Motley Fool Hidden Gems Investing - Motley Fool Money: 10.17.2014

Episode Date: October 17, 2014

Stock market volatility continues.  Google misses.  Netflix tumbles.  And Barbie trips.  Our analysts discuss those stories and share some stocks on their radar.  And Motley Fool CEO Tom Gardner talks with LinkedIn founder Reid Hoffman, author of The Alliance: Managing Talent in the Networked Age.  Learn more about your ad choices. Visit megaphone.fm/adchoices

Everybody needs money. That's why they call it money. From Fool Global Headquarters, this is Motley Fool Money. It's the Motley Fool Money Radio Show. I'm Chris Hill, and joining me in studio this week from Motley Fool supernova Matt Argesinger, from Motley Fool income investor James Early, and from Million Dollar Portfolio, Ron Gross. Good to see you, gents. Hey, we've got Earnings Palooza. We've got LinkedIn founder Reid Hoffman with some thoughts

on the financial services industry. And as always, we'll give you an inside look at the stocks on our radar. But we begin with market volatility. This week, the VIX, the index that measures volatility in the stock market, was more than double the average. And Ron, just think of the newspapers across America that were running the classic photo of a stock trader with his head in his hands. Are you feeling that way? I think we should all turn off the CNBC and back away. The average investor should never utter the term VIX. It's not important. We need to focus on companies, not volatility. Having said that, we can talk in terms of what's been going on. So the S&P down 6% from its high. The Russell 2000, the small cap sector getting hit

harder, down 10% from its high. S&P is still up for the year. Small caps are down. So things are moving around really quickly. There's a lot of stuff going on in the world, geopolitical tensions, the Ebola crisis, pockets of weakness in Germany and Europe. There's a lot going on. What is the average investor supposed to do about that? I think you have to largely ignore it and focus on companies and invest in companies and think less in terms of stocks and stock markets. It's been impacting us quite a bit here, I'll be honest. My deep value service, We hadn't made a purchase of a stock since March, could not find anything to buy. Stocks came back.

We put 20% of our cash to work in just the last three weeks. So you're welcome in this. So it creates opportunities. James, what do you think? Well, you know, Chris, when the market wets the bed, income investor is always ready to clean up. And we just did our annual review. So I'm seeing a lot of, I don't know either. It's kind of a weird analogy now that I think about it because this is not really desirable.

Well, okay. But anyhow, we did our annual review and found in particular that a lot of the industrial companies are nicely priced. Companies like Emerson Electric, which is an industrial electronics company, Deluxe Checking, not totally industrial, but they make paper checks. It's kind of a boring company. Illinois Tool Works, these kind of grinded out, boring companies that used to be a little bit rich, they're a lot better priced now. Matt, are you finding opportunities out there? Well, I was just going to say, speaking of wetting the bed, working on Supernova, rule breakers in some of our growthier services, we've certainly taken the brunt, I think,

of the recent market volatility. In fact, the Supernova universe is down about 20% to the market over the past year. And that, in an up market, that's something that rarely happens to David Gardner-style companies. So I'm actually feeling pretty good. I think there's actually a mean reversion that might go on here and that our companies might do better. It's a good bedwetting.

Yeah, I mean, there's more things to look at now. I run screens to look at potential new companies. For months and months, their screens were kind of kicking back not much in the way of excitement. I just ran it last night and this morning. Dozens of new companies are showing up as potential candidates for our portfolios. So I see opportunity. You got one to share right now or are you going to save it for stocks on our radar? I'm going to save it.

All right. Big week in the battle for your living room. Shares of Netflix fell 20% on Thursday after third quarter subscriber numbers came in low. And just hours before Netflix came out with their earnings, Time Warner announced that HBO will launch a standalone streaming service in 2015. Matty, let's start with Netflix. We've seen this kind of drop on earnings news happen before, and they have bounced back from it. They have.

I mean, I don't think I can count. I can't count the number of times that Netflix has fallen 20% after earnings. And it's usually for the same reason. It's because their subscriber count just didn't meet expectations for that given quarter, or they give kind of a tepid guidance about subscriber numbers going forward. Either way, you have to look at the results here and know that they still added 3 million subscribers, almost a million in the U.S. in the quarter, 3 million overall against a base of about 33 million subscribers.

