Motley Fool Hidden Gems Investing - Motley Fool Money: 12 03 2010

Episode Date: December 3, 2010

The EU tries to contain the crisis in Ireland. Pepsi scores in Russia.  Google bids for Groupon.  And Abecrombie & Fitch reports some fashionable sales growth.  On this week's show, we'll talk about those stories and talk with Vanguard founder John Bogle, author of Don't Count On It:  Reflections on Investment Illusions, Capitalism, "Mutual" Funds, Indexing, Entrepreneurship, Idealism, and Heroes.   Learn more about your ad choices. Visit megaphone.fm/adchoices

Don't you wish you could just hit skip on the worst parts of your life? You know, the same way you can skip an ad? I get it. I'm Siaya and I live in Ice Cove. I've made some questionable decisions that didn't end up the way I planned. And today I'm still figuring it out. Somehow things usually get worse before they get better. Apparently, that's how I roll.

So bundle up and come along for the bumpy ride. Stream a new episode of North of North Tuesdays on CBC Gem. everybody needs money that's why they call it money from fool global headquarters this is motley fool money welcome to motley fool money thanks for being here i'm your host chris helen i'm joined by motley fool senior analyst seth jason james Early and Tim Hanson. Guys, good to see you as always. And good to see you, Chris. On today's show, Pepsi gets its kicks in Russia, Abercrombie reports some fierce sales, and Google goes after Groupon. We'll talk with investing legend Jack Bogle, the founder of Vanguard, plus, as always,

a look at the stocks on our radar. But we begin with the big macro, and guys, so much for the holiday cheer. On Friday, the Labor Department reported that the unemployment rate jumped to 9.8% in November, a seven-month high. The economy added 39,000 non-farm payroll jobs in November, much lower than expected. But Seth, revised jobs for September and October show 38,000 more jobs were created than the original estimate. Break down the numbers for us, please. That's the number I actually look for because the earliest reports, and that's the headline number we're seeing today, those are often revised by up to 60,000 jobs either direction, although lately it's usually been in the up direction.

So we had about 20,000 per month for the prior two months, upward revision. So that's better. But this headline number isn't great. And, I mean, I guess it's a job gain that's better. I'm not sure what analysts were expecting. I'm not privy to what their hopes and dreams are. But when I look at this report, as I usually do, I see that the trend in temporary help,

which is kind of a leading indicator for the economy, but although it's not the highest quality employment, it was up 40,000 in the month. Healthcare, which had been a source of strength for a long time, only inched up 8,000 jobs. And retail trade employment, according to the report, fell 28,000 at department stores and others. It looks to me like many of the companies out there that are the retailers, we know they're cutting prices. We see that in the news. And it looks to me like they are trying to offset those price cuts by keeping their staff very slim over the holiday season. It doesn't sound like it makes sense, but that's the best guess I have.

James Early? Yeah, the retail is pretty interesting. We did have fairly strong sales, but yet they're not hiring. The job stuff, to me, is still a non sequitur. We have 9.8%, the highest unemployment, at least for now, since April. But then according to the Wall Street Journal, the four-week moving average of jobless claims is actually the lowest since August of 2008. So maybe these people have just given up and forgotten about looking for a job. But I just don't know that we have enough tea leaves to read here yet.

Tim? Well, we've talked in the past about how businesses in the United States were sort of holding off on capital spending and on hiring. And that just appears to still be the case. There's no certainty they're not hiring, and that's going to hold off any sustainable recovery. Well, and the other big macro story is the ongoing crisis in the EU. A lot of anxiety over the situation in Ireland. There's concern that Portugal may be next in line for a bailout. Not Portugal!

Who would have thought? That was my port drinking habit. You're a global gains guy. What are your thoughts on all this? Well, I mean, this is fascinating in a lot of ways for a nerd like me. You know, basically, we talked in the past about, you know, what is the future of the euro? And that's really what's hanging in the balance right now. Now, when it comes to Europe, the reason they're going through all these bailouts, they let Iceland collapse.

