, getting angry, trading people, losing control. That's what happens to people with their portfolios when they get emotional.

And basically, I think what Billy Bean teaches with that is make sure that your holding period that you have for a company that you're going to invest in matches up with your research philosophy and your approach. So if you're going to hold a stock for four years on average, don't worry too much about what happens in the earnings report this week. that you're going to obsess over game to game rather than looking at season to season. And Billy Bean is trying to build the Oakland A's over five-year periods. So watching the game only gets his blood pressure up and puts him at risk of becoming a day trader

of his baseball team. And I thought that was a pretty good analogy for investing. Motley Fool co-founder, CEO Tom. Always great to have him on the show. Chris, thank you. Coming up, we will dip into the Fool mailbag and we'll give you a look at the stocks on our radar. You're listening to Motley Fool Money.

people on the program may have interest in the stocks they talk about and the motley four may have formal recommendations for or against so don't buy or sell stocks based solely on what you hear amy bashall and anthony today are giving us the live music here uh joining me once again ron gross james early and joe mager guys before we get to the stocks on our radar going to dip into the Fool mailbag. You can always drop us an email. Radio at fool.com is the way to get to us. Email from Jeff Ulick. I hope I'm pronouncing that correctly. In Alberta, Canada, he writes, I listen to your daily podcast and I'm a Motley Fool One member. My question is this. Why is Mr. Market such a sissy? In spite of everything we know about

buying good companies with good management and holding them for long periods of time, a la Warren Buffett, Lynch, the Gardeners et al., every time we get some smidge of bad the economic news mr market runs squealing for the exits is the market as collectively dumb as it looks ron well the reason i guess is the market is sissy i don't know about sissy uh i think the reason there is when you when you drill down there really is no such thing as mr market drilling down um shows you that mr market is all of us um actually as as technology ramps up it becomes less and less us but it still is us even on the institutional side it's made up of human beings who have emotion and are fragile and are affected by greed and fear

and all of the things that we try to teach here at The Motley Fool that you need to recognize, not ignore. You can recognize it, but you don't want to make decisions based on it. And we can actually take advantage of when Mr. Market goes a little awry. Email from Joe Sharples in Manchester, England. I started listening to your show at around the same time I started studying business at A-level. A-levels are the British version of graduating from an American high school. Recently, while taking my final exams,

I found myself using examples from your show more than the examples from textbooks and even quoting Chris Hill and Joe Mager a couple of times. God, I hope he passed. Me too. I'm 18 years old and going to university in September to study business and enterprise management, and I'm looking for a book to keep my business mind active

during the summer period, ideally something to educate, amuse, and enrich. If you have any recommendations, please let me know. We'll give you three recommendations. Ron, what do you got? First of all, love that he's starting young. just that's absolutely fantastic i'm going to go with the essays of warren buffett lessons from corporate america collection of warren buffett's letters to shareholders invaluable every investor

should read them james first of all yeah joe you're great uh not you too you too joe but this joe um and and i'm going to give you a boring book uh because of that uh investment uh uh valuation by oswald de morderen i'm not as big a fan on the anecdotal stories of some person doing something i mean they might be correct if you read a whole lot of them but if you just want one this book will explain the principles of what's going on very well. Joe? It is a very boring book, but it's a great one. He was my finance professor in graduate school, so I will put in a plug for him. He's a great, great guy. I like Pat Dorsey's The Little Book That Builds Wealth. It's all about identifying companies with durable competitive advantages, and there's a little bit of valuation

sprinkled in. All right, let's get to the stocks that are on your radar, and normally we bring in our man Steve Broido from the other side of the glass, but we got a live audience. There's no glass. We'll bring Steve in. Hello, friends. With a question for you on your stock. Ron, what do you got? I'm going to go with quality systems. QSII just went on my radar this week because the market cap was cut by a

third. Just an unbelievable pounding. They're a provider of healthcare information systems. Revenue growth was decent. Margins got whacked as a result of the product mix. I really want to dig in and see if this is an opportunity here. Dividends, great. They're going through a proxy contest. There's a little bit of mess going

on. So research is necessary, but it could be an interesting opportunity. Steve, how do I discipline myself to buy when things are falling very dramatically? Research and analytical kind of diligence. Write down why you want to buy something or why you did buy something and always go back to that and say, has something changed? And that will take the emotions out of it. And even if something drops by a third, maybe it's time to add and not sell. James, what's your stock? Chris, I'm going with Douglas Dynamics. The ticker is P-L-O-W. This is an income investor recommendation.

It's the nation's leading snowplow maker. It sells a lot to the institutional market. $300 million market cap. It's a pretty small company. Summer is the peak buying season for commercial snowplow people. So they have all this money. They're going to start buying now. Despite global warming, we're actually adding more plowable paved road in the U.S.

just because it's expanding. And they're going to China now where most snow removal is done with a shovel. Steve, what makes a good snowplow? That's a good question. They're about $5,000. They're not cheap. It's the quality of the steel, and then there are a lot of accoutrements,

like the little flashers and the scraping devices. So you don't just sell the plow. You sell the accessories. Joe, what's your stock this week? LinkedIn. I know it's wildly expensive, but it grew 100% last quarter, and I think it's doing to headhunting

what Google has done to online marketing. And Steve, I know you met the CEO recently because you're a big-time player. I was on the trip, yes, very, very fortunate. Question on LinkedIn? Sure. What is LinkedIn's biggest challenge in terms of internationally with the job market being so international right now? Well, most of their members are actually from outside the U.S., so I think they're doing very well there.

Steve, you got a stock out of those three you like the best? I kind of like the plow company just because snow plows seem like a really cool investment, so I'm going with the plows. Thinking about buying shares just because it would be fun to drive a snow plow? Absolutely. All right, Ron Gross, James Early, Joe Mager. Guys, thanks for being here. Thank you, guys. Thanks to our special guest this week, Tom Gardner,

and our very special guests, Amy Batchel and Anthony Tadeo. You can check out Amy's music online at amybatchel, that's A-M-Y-V-A-C-H-A-L.com, and on iTunes. And finally, thanks to everyone here in our audience at Fool HQ. We've got to do this again. This was too much fun. That's it for this edition of Market Foolery. That's it for this edition of Motley Fool Money.

Our engineer is Steve Roido. Our producer is Matt Greer. I'm Chris Hill. Thanks for listening. Back in the studio next week.