That's a huge number, and Reed Hastings is out. He's always confident and optimistic about the company. He still thinks they're on track to have somewhere in the neighborhood of 60 to 90 million subscribers just in the U.S. alone. And the international side for Netflix is growing like crazy, and they've just really entered that market in a major way over the past year. So if you take a long view of Netflix, realizing that this is going to be a stock that will inevitably be volatile in the future, the opportunity is still quite great. But now we're seeing bigger companies who have watched Netflix prove out this concept, and now they're taking it on on their own. Time Warner with HBO's standalone CBS came out later in the week and announced that they're coming out with their own streaming service for $6 a month.

You get access to everything on CBS. Right. I mean, I have to tip my hat to the PR people at those companies, given the timing with Netflix's earnings for these announcements. But, you know, there are a lot of smart people out there saying, well, you know, HBO had to do this. CBS had to do this because they've got to compete with Netflix. That alone really is a statement. I mean, if you had three or four years, that would have been unheard of. So Netflix, this validates the Netflix model. They were the pioneers.

I still think they're going to be one of the big players no matter what happens in the space. And it's exciting from a customer perspective that we're going to finally unbundle a lot of these cable packages and people can buy and subscribe to what they want. You actually tipped an imaginary hat. I wish we were on TV. Oh, come on, Ron. He physically gesticulated. I did. I pulled my hair up here.

Johnson & Johnson's third quarter results were better than expected, and the company raised their guidance. That's normally a good combination, James, but shares of Johnson & Johnson down a little bit this week. Yeah, the stock was at an all-time high, Chris. just a few weeks ago. So I think the main story is not just J&J's results explicitly, although we can talk about that,

but just the state of investor expectations around this company. This is forever like a really good company and it underperformed the S&P for a good spell, like for several years, and it finally kind of got back into gear. So I think investors are kind of missing that.

Logistically, they have a big hepatitis C drug that was bringing them in about $800 million a quarter that was commonly paired with another drug. And now Gilead Sciences is making an automatically paired two-in-one drug that's going to compete with this. So J&J is scrambling here. But this may be an ironic and odd beneficiary from Ebola,

but I think J&J is hurrying up their Ebola vaccine business, and that may be a boon here. Well, and it is worth pointing out, after years of trailing the market, you look at the last two years. This is a stock that has really performed well. I'm wondering, though, if all of the value has sort of been wrung out of this company and if expectations need to be scaled back. By my model, and I love to be proven right just as much as Ron Gross, who's looking at me, does, J&J is still about 8% overvalued.

So I think it's a great company. It's been a little bit rich for quite a while. The world's biggest search engine just got a little bit smaller. Shares of Google down this week, despite third quarter profits of $3.7 billion and overall revenue of more than $16.5 billion. That's not good enough for you? It's not good enough for investors, apparently. Yeah, the stock hasn't done much this year.

It's actually down about 5%, but I think the business looks really strong, revenue up 20%. What people didn't like is that margins contracted, and it's the same story we see over and over again in various companies like Amazon and Google. The company is spending money. They're hiring. They're putting money into R&D. That increases operating expenses. It has the effect of decreasing margins. People don't like to see that.

But if you believe in the investing, that investing for the future is important, then you should be a fan of that. Two metrics that everyone watches with Google is the number of clicks. That increased 17%. However, that's decelerating in terms of growth. People don't look to see that. And then the amount that they can charge per click keeps falling. That's down 2%. The good news is that decrease is moderating.

So it is a mixed bag. It wasn't all unbelievable metrics, but the company generates a ton of cash flow. It continues to grow. I don't think the stock's expensive here at around $530 a share. I probably would hold it, wouldn't look to sell until we probably broke $800. Yeah, it's worth pointing out, for all the attention Google gets for Google Glasses and the driverless cars, advertising is the golden goose. And as you pointed out, that's a trend that has been going on for a few years now of just their ability to charge for advertising.

At what point does Google get pressure that they have to come up with a brand new golden goose? Well, I mean, I think the advertising market will be around forever, but it's a competitive market. And, you know, there's a lot of big players looking to take some market share away. I think Google has a lot of stuff going on in the cloud. Like, who doesn't? But they certainly do. And they put money behind YouTube, which is, again, an advertising model. Google Express, the delivery service, is something that's interesting.

I don't think it will necessarily move the needle for quite some time. But they've got enough going on where I think we'll see additional revenue streams in the future. Ron, you phrased that as if you yourself have a lot going on in the cloud. Is that accurate? I don't know how to respond to that. Do you have a Google Drive? No, I don't. Really?

Coming up, Earnings Palooza rolls on. Stay right here. This is Motley Fool Money. Welcome back to Motley Fool Money. Chris Hill here in studio with Matt Argesinger, James Early, and Ron Gross. Guys, before we get to more earnings news, got to welcome a brand new affiliate station this week, WAFS Biz 1190 in Atlanta, Georgia. Welcome.

Good taste. Welcome, Atlanta Fools, and thank you, WAFS. Love to be on your station. Shares of eBay down this week in the wake of third quarter results. Matty, the results themselves look pretty good, but this was one of those situations where they lowered guidance for Q4, and that sort of trumped the results. Right. Again, it's all about the marketplace business, which continues to kind of just muddle along where you've got PayPal. The PayPal business is growing really well, up 20%, almost $2 billion in revenue there, mobile payments jumping. And this is what everyone's excited about. They're excited to get this piece out of eBay. because the marketplace business continues to hang like a cloud.

Revenue there was only up 6%. Earlier in the year, they had the SEO, the search engine changes that Google made that's hurting their results. eBay used to really depend on those to get their listings higher up on search. Lots of things going on. CEO Donahoe is making some investments. They're really going to focus on that business. I actually am fairly optimistic. Once they do break apart the two companies, I think the marketplace business has not been focused on it.

I think there's a lot of good brands there. the marketplace itself, but also StubHub and other things that, you know, once this is a marketplace business focused on that with a lot of capital to put to work, eBay might be a company to look at again. Who was the last thing you bought on eBay? Are you an eBay? I am an eBay guy. I admit I have a bit of a comic book collection. Interesting. Marvel or DC?

Marvel mostly. Some DC guy. So I'm on there. I'm on there frequently. You've touched on something that I think when it comes to eBay, a lot of investors are, this is the big question, because I think there are a lot of investors, and I'm one of them, who looks at this in the opposite way. I look at this as, once they spin off PayPal, the marketplace business, if I'm betting, my bet is that it's really going to struggle. I know, but I think what's going to happen is you're probably going to get that business at

a pretty compelling valuation. It's going to have a lot of investable capital. And I just think a more focused business, it could do well. It's going to be unloved for that reason. Shares of Mattel hitting a two-year low this week after third quarter profits fell 22%. And, James, I know they have a lot of toys, but a big part of the blame for this quarter has got to fall on the narrow shoulders of Barbie. Chris, Mattel has been a bloodbath of a stock, and there's no way to sugarcoat it. It's an income investor recommendation. It's down 40% year-to-date. The best quote I saw was from a Wall Street Journal article saying,

And Funville Sparkle Girls, this is a generic Walmart imitation Barbie, has now taken up about a quarter of the 16 feet of retail space that Barbie used to command there, according to a BMO analyst. So Barbie is 55 years old. That's an old brand. And I think the interesting angle here is sort of a game theory question. If you're a company like Mattel and you've got something that has value but is sort of dying, how do you know whether to try to really get in there and resurrect it or just kind of let it age gracefully? And a lot of companies face this similar decision. For Mattel, it's not looking pretty. Well, and the long-term problem is that for the last 20 years, they've had this relationship with Disney,

where Mattel has been the company to make the toys that are built around the Disney princesses. And next year. And it's going to revert over. Those rights are going to revert over to Hasbro. That seems like a really big win for Hasbro. Yeah. I mean, for Income Investor, we have Hasbro also, so we're kind of neutral on that. Hasbro.

You're hedging your bet there. It's all about me, right? But Hasbro has done a significantly better job, Chris, and they're still struggling because the toy market is not really that great outside of the digital toy business. But Hasbro has been much better about licensing, getting the big names in there, because that's what kids want. They don't care about just regular toys anymore. They want the Elmo football, the Transformers, this, that, and the other, whatever it is. Well, I wonder, you know, that's what I wonder. You know, some of the boys' brands, you know, do translate better to things like video games and action series.

And I just wonder if maybe that's one thing that's hurting Barbie and Mattel a little bit, is that a lot of their brands just can't make those media platform leaps like a lot of Hasbro's brands. I think it's probably true. Hasbro is more boy-focused. On last week's show, we talked about how semiconductor stocks were tanking because microchip technology issued a sales warning. This week, the biggest chipmaker of them all weighed in. Intel's third quarter results, their profits up nearly 14%, Ron, and the market was unimpressed. Yeah, I think that's partly because of the volatility we were talking about earlier, not necessarily just really about Intel.

I thought the numbers looked good. The PC business continues to do well, and for the longest time we talked about how it wasn't. This is a result of this kind of computer refresh cycle. That's not really sustainable. It will happen from time to time. It's a rather lumpy cycle. The business of Intel for the future is about tablets, and it's about mobile. We own it in a million-dollar portfolio.

That's been our thesis all along. We're thinking they're making headway, but it's going to take a while. The mobile business is still not profitable, but we think they're on target. So we think there are bright things for Intel going forward, certainly brighter than for AMD. I don't think anyone thinks that AMD's prospects are necessarily all that bright. But I am curious about Intel from this perspective. We talk about big tech companies like Google and even Microsoft and Cisco Systems, Apple to a smaller degree, making acquisitions. And it seems to me that – I don't know how much cash they have on the balance sheet over at Intel, but it seems like they would have certainly both the opportunity and the means to make strategic acquisitions that would lead to the type of growth that would really pay off in the long run.

Yeah, it's a build or buy kind of a scenario. When they start getting into chips for mobile, for example, do they build them internally, put a ton of money into R&D, or do they go out and make a large acquisition? For the most part, they're a company that has done it internally. But I certainly wouldn't be surprised to see kind of more smaller kind of tuck-in acquisitions, a technology here or some people. You can acquire really good folks as part of an acquisition as well. Intel look cheap to you today? Yeah, it sucks around $31. one where we sell is around $40? Before we dip into the Fool mailbag,

I should mention we have a special offer on Motley Fool Stock Advisor. It is our flagship service, and it is a great way to get started investing. And you can learn more just by going to mfmoney.fool.com. That's mfmoney.fool.com. Or send us a text message. Text the word FOOL to 38470. That's 38470. Text the word fool. We'll send you a link to get 75% off Motley Fool Stock Advisor. Radio at fool.com is our email address. Let's get to a couple of emails from our dozens of listeners. From Tim Casby in Russia, is Ron Gross related to Bill Gross? I had never even thought of that. The king of bond investing, Bill Gross. Any chance he's a distant relative? Uncle Bill, call me, please. No, unfortunately, he is not.

Safe to assume that if you were a relative, you would walk out the door and never return. No, not at all. I would never leave you guys. Did you spend time looking to see if he was a relative? No. You're not looking to see. He could be then. He could be, right?

You're curious. Theoretically. He could be, theoretically. Far, far back. Ron needs a loan. What's that website I see ads for on TV? Is it Ancestry.com? Yes.

Should we do it? I think you should. I think we should do it. What do you got to lose except a couple of bucks? He's in Colorado now. I mean, we have a full office in Colorado now. There you go. A little gross.

From Roi Granot in Israel. On a recent show, you discussed that when flying drones become commercial, they will have to be with zero mistakes. I was recently a witness to a drone accident and felt like I had to share. At a friend's wedding, the couple rented a flying drone to take photographs. In the middle of the wedding, the battery went dead and the drone crashed into the groom. He was rushed to the hospital and the wedding was cut short. The groom recovered and has a few stitches on his face. Yikes.

Wow. Who was the drone promoter here? I was going to say, that's bad for the groom. I'm not going to lie. That's bad for the groom. But if you're a guest at that wedding, I mean. You've got a story to tell forever. You've got a story for the rest of your life.

Let's go to our man behind the glass, Steve Broido. Steve, ever seen anything that exciting at a wedding you've been to? I used to DJ weddings back in the day. Really? Yeah, it was terrible. It was just horrible. Did you have a DJ name? No, no, no.

No, it was not that high end a company. Any kind of accidents out on the dance floor that compare to a flying drone? Nothing like that. This was before the age of technology, though. So, you know, today anything is possible. Drop us an email, radio at fool.com. Send us your investing questions, or even better, send us the best story that you ever witnessed at a wedding. That's radio at fool.com.

All right, Ron Gross, Matt Argesinger, James Early. you guys will see a little bit later in the show. Coming up, Motley Fool CEO and co-founder Tom Gardner sits down with LinkedIn founder Reid Hoffman. Stay right here. You're listening to Motley Fool Money. There's a better way to borrow money. It's called prosper.com and it's turning the lending industry on its head. Borrow up to $35,000 at a low fixed rate without setting foot in a bank. To check your rate instantly, go to prosper.com slash fool and get a $50 Visa gift card when you get a loan. Prosper.com slash fool. Other restrictions apply. See site for program Visa prepaid card details. All personal loans are made by WebBank, a Utah chartered industrial bank

member FDIC, equal opportunity lender. Welcome back to Motley Fool Money. I'm Chris Hill. Since going public in 2011, the business networking site LinkedIn has racked up big returns for investors. Motley Fool CEO Tom Gardner recently sat down with the founder of LinkedIn, Reid Hoffman. They discussed topics including the financial services industry and corporate culture. But they started by talking about Reid Hoffman's new book, The Alliance, Managing Talent in the Network Age. So let's start with one story in the book, which is the story of John Lasseter. Just because I think it captures pretty well the problems that many companies, when you look at the Gallup data that shows that 70 percent of people are going to work either indifferent or downright negative about their job or their boss or their employer, they're missing the opportunity that maybe somebody like John Lasseter is bringing their way at their company. And maybe give us the John Lasseter Disney Pixar story.

The John Lasseter story. I've met John Lasseter now, actually. So John was working at Disney. Young person, maybe first job. And he went to them with a, oh, we should do computer animation. We shouldn't do it this way. We could do these amazing things. And the management, as opposed to saying, well, look, the key thing about companies in the modern age is being adaptable.

The key thing is actually using intelligence that comes from the network inside the company and broadly in terms of figuring out what is our future, basically said, no, that's dumb. And they fired him. Right? So the absolute worst possible response, which of course leads to… It's essentially like we're tired of your crazy ideas. Yes. Like we've asked you to do your job. Yes.

You keep bringing these… Yes, exactly. And so the end result of that, of course, is he goes off and co-founds Pixar, right? Pixar is a mammoth success, and the way that Disney keeps its future is Disney buys Pixar, right? Which, of course, shifts from an individual salary to a multibillion-dollar acquisition, right, as a— The value that could have been created inside of Disney was missed because they didn't look at their employees anything more than an asset to manage rather than talent and passion to unleash. And the key thing when you think about

how do you have an adaptive and innovative company is you have to think, how do I get a network of ideas to refine them? So it's not command and control. You know, I am CEO. It is my vision. Even Jobs, by the way, didn't work that way. Steve Jobs did not work that way.

He constantly was talking to people, getting a source, and was like, what are the things that make it possible for me to do? And you want to architect that structure all the way down in the company. So they even, like, for example, a manager is saying, how do I get network intelligence in order to know what I'm doing?

Because we live and work in a networked age. And so the thing is you have an interesting, innovative, ideating employee who you say, okay, is this good stuff? I should pay attention to it. Now, if he was saying, I think we should be doing tiddlywinks and the other kind of thing, you sometimes will have that, and it's like, okay, that doesn't work. But, like, clearly computers, software is going to transform animation.

This is a good signal. How do we encourage the people to actually help us adapt into the future? One of the beautiful things about network intelligence, which you articulate so well in the book and which is just in evidence at LinkedIn since inception, is it essentially invites people to admit that they're wrong. Once you have a network of ideas, there's no embarrassment. It's one of the hardest things to do is to take a public stance and say, I made a mistake. I've always loved the John Maynard Keynes line. What do you do when you get more information that suggests you're wrong? I change my mind.

Yes, exactly. And so that network invites exchanges and ideas. And I remember Jobs at one point saying, I'll walk into a meeting with the most passionate belief, and I will walk out and talk to the rest of the company as if I never had that belief. Yes. So how do you create a network? Like how does a company that isn't LinkedIn, how do they start deploying it? Well, there's a couple different things. So one is every employee has a network, right?

And you actually want to have employees have networks, be active in the network. So, like, for example, one of the things we write in the book is to have some policy by which they can take people they know out to lunch, as long as they're reporting that intelligence back to the company. So it's like it doesn't have to be a client. It doesn't have to be a, you know, like I'm recruiting you. I mean, those are obvious cases. But, like, look, just someone who knows something that could be helpful to the company, I take you out to lunch, and I learn myself, and I expense it, but I expense it as part of reporting it back to the company. So it benefits the company as well as, you know, as me and so forth. Another one is alumni.

So what people haven't realized as a consequence of the fact that people now kind of go and work at a number of different companies is companies have large, very active, still-in-the-industry alumni that is a resource that is essentially just thrown away, right? Because they're like, well, you worked here. You should be grateful. You should just do things for us. Well, they've got a new employer. They've got things to do with the new employer. So it's not like that's their primary person that they're dancing with.