And the reason they let Iceland collapse is they had no ties to the rest of Europe. If Ireland were to collapse or Portugal were to collapse, it would cause widespread banking failures across Europe and cause the EU to rethink the entire euro currency. As it stands now, they have no way to get out of the euro. And the current generation of people in political power there were the ones who created the euro. And I think, you know, speaking politically, they want to have legacies, and the euro they see as their legacy. Jean-Claude Trichet, the European Central Bank president, basically made unlimited money available to European banks this week.

And while that caused a sell-off in the U.S. market when Bernanke said he would do it, Europeans apparently are very fired up about the fact that they're going to be printing unlimited money. But it's basically just going to come down to can these politicians preserve the euro or stay in power long enough to preserve the euro before they get voted out by all the angry people in Europe? If you're asking yourself the dumb question that I always ask myself, not being that smart, which is why does this matter in any of these countries? The reason is once you're locked into this multi-country currency, you do not have access as a country to the tool that is the only way to get out of these bad economic situations. The only reason Argentina is still around today. Which is to devalue your currency either all at once or gradually.

They cannot do that. And countries like Spain, Portugal, and Ireland certainly cannot increase productivity enough to compete with the Germanys, et cetera. So they are really stuck in a really bad place. James? Well, you know, on the topic of Ireland, there's always a freeloader in every group. You know, I'm the show panelist, obviously me. But what's worse is that the Irish banks are actually, this is to Tim's point, I read the most exposed to Spain, Portugal, and Greece. In other words, they're the ones who lent all that money to these sketchy countries.

Well, the U.K. is even concerned. A lot of people say, oh, the U.K. made a great move. They stayed out of the euro. They've got the pound. They're going to be great. But their banks bought an enormous amount of European debt. Some of the U.K. have said they'll even step in to help Ireland because if the euro goes down and all those loans blow up, the U.K. banks are going down too.

It's so funny because nobody really likes Ireland, but they have to. What are you talking about? I think I said this last week, which is that Ireland has long just been the leech on the EU. In the early days, they got all this money, and they just built up their country. They had a great economy. Then they overspended, and now they're being bailed out again. They're just a total leech on this union. What am I, in like 1870s New York or America here?

Leave the poor Irish alone. We've got a couple of Irish guys right here. My home country is just taking a pound in here. Look at the size of his head. We know exactly where he's from. At what point does Germany just say, enough, I'm out of here? I'm done. There's no legal way for them to even do that.

So in order for Germany to bail out on the European Union, they would have to amend all of the treaties that are governing the union, which, among other things, requires massive legislative approvals across Europe and a popular vote in Ireland. You're listening to Motley Fool Money. Chris Hill here with Seth Jason, James Early, and Tim Hanson. Guys, some good retail news this week for the first time in history. Sales on Cyber Monday surpassed $1 billion. Seth, you're our retail guru. How big an indicator is this for the holiday season?

sick of Cyber Monday. Does anyone care about Cyber Monday? I think that was a thing back when nobody spent online. I don't think the Cyber Monday number matters except much to media pundits who are really sad because they can't talk about Black Friday

anymore. But to me, what's more important is how much money is continuing to be spent online, and companies like Amazon are still growing at rates far in excess of their bricks-and-mortar peers, And that's a very interesting trend. So that's the trend I would look for.

And Amazon is one of the leading companies. There was one interesting nugget in the data about Cyber Monday for people who say this is that crossing the $1 billion threshold is a sign of consumer strength. While sales were up 16% in Cyber Monday, the number of actual buyers declined 4%. So the thing that drove the growth was average selling price, which speaks to Seth's point that people are getting more comfortable buying things online, particularly big ticket items. But there was no broad consumer strength. The number of buyers actually went down. And also that people who have money continue to have money. A truism that has governed the world for eons.

Target reporting same-store sales in November up 5.5%, well above analysts' expectations. Abercrombie & Fitch, same-store sales up 22% in November, and the stock jumped 11% on the news. Seth, those are some fierce numbers. Well, Abercrombie did so bad for so long. Should we explain the fierce reference? The fierce thing is when I went to their investor relations page for the first time a couple of years ago, I guess, or I don't know how many years ago it was, to directly get a press release instead of getting it from some other source, I didn't know I was on the investor relations page because there was this giant shirtless dude and just the word in red, fierce, written across or near his pecs. Did you enjoy the picture? I did not.

I went to the guest investor relations page, which I recommend to everybody as a far superior alternative. I was hoping to find something to make fun of Abercrombie for in this release, but I couldn't really find much. I actually called the phone number and listened to it, which is something the reporters out there don't normally do, to see what was going on beneath the surface. Now, I will say that Abercrombie did not tell us much about the discounting, and I assume that they cut prices quite a bit to get people in there. All they said was that average retail unit was down 3%, which isn't bad considering the sales growth they had, and that they did indeed plan this to be their strongest month, which means they probably blitzed everybody they could think of with advertising, with circulars, et cetera, in order to get them all in this month.

And they hint that they're going to give up some sales in the coming months, but it's still a pretty good report from a company that was struggling for a long time. James? Yeah, the teen retail in general was really hot, as Seth obviously knows. I spend so much time with the teenagers in the mall. You're definitely- I saw Seth in Hot Topic the other day. Yeah.

Hey, that place has got great sales because nobody's buying anything. All right, if you had to own one of these stocks and hold it for the next five years, Target or Abercrombie? Tim? I say Target. They've been putting up incredible numbers in the U.S., and that new card, I think we talked about this last week, their new loyalty card has been doing really well, so that was a nice innovation.

James? I might go off script and say Aeropostale, the imitation, quasi-imitation, Abercrombie. Who disappointed? If we're going off script, I'm saying Walmart. Co-CEO, stock is down like 14%. Seth? I'll stay on script and go with Target. Abercrombie is entirely dependent on a fad continuing for years,

and their business is to be the most expensive player in that fad group, and that's not a good position. Coming up, is Google getting a good deal if it spends $6 billion on Groupon? Talk amongst yourselves. This is Motley Fool Money. Welcome back to Motley Fool Money. For investing commentary and analysis 24-7, go to the Motley Fool's website, fool.com. Chris Hill here in studio with Seth Jason, James Early, and Tim Hanson as we dig into some of the companies making headlines this week. Guys, numerous reports that Google is looking to acquire Groupon, the popular daily deal site,

for anywhere from $5 billion to $6 billion. What do we make of this? Groupon is a private company, so... I think there's a very, very happy guy as he started Groupon. Yeah. A 30-year-old founder or something? Sure.

Come on. Good for him. But if you're a Google shareholder, are you excited about this? Oh, you're used to them just spending wild sums of money on things that may or may not make sense. Does it even matter if this is a wasted $6 billion? I don't think the average Google shareholder cares.

CNBC was reporting this week that what makes Groupon attractive as an acquisition is they apparently have an amazing gross margins, 50% somewhere in that neighborhood. Show us the books. Well, you know, I don't think it's the margins that attracted Google so much. I think it's the fact that they think that they can take Groupon's business, which has been by all accounts anecdotally successful. Again, we don't know the numbers. We don't know how they're booking their revenue or recording their margins, but, and then better target it. From what I know about Groupon, they only do one deal a day And it's just they blast out the deal in that city to the people who have signed up.

I assume what Google would want to do is know what, obviously because Google watches you at all times by peering through your window, they would know what you actually want a deal for and then better match the coupon with the consumer. And that's why I think it's an epic fail if they get it. Because, well, one, I won't go into how I think Facebook knows better things about you and could do something better. Mark Zuckerberg is creepier than Google.

Knows more. But I think that the reason Groupon sort of works is there's one thing per area, right? And if you start blasting people with a variety of extra stuff, that I think you kind of dilute the buzz. I don't see how it works. That may be true. At least not for $6 billion worth of value. James? I see Groupon as an evil tool that preys on the weak.

I mean, if you look at it, first of all, the average discount is 50%. And of the remaining purchase price, Groupon takes half. And how many really famous, legitimate businesses do you see using Groupon? Not many. It's these sort of no-name startups that are desperate for business. It's sort of like the rent-to-own or the pawn shop, payday lender world for small businesses, basically. But a lot of companies are looking very closely at this space. Amazon this week made a $175 million investment in LivingSocial, which is a D.C.-based competitor of Groupon.

Founded by Georgetown, right? Well, let's go back to what this is. What this is, is this is the online equivalent of that coupon booklet that that cute little 11-year-old Girl Scout sells you in the fall where you get 20 bucks worth of stuff for $10 or whatever, and there's all these coupons. In fact, I believe the Groupon founder started this business out of kind of morphing that charity thing into a for-profit situation. And so there is really no moat here, although I have to say that the name Groupon works so well that that may be as much moat as they need for a while. Well, there is no moat to speak on that. The Living Social founders, I was reading the bio because I was interested as a Georgetown alum myself about how they founded this company, which seems to be doing well. And basically, they vetted a company, failed at a few things, and then sort of found their way into the coupon business because they saw it working in a couple other places.

What's the best deal you've ever gotten? All this talk of deal making. And it doesn't have to be with Groupon. Purchasing something? Yeah. Best bargain, best deal you ever got. James? Wow.

I got a hell of a deal on underpants at the Gap Outlet. I remember this story. I remember this story. I couldn't resist. The next 30 years, I'm going to be wearing Gap underpants and the elastic dry rods. Last time you said they came with a free tennis ball, but sock, it was a sock. Steve Broido? No amazing deals.

We recently bought a house, and we didn't have a realtor, and normally that doesn't work. And it almost didn't work, but then it did work out, so we did pretty well there. So your house, which— Thanks to Groupon. For regular listeners of the show, your house, which has been basically the bane of your existence, that's the best deal you've ever gotten? Pretty much. I think so. I'm planning on dying there. Yeah, and he's talking about next week when he falls off a ladder.

All right, let's move on. Pepsi has bought a controlling stake in Wim Bildan, a Russian food and beverage company. Pepsi spent $3.8 billion to get it. Tim, is this a good deal? Well, you know, I'll say this. Russia is a large and exciting growth market. But one we have heretofore totally avoided at Motley Fool Global Gains because it is also a cesspool of corruption. I say good luck to Pepsi.

You have a very interesting business. You didn't pay a horrible price because of the fact that Russian stocks aren't expensive because everybody knows it's a cesspool of corruption. But you are probably going to have a little bit of a tricky hand operating and getting money in and out of the country. They also got a good price because the deal was announced before it was announced that Russia's getting the World Cup. in 2018. They made a massive investment in Russia. Russia is now Pepsi's largest emerging market, and they did it before Russia was awarded the World Cup, so they probably got a

discount to what they would have had to pay today. James? Well, the interesting backstory here is the Russians are going crazy for milk. Their current consumption is like less than half the developed world average, but it's been growing at 22% annually since 2006. So this is Wimbledon, which is named for

Wimbledon tournament, and the founders wanted something that didn't sound Russian, because Russian-sounding stuff sounds sketchy to Russians. It's been accomplished. Exactly. It's big in milk. Are these the guys who make the yogurt beverages, or am I thinking of a different Russia? Kefir?

I don't know. Well, they do. I know Coke in Russia, they only sell about 50 eight-ounce Coke beverages per year per capita in Russia, and it's about 150 to 200 in the United States. So as James points out, this is happening in a lot of the emerging world, rapid per capita beverage consumption growth. So it's an interesting market, but, again, good luck with the authorities, the regulation, getting treated fairly and all that. And those other authorities. Oh, boy.

Speaking of the World Cup, on Thursday, FIFA awarded the 2022 World Cup to Qatar, or Qatar, as some people pronounce it. In the days leading up to the announcement, infrastructure stocks in Qatar were rising. Coincidence, Tim? This is inane for so many reasons. You're a big soccer fan, so you weren't happy about this. I was unhappy. I was hoping to take my newborn son, who would be 12 in 2022, to a game here in the United States. Now we'll have to somehow fly to Qatar, Qatar, Qatar.

The Q. The Q. Um, so A, you know, there's been a lot of talk about FIFA being bribed to give this tournament to the Q. I think that's given the action in stocks that there may be some truth to that rumor. But just to talk about the inanity here, Qatar's population is 1.4 million people, making it roughly the size of San Antonio, Texas. And its average temperature during the World Cup months is a balmy 106 degrees. San Antonio, Texas.

Apparently, in addition to building 16 stadiums, which they'll never use again, they will air condition the entire country. I mean, this is an environmental disaster. That's warming the earth by three degrees. Once they build the air-conditioned stadiums, that's all going to be taken care of. You know, having been to – I flew through Doha earlier this year, and I will say this about Doha. Is that the big city? That's the big city.

So it's desert, city, desert. That's basically the cue for you in a nutshell. But it's a fascinating airport. I likened it to the pub in Star Wars because – The cantina? The canteen? Because basically you can see every type of person from the world is crossing paths in Doha. I was the American-looking blonde gentleman passing through, but there are people going to sub-Saharan Africa, the Middle East, India, Asia, Europe, Latin America.

It's a true crossroads. It's a fascinating city, but I don't think a good choice for the World Cup. The guys will be back later in the show to talk about the stocks that are on their radar, but we want to hear from you. Are you a Groupon fan? What's the best deal you've ever gotten? Email us at radio at fool.com. that's radio at fool.com. Fortune Magazine called him one of the investment giants of the 20th

century. Coming up, we'll talk to Vanguard founder John Bogle about investment illusions and the problem with your mutual fund. This is Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. Fortune Magazine called our guest one of the investment giants of the 20th century. Time Magazine named him one of the world's 100 most influential people, and yet he still comes on our show. John Bogle is the founder of Vanguard, the largest mutual fund company in the United States. He's the president of Vanguard's Bogle Financial Markets Research Center and the author of nine books. His latest is Don't Count On It, Reflections on Investment Illusions, Capitalism, Mutual Funds, Indexing, Entrepreneurship,

Idealism and Heroes. Jack Bogle, welcome back. It's good to be with you, Chris. The title of your book, Don't Count On It, comes from your belief that we're giving numbers a weight they don't deserve and that we're undervaluing things that can't be quantified. What are the main ways that focusing too much on the numbers hurts us as investors? Well, you know, we treat, we see a number, and if it's got a decimal point, we think it's God's truth, like the unemployment rate is 9.4 percent or something and yet we all know that if you say if you add to that unemployment rate uh the number of persons who have given up looking for jobs it almost doubles almost 18 percent so we deceive ourselves when we see those numbers we give them credibility they don't

deserve and uh we also give and the stock market is one of the one of the places where this kind of illusion of numbers is worst. You know, we think the past is prologue. It not only is it past market returns in this case, not only are past market returns not prologue, they really can't be. Because as I talk about in the book, past market returns of 9% were 4.5% from dividend yield and 4.5% from earnings growth, because corporate earnings grow about the fastest, fastest in our economy pretty regularly. And the dividend yield today is about 2%. So we have a 2.5% deadweight loss in future returns that aren't accounted for by looking backward. And then we talk about returns, another real aberration, is we talk

about stock market returns in terms of nominal dollars and not real dollars. So if we take that, say, 7% return or 9% return of historical times, which won't be that high in the future, and take 4% inflation in the last 100 years. And that 9 is only 5 when you talk about real dollars, spendable dollars. And then you say, well, let's talk about mutual fund returns. Well, mutual funds are charging, give or take, around 2% a year, counting their expense ratios, counting their portfolio transaction costs. We transact business speculators in this industry to a remarkable extent and sales loads.

And that's about 2% a year off that 5. So now we're down to 3. and I haven't even got to taxes yet. You're listening to Motley Fool Money. We're talking with Jack Bogle. His new book is Don't Count On It. I want to get your thoughts on a recent article in the New Yorker magazine.

It was entitled, What Good Is Wall Street? The author, John Cassidy, points out that the financial services industry, which is the most profitable industry in America, doesn't design, build, or sell anything tangible. and he goes on to note that financing vital industries and innovation is now a smaller piece of what Wall Street actually does. You've said that on balance the financial system actually subtracts value from society.

I guess my question is, do you think there's any good that comes from Wall Street? Of course there's good. And we do need a capital allocation, capitalism demand, a capital allocation process in which capital goes to the most promising companies and industries in our country, or for that matter, outside of our company. And we allocate capital to the best investments, and that's what Wall Street does well. If you look at the amount of new issues compared to the volume of trading or the amount of Wall Street revenues from trading as compared to the Wall Street revenues from underwriting or, you know, capitalism, capital formation,

in round numbers, I don't want to get too big a limb, but I think I can say with some certainty that about 85% of what Wall Street does has nothing to do with capital formation, nothing to do with capital allocation, and everything to do with speculating, pitting one investor against another, and the winner is, of course, the croupier that is Wall Street.

You know, if Wall Street persuades me to sell my, let's say, IBM, I don't happen to hold any individual stocks, but persuades me to sell my IBM, persuades you to buy it, the world will little note nor long remember who holds the IBM stock. The man in the middle, however, the croupier, just like in Las Vegas, the croupier makes money every time stocks change hands. So we have an industry whose profitability is based not on capital formation, but on speculative trading, by and large.

And I won't say some trading isn't good. I won't say we don't need some trading for liquidity. But it has gotten so far out of hand that you can barely recognize Wall Street today compared to Wall Street when I came into this business 50 years ago. In fact, 50 years ago, the turnover in the New York Stock Exchange was about 20%. percent. And today, turnover on the stock exchange and NASDAQ, which has become a big factor, is, I think, around 250 percent. And if you took this lunatic fringe, high-frequency trading, the turnover is probably 800 percent a year. And that makes no sense at all,

except for the people that are doing the trading. You know, to call them croupiers, that's a rather refined and elegant image that you've given to Wall Street middlemen. They've been called far worse than that. I try and be refined. We're talking with Jack Bogle, founder of Vanguard and author of his latest book, Don't Count On It, Reflections on Investment Illusions, Capitalism, Mutual Funds, Indexing, Entrepreneurship, Idealism, and Heroes. Jack, that's a lot of ground you've covered in your book. You left out sex and religion. Is that your next book?

Well, let's just say that religion might be. Fair enough, fair enough. When it comes to this book, one of the things you touch on is the failure of capitalism. What are a couple of things that you think need to be done to prevent another financial collapse like we've seen over the last couple of years? Well, you know, the investors are their own worst enemies. The capitalism is fine, but our behavior gets us confused about what the whole business is about. When you have a trading activity, trading dominates, as Lord Keynes said way back in the mid-1930s, when investment, long-term investment, becomes a mere bubble on a whirlpool of short-term speculation,

the job of capitalism will be ill done. And that's where we are today. What surprised you the most about the financial crisis? I had absolutely no idea, except very much at the fringes, how overextended our banks and investment banks were in terms of risk in the portfolio, the leverage in the portfolio, number one, which is always a problem, no matter what the circumstances, because markets can move, and B, the grotesque lack of investment quality in the portfolios.

These collateralized debt obligations, all these debt credit default swaps, all these special purpose entities, which were like money market funds except the bank guaranteed them, and all of that comes home to roost. So it was the craze of speculation, the desire, the fever, really, for enriching the participants in the system, the investment bankers and the bankers, at the expense of the public. And I knew it wasn't good. I actually wrote a book called The Battle for the Soul of Capitalism five years ago now, and I talked about many of these problems. But honestly, Chris, I had no idea how far I was understating them. We're talking with Jack Bogle, the founder of Vanguard, and his new book is entitled Don't Count On It. Part three of your book is entitled What's Wrong With Mutual Funds? For the benefit of our listeners who haven't read your books or maybe don't know all that much about Vanguard,

what is the problem with mutual funds? Well, that's the reason I put, to begin with, the title is technically What's Wrong With Mutual Funds? And mutual is in quotes. So the first thing that's wrong with mutual funds is that they aren't mutual. They are pools of capital organized by investment managers, often investment managers who have been bought by financial U.S. and international financial conglomerates, and they buy into the fund business and earn a return on their capital, not a return on the capital of the mutual fund investors that they're supposed to serve under traditional standards of fiduciary duty.

So that's essentially what's wrong. And what flows out of that is a whole lot of things that are very detrimental to investors. First, costs are excessive. The expense ratios of funds are half again as high as they were. When this industry was teeny in 1951, when I wrote about it in my Princeton thesis, we had one of the largest funds in the industry had an expense ratio of 0.19, less than two-tenths of 1%. And the only firm in the industry that gets anywhere near that now, of course, is Vanguard. The average expense ratio is up around, for equity funds, up around somewhere between 1.1% and 1.2%, fairly weighted by assets.

So the operating expenses are much too high. Number two, portfolio transaction costs are high because we turn over our portfolios 100% a year now. And that's speculation. It's not long-term investment. And number three, despite the strong impact of the no-load business, the kind of thing without sales commissions, let the buyer be the path to the better mousetrap at your door, we have about two-thirds of all mutual fund sales are made with sales loads. And that, of course, greatly depresses the investor's future returns. So in all those ways, we've gone off the wheels.

heavy heavy cost an emphasis on speculation rather than investment and still relying on an industry built on marketing rather than management or an industry as i've said in another book much too focused on salesmanship and not enough focused on stewardship the book is don't count on it and jack before we let you get away we need to wrap up with a round of buy, sell, or hold. Let's start with President Obama's Bipartisan Deficit Commission recently proposed this. Buy, sell, or hold, raising the retirement age. Buy. Why? Because it was put in when the average life expectancy was probably 60, and now the average life expectancy has crept up to about 80, and we don't recognize that in our retirement plans. A, and B, you know, it was put

into effect when a lot of people actually worked, sweated, did hard labor. And that's only a very small part of what we do in the United States today. We're providing services, even financial services, that aren't physically demanding. And I like to think that my mind is still good enough. I'm 81, and I'm not going to retire, maybe ever. I don't know. But it's different in demographics. The world is different in demographics and different in duties. One of our writers at The Motley Fool recently wrote about this and sparked a big debate on our website. Buy, sell, or hold, eliminating the mortgage interest deduction. Definitely eliminate, but only at certain levels.

Whether that ought to be $250,000 where you get it up to $250,000 and not beyond. I think we tend to talk in all or nothing terms, but that would be a reasonable thing to do. You're known for your long-term time horizon, but a lot of people see this institution as threatened or possibly even outdated. Buy, sell, or hold marriage? Buy marriage. Look, the basic family unit has survived centuries. It's faltering a little bit. I think Time magazine said it was all over.

I don't believe it's all over. I think we need marriage. marriage of a man and a woman with children, family, and, you know, people can do their own thing. I'm not arguing that point at all, but I do think the raising of children requires a marriage, and a marriage has something to do with commitment, and we need a little more commitment, I think, here in the U.S., a little bit, a little less self-interest. Now, you've been married much longer than I have. Do you have any advice? Oh, absolutely. I have two pieces of advice. I've been married 54 years, and I have two pieces of advice for anyone that wants to emulate that.

First, marry a saint, and second, never forget the two most important words in the English language, yes, dear. I think I got both those covered. Okay, good. You're a lucky man if you got the saint. Finally, you underwent a heart transplant in 1996, so this may not be an improved part of your diet. But buy, sell, or hold the future of the Philly cheesesteak. The future of the Philly cheesesteak is very good. So I'd buy, but I'd be very careful about everything else you eat. So it's an indulgence. It's an indulgence, and don't get carried away.

I actually have a cheesesteak once a month. Really? Yeah, why not? Next time I'm up in the Philly area, you got a recommendation for me? I'm not so good. I'm not very picky. I'd buy you a cheesesteak. Come on up here to the Vanguard galley where it goes for about $3.25.

Sold. I will be up there in 2011. The book is Don't Count On It, Reflections on Investment Illusions, Capitalism, Mutual Funds, Indexing, Entrepreneurship, Idealism, and Heroes. Jack Bogle, thank you so much for joining us. Thank you, Chris. It's been my pleasure and a lot of fun. Coming up, a look at the stocks on our radar. This is Motley Fool Money.

As always, people on the program may have interest in the stocks they talk about. Don't buy or sell stocks based solely on what you hear. I'm Chris Hill, and back in the studio with me, our trio of senior analysts, Seth Jason, James Early, and Tim Hanson. Guys, time to talk about the stocks on our radar, and let's bring our man Steve Broido in here to, well, just to unfairly grill you about your stock. Tim Hanson, we'll start with you. Well, at the risk of getting James Verley suspended by the FCC, the stock on my radar this week is Female Health Company, which is a maker of the female condom.

Now, you may not know the female condom, but it's actually a very valuable tool for fighting the spread of AIDS in sub-Saharan Africa and in Latin America. The reason it's interesting is because they just transitioned from a first-generation product, which was made out of latex, to a second-generation product made out of polymer, so it's a lot cheaper to make. So even though sales volume this year in the fourth quarter, they released results on Friday, was up 20%, revenues were flat.

The market doesn't like seeing flat revenues, but sales volumes are going up and gross margin is going up. So it's actually a neat little opportunity. And what's the ticker symbol? F-H-C-O. Steve Broido, I think I speak for everyone when I say I can't wait to hear your question. I guess my question is, as a recent father, Tim. No, that's not my question. My question is, adoption of the, I mean, is that really taking off?

That product in this country doesn't seem to have, is it going to take off elsewhere? Well, that's true. That's why I think there's a misunderstanding of the stock. I think a lot of people say, you know, I've never seen, you know, I could get in a lot of trouble here, but I've never seen a female condom in the United States being used, you know, or is not popular here. Or even in a store. Or even sold. Or even sold.

I mean, they are, you can find them, but they're very, they're easy to find at clinics as like giveaways. The government is really subsidizing these because they have a couple advantages. Like, you know, a lot of the times the mail is an aggressor. And so, you know, watching Tim's face, Tim has flop sweat just everywhere right now. I really wish this was a video. Let's just say that if I don't see it in a vending machine in the restroom, I'm not into it. Right. So people in the United States generally make fun of it as a concept. But as I said, it's a very valuable tool in other parts of the world for fighting the spread of AIDS.

And it's misunderstood, but a very interesting little company. All right. James Early. Chris, I know my way around the sewage industry pretty well. When you think of sewage, think of me. Also, water, though. They go together. They're called water companies, but they're really water and sewage. And one I'm looking at today is called York Water.

Y-O-R-W is the ticker, based in Pennsylvania. It just has like a $203 million market cap, so it's very small, 3.2% yield. But it has a long history of raising its dividends, basically everything you like about a stable water company or a bigger stable water company in a small package. Steve, why would I want to buy a water company right now? Steve, in a recession, for instance, nobody's going to cut back on flushing the toilet, for example, on doing laundry, things like that. Water is one of the most resilient businesses or industries we have. So it's very stable. It's not sexy.

Returns are regulated. You can't just charge whatever you want, but the benefit is you essentially have a monopoly if you're a water company. Seth Jason? I'm just going to have to go with James Early's teenager pick there and just say if you're looking for a consumer stock or retailer right now and you believe that teenagers are crazy and spend a lot of money on clothes, then you might as well look at Aeropostal, which was flying high for quite a while this year, is now down into the 23 and change. The ticker is ARO, and usually produces quite a bit of free cash flow, has a very smart operating model, and is, I think, one of the better plays in that space. Steve, teen retail.

With Aeropostale, I mean, I remember that being in high school, that store being around. It never seems to have really taken off. Oh, but it did take off. You just didn't notice. Why wouldn't I have noticed? I mean, because I see Abercrombie everywhere. I mean, you see their ads. You see it seems to be a pretty dominant company.

Aeropostale seems to be just a weaker brand. Am I mistaken? I believe you are mistaken. It targets a different income group. And I mean, it is everywhere. And what we remember from long ago is not the same business. That's Jason, James Early, Tim Hanson. Guys, thanks for being here. Thank you, Chris. Thanks to our special guest this week, Vanguard founder Jack Bogle. His new book is Don't Count On It. For the latest analysis and investing commentary each day throughout the week, go to fool.com. Our engineers are Steve Broido and Gail Agnonuevo. Our producer is Matt Greer.

I'm Chris Hill. Thanks for listening, and we'll see you next week.