Motley Fool Hidden Gems Investing - Stocks We're Thankful For

Episode Date: November 25, 2016

In the spirit of Thanksgiving, our analysts give thanks and help themselves to some humble pie. Best-selling author Dan Heath talks about his book, Decisive: How to Make Better Choices in Life and in Work. And Pawn Stars star Rick Harrison talks about life at the Gold & Silver.   Learn more about your ad choices. Visit megaphone.fm/adchoices

Great news! The Federal EV Rebate is back! Eligible customers get up to $5,000 with the Federal EVAP Rebate on select 2027 Volt and 2026 Equinox EV models. Visit your local Chevrolet dealer today for more details. Everybody needs money. That's why they call it money. The best things in life are free But you can give them to the birds and bees From Fool Global Headquarters, this is Motley Fool Money. It's the Motley Fool Money radio show.

I'm Chris Hill, and joining me in studio this week from Million Dollar Portfolio, Jason Moser, and from Motley Fool Pro and Options, Jeff Fischer. Good to see you, as always, gentlemen. Hey, hey, Chris. It is our Thanksgiving special. We will give thanks for some stocks. We will call out a few turkeys.

We're going to check in with Rick Harrison, and star of the hit TV show Pawn Stars, as well as bestselling author Dan Heese. But guys, it's our Thanksgiving special, and that means one thing and one thing only. Yes, it's the sound effect. People ask, how much money does it take to produce Motley Fool Money? Hey, we blew it all on one sound effect that we play once a year. A shoestring budget, would you say? Steve is going to make extra use of it today, I can tell. It's been a long year without that sound.

It is. We save it up so that Steve gets to use one sound effect once a year. Let's go around the table. Let's start with a serving of humble pie. When you think about the last 12 months, a business story that you were wrong about or a stock that you were wrong about, Jeff Fischer, have a little humble pie. Oh, this is very humble. In January, I recommended buying call options or a bullish position on American Airlines. I've never invested in airlines before, so it was a leap of, not that leap of faith, it was a change in thinking. Thinking the industry is here to stay profitable finally. But by summertime, the position had lost much of its value, and we closed it.

We closed it at a loss. The stock was down by 50% or so. Still looked incredibly cheap. Here we are now, a few months later, the stock is all the way back up. It's actually higher than it used to be. And we get news last week that Warren Buffett is buying it as well, for the same reasons we argued back in January. So, it's a very painful round trip, being wrong both times. But the lesson is, when you're buying in a new industry that you're not that comfortable with, you have to work extra hard to stick with it. I got shaken out of it because I didn't have the comfort level that I needed. Jason, what about you?

Well, jeez, Twitter. We hardly knew ye. This is one that I was bullish on for a long time and I think that for me it's been a tremendous disappointment because I see a platform with so much potential, and yet it seems to have just been so mismanaged that I don't know that there is any way to really ultimately right the ship here. We've seen signs of good decision-making, I think, in things like the live streaming and adding more functionality, bells and whistles to the platform, but I think it's been offset with what at least appears to be slow-moving to really change things and make an impact. I was very enthusiastic with Adam Bain, the COO, partnering up with Jack Dorsey as coming back as the part-time

CEO, at least. And now, that's even been blown out of the water, with Bain recently stepping aside to go do other things. So, this is one that, in a million-dollar portfolio, we bought this position, we still hold it, and it was based on either management getting it right, being replaced and the other management team getting it right, or ultimately an acquisition. I think at some point here now, we're looking at a business that will ultimately be acquired, and we typically don't advise people invest with that thesis. So, as we own shares, as I own shares, I'll continue to hang on to them, because I do think there is some potential to get something out of it, because it is a valuable, hard-to-replicate platform. But

it really has been just a disappointing, disappointing investment. I have to echo some comments made by Ron Gross last week about Best Buy. I just continue to be wrong about it. That stock is up nearly 50% this year. We focus on management here at The Motley Fool, and Hubert Jolie has done a phenomenal job turning that business around since he took over a few years back. It's a great story. It reminds you how difficult it can be to short a company, to sell it short and bet against it. Everyone thought Best Buy was cooked a number of years ago, and the opposite has happened. Alright, we've chowed on some humble pie. What's a stock you're thankful for?