And so you can't just say, well, you should do things for us. It's like, no, no, it's a two-directional street. As long-term investors of The Motley Fool, what we look at first, typically, is the culture. We look at, is this set up for long-term success? The portfolio that I managed at The Motley Fool, I mandated to hold for at least five years. So it's a waste of time to think about what will happen in the next six months. Or to overrate valuation, it is obviously a factor in the investment. But why is LinkedIn, I mean, the alliance is the playbook.

So maybe I'm just asking what I've already asked you. But why is LinkedIn a 4.5 out of 5 with something like 6,000 employees and a CEO with a 98% approval rating across more than 700 employees that have taken the time to rate the CEO as, I guess, perhaps the most, one of, and I think he is the most highly rated CEO of a public company on Glassdoor of size. Why has that happened? Well, partially because Jeff's great, right? I mean, he focuses on a culture that has the characteristics of the alliance, which is, like, how is it really great to work here? How is it that you feel like this is part of the progression of where you're going, that the whole transformational promise is actually delivered on? Part of it that he focuses on, how do you help train leaders? Like, one of the things that where Jeff has a deep skill bench where, you know, that's just, it's different than me, is, like, I am a good partner to leaders.

Jeff is a good trainer of leaders, right? Like Jeff's like, how do I help you become the leader that you are, right? And then how do I help a sort of like, actually, in fact, you're a great leader here but not here, and how do I help you understand that? And accept that and love that. And love that and make progress. And so that culture of how do you run an organization that's committed to the transformation, is focused on operating well, and has a real degree of kind of openness but also kind of attention to what that promise is in terms of how do you make progress, how do you become more of a leader, How do you hold each other accountable in a compassionate way? Like it's kind of the we are striving for excellence and we're making sure when we interface with each other that's what we're doing.

But we're also doing it in a way that is like not – we don't have any people with anger management problems. And there's no one-upping here. We're both on a mission. We're both passionate about the purpose. We're foundational. We're in the foundational zone if we're in leadership at LinkedIn. in. And so typically a high performer in a foundational zone craves feedback. Some companies think that they crave more money, but what they really crave is an inspiring challenge, a great

group of people to work with, and feedback for what they can do better and what they're not good at. Yes. All of that. And also the sense of meaningfulness about what I'm doing. Like what this work, this matters. Like what I do, this matters. And so that's another part of leadership. What do you think of Wall Street financial services industry? Our position, our vantage on it is incredibly short term. The commission structure is set up in a disadvantageous way for clients. Many of those clients are passive investors that are unclear about the relationship that they're getting into with a financial advisor. And that advisor ought to be able to be automated. I think just like the driverless car, your entire financial life, these are rules-based. It's not that complex to get people to pay their credit cards off, get a passive index fund. If they want to buy stocks and beat the market with the Motley Fool, awesome. We get insurance, get their mortgage.

Why is there so much inefficiency still in financial services when financial services have been investing in tech companies? There seems to be such a movement within those two industries, and yet we still sit in the face-to-face, advisor-led, commission-led structure. I think the dysfunction is that the majority of people don't actually understand how bad for the actual returns, like how much leverage fee structure puts on, like making it very difficult to do. And they're so uncomfortable with the product area, they just want to have someone talking to them about it. And you're like, you realize, actually, in fact, that's reducing value, not adding value. And so, as you know, I'm an investor in Wealthfront through Greylock. And I also, generally speaking, like myself, except for the very specific things that I do where I'm expert at them, I generally park things in low-fee ETFs and so forth. Because that's the way to go long and over time.

And when friends of mine ask me, well, what should I do? It's like, well, Wealthfront, ETFs. And if you do specific investing, make sure you're an expert at it. Like, make sure you know what you're doing. Because if you do it casually, the likelihood is it's terrible. And if you just outsource it to someone else, well, the question is, like, look, the macro question is, in terms of their investing with your money, is, well, if they were so great at it, why aren't they just running their own fund? Why are they investing your money? I mean, that's kind of the...

Our Motley Fool principle is we have skin in the game, too. Yes. And that's a Nassim Taleb, Black Swan author. Key point in financial relationships is are they putting their money behind their own advice? If they aren't, which is not happening in most cases, you can virtually guarantee that that's going to be a subpar result after fees and after taxes. No chance. Exactly right. So the passive indexing or skin in the game component, like you want to know that Warren Buffett.

And that's why we love the founder mindset at companies that you talk about in the alliance and the founder-led businesses. And that's why parking your money with that founder, whether it's the Starbucks lead or the Facebook lead or the LinkedIn lead, is a great way to invest long-term. And you guys do great content. As I told you, one of the reasons I'm here is because actually I love your content. And so I actually read it every so often. I want to throw a few one-liners at you to end. You can answer them as briefly as you'd like to. They're just one-liners tied to the alliance.

And I want their unique, relatively unique takes you have, I know. So what would you say if somebody, we have many entrepreneurs in the Motley Fool community, said, I tell everyone that works at our company that we're a family? Oh, so I would say it's a serious long-term mistake. And the reason it's a serious long-term mistake is what you're creating in people's minds is that we are loyal to each other above everything else. and so for example uh like okay like you don't divorce your brother you don't fire your brother or your child for performance things and yet you will do that in the right circumstances and how and what is the needs of the business and what how are you performing those really matter so we

suggest team right that we are a team and we have the loyalty of a team we have the emotional connectivity of the team we have the trust of a team you need all these things in teams we have that but we have this performance metric that isn't like oh no you can trust us it's all great And it's a cheap trust that ultimately you will break. And when you break it, it's going to be seriously painful. A CEO of a company in New York City, actually one of the most highly rated companies on Glassdoor, a small company, about 80 employees, called Elite SEM. Their CEO, who I met with about six weeks ago, said,

whenever somebody at our company tells us that a headhunter called them, we give them a bottle of wine. And we do that because we want to celebrate that their value is going up in the marketplace and that the trust is built between us that they came over and said, I got another headhunting call. We get him or her a nice bottle of wine. Good idea, bad idea to think that way. Great idea. And great idea because it has an open, honest conversation, right?

Because that should be paired with conversations about where you're going, what's your transformational tour of duty, and all the rest of the stuff. But the open and honesty and trust of it is awesome. And, for example, one of the things that people realize is every single employee on LinkedIn, has a super complete deep LinkedIn profile. Right. Because that transformation going out in the world is part of what,

that's the way the world should operate, is the way that LinkedIn operates. It is more important for an employee to have an awesome external network and for all the employees to have an awesome external network than it is for a company to be deeply concerned about its proprietary information.

Yes, I think that's exactly right. And I think that part of it is, it's not to say you don't have secrets. It's not to say trade secrets are not helpful. So not to say you have plans and everything else that you don't want to share, you don't want to publish. Part of what we distinguish, actually, in the alliance is non-public, non-secret information that actually can be useful. So there will be things that I will go and I'll say, hey, here's LinkedIn's analysis of reputation systems. And, yeah, it's information that we've built, right, that I'll be talking to someone else.

But I'm talking to them and going, look, here's something that would be helpful to you that is not breaking any confidentiality rules, It's not saying anything about what, like, LinkedIn's sales are doing or what LinkedIn's secret strategy plan is or any of those sorts of things. But it is information we built and we invested in, and we don't publish it because we don't see any value to publishing it. But I'll share it with you as I'm talking to you because then you'll also share similar kinds of information with me. And which happens among investors all the time. Yes. In fact, I would say that a member of the general Morgan Stanley team that worked in part on the IPO after you had gone public at LinkedIn said to me, this is my favorite company to go through the IPO process of Morgan Stanley, period, in any industry because I love their leadership team and I love the B2B, B2C. I love the dynamics of that economic model.

And although I hadn't launched my portfolio yet, and although LinkedIn was going to be holding it, that conversation with him caused me to keep adding to LinkedIn repeatedly, which is, of course, a key move as an investor to add to your winners. If it's being reaffirmed, don't be worried that you're moving your cost basis higher. Yes, exactly. Double down on the things that you know are winners. And I wasn't saying anything that was specific about LinkedIn. I know that. As a LinkedIn shareholder, I want to know that you're going to just continue to be part of LinkedIn in a big way. Do you see other big LinkedIn entity companies outside of LinkedIn that you'll be starting?

Oh, no. No. Got it. Okay, right. You're a Greylock investor with great satisfaction, and you're an executive chairman at LinkedIn with great satisfaction. Yeah, so the reason we're here today is that the majority of my working days are in this office. Yeah. Love it.

Reid Hoffman, the author, co-author of The Alliance, thanks so much for spending time with us. And I did want to confirm one last little thing that I read on your Wikipedia page. Is it true that you made one of the earliest investments in Facebook? Yes. Actually, I intro'd it to Peter, and I was part of Peter's deal then. Just one great investment after another. So anytime you want to join our investment team, just let us know. Reid, thanks very much.

Coming up, we'll give you an inside look at the stocks on our radar. Stay right here. You're listening to Motley Fool Money. As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. Welcome back to Motley Fool Money. Chris Hill here in studio once again with Matt Argesinger, James Early, and Ron Gross.

Guys, before we get to our stocks on our radar, we've got a sponsor this week. Awesome. Stocks on our radar brought to you by Prosper.com. Borrow up to $35,000 at a low fixed rate with Prosper. Their peer-to-peer marketplace connects people looking to borrow money with those who have money to lend. And to check your rate instantly, go to prosper.com slash fool, and you get a $50 Visa gift card when you get a loan.

That's prosper.com slash fool. Steve Broido, can I get a disclaimer? Other restrictions apply. See site for program and Visa prepaid card details. All personal loans are made by WebBank, a Utah-chartered industrial bank, member FDIC, equal opportunity lender. And that's why he's the man behind the glass. He is so good.

All right, he's going to hit you with a question. And, Ron Gross, what's on your radar this week? Earlier in the show, you teased a little something that came up on your screen. You think people hung around just for this? Absolutely. This is one of the opportunities that has been created by the volatility we've discussed. It's a new company for my deep value service, Modine Manufacturing, M-O-D. They make heat transfer products for automobiles, trucks, industrial equipment,

so stuff like radiators and cooling systems and condensers. Stock's dirt cheap. It's around 12. I think there's 40% upside from here. I think it's worth a good look. Steve, question about Modine? Does Matthew Modine, the actor, have an interesting party in this? That's your question.

You could have asked me anything. No, he does not. I've got to say, that was the first question I had as well. Matty Argersinger, what's on your radar this week? Sure. I'm going with a stock that we bought a few times in my Supernova service. It's Maztech MTZ. It is an oil and gas pipeline infrastructure maker.

maker. They do also wind energy, solar energy. Berkshire Hathaway is a customer owned and operated by the Mostek family, who owns about 20% of the company. Really well run. Beaten the heck out of by the lower oil prices, so I'm looking at it today. Steve, question about Mostek? Do you think oil prices will be higher or lower one year from today? Higher. No doubt. Nice and easy. James Early, what do you got? I'm going to, with financial institutions, the ticker is FISI, F-I-S-I, 3.4% yield.

This is a really conservative bank in kind of a small town part of New York. They really have no idea, I guess, how the rest of the banking world operates. They've got about $2.5 billion in deposits and $1.8 billion in loans, which is incredibly conservative. It's kind of like the Amish of the banking world, in my view. Again, I don't know what that means. If Amish people were bankers, they would be really conservative, I guess, right? So these guys are like that. Steve?

Is there a place in the world for local banks anymore? Yeah. Yeah, I mean, this area of the country likes the high-touch, high-cost model, whereas the Bank of America and those other people, they've decided that people, they don't care. They'll put you through some massive phone tree because you'll deal with it in exchange for lower fees. But in some places, they still don't like that. Steve, financial institutions, Mostek, Modine Manufacturing, anything floating in your boat? I think Modine sounds pretty interesting. I knew it.

I knew it. Is that because of the business or because of your fervent hope that Matthew Modine, the actor, is somehow involved in this business? I don't see the latter. I'm not going to lie. All right. Ron Gross, Matt Argersinger, James Early. Guys, thanks for being here. Thank you, Chris.

Thank you. Hey, we love feedback on this show. So if you have any suggestions, something we could be doing better, please tell us. Drop us an email, radioatfool.com. And if you like what we're doing, by all means, please tell others. Post a review on iTunes or Stitcher. Tell your friends, your coworkers. Anyone you think might enjoy hearing a conversation about money and investing that's just a little

bit different than what they've come to expect from the financial media. Help us spread the word because our mission here at The Motley Fool is to help the world invest better. And this radio show is one small way we try to do just that. That's going to do it for this week's edition of Motley Fool Money. The show is mixed by Gail Año Nuevo. Our engineer is Steve Broido. Our producer is Matt Greer. I'm Chris Hill. Thanks for listening, and we will see you next week. Thank you.