I have to say MasterCard, and I bring it up at least a few times every year, but I should. It went public in 2006. The stock has been a remarkable performer up every year, except for 2008, where it had a little dip. And yet, as big as the company is, $115 billion market value, there's a lot more potential ahead. They just grew earnings 19% last quarter on a 14% gain in revenue. They're starting to sell data analytics to their customers as well. So, they have a lot of different ways to grow really high-margin profits. MasterCard, great company. MA is the ticker. Jason?

Yeah, one I've talked about a lot here on the show is Ellie Mae. It's a stock that I tapped at the very beginning of the year as my stock for 2016. So far, that has worked out very well. Shares, while they have performed well for the year, they're up 36%, they're actually down 25% since the election. I think that is mainly because of big questions regarding, number one, interest rates, and then number two, President-elect Trump's take on Dodd-Frank. And we know that mortgage reform was a big part of that. Ultimately, though, that doesn't really change this business. I mean, there is one company out there that can change with regulation. It's Ellie Mae, and they are a very big provider for most

lenders out there in the country today. So, it's fundamentally the same business it was the night before the election. And it's, I think, got a lot of opportunity ahead of itself. And so, we'll continue to hold shares in MDP. And I own them personally. Excited to see what 2017 holds for Ellie Mae. My single largest holding is Starbucks. And when I think about the market opportunity for Starbucks in China, I remain ever thankful. Ticker SBUX. All right, Steve Broido, our man behind the glass, get ready. The turkey stocks. A stock that you would avoid, because it is such a turkey. We've got a few minutes left. Jeff Fischer.

GoPro is down 45% this year, and I would still avoid it. They're just not getting it done between product delays and so-so reviews on their drone, and falling margins, and expected losses next year as well. I wouldn't touch the stock. It's still a $1.4 billion company, which is quite large for the numbers they're putting up. Jason, what about you? It's funny you chose GoPro, because I was actually going to give you a twofer here. GoPro was going to be one of them. These are two companies that are very similar. We took a question on MarketFoolery not long ago, where we were looking for the lesson to extrapolate

qualities of certain businesses that haven't done so well. Fitbit, I think, could be another one of those businesses. It certainly holds a lot of the same qualities. I think it's It's one thing to think, okay, they've had such a tough year, things can only get better from here. But we know the reasons why they're having such a tough year. If they can't go through this holiday season really getting it done, I'm not sure what 2017 necessarily holds for them. Now, I will say, I do think Fitbit has at least some opportunity to leverage that hardware base into the healthcare system as it adopts more and more technology. But Ultimately, where the stock is today, it seems way too optimistic for what these guys lobbed

up those for. So, I'd be very careful with it. Still a $2 billion market cap on Fitbit, Jason. Yeah, it's a lot of expectations in there. Steve Broido, long-time listeners know you're a very involved investor. You must have a stock that you see out there in the universe that you think is a turkey. Stone Moor! Stone Moor! Stone Moor! What is Stonemore Party? It was an income investor. They own funeral cemeteries, and it's just gotten absolutely destroyed.

O' Do people stop dying or something? I almost started dying when this happened. O' They cut the dividend in half, and so the stock fell by more than half. Can we all agree that that's never a good sign, when the dividend gets cut in half? Especially when you're a dividend stock, a yield stock. So, yeah, I don't follow Stonemore anymore, but I feel for you, Steve. Maybe I shouldn't say this, because this is a big-box, bricks-and-mortar retailer

in the same vein, at least structurally, as Best Buy. But when I look at Sears Holdings, I just see a company that, even though the stock is down around 70% over the past two years, and I'm sure that there are people looking at it, investors, thinking, it's a cigar butt. That just seems like it is fraught with peril. It's still alive, I'm surprised. It's a $1.2 billion company, so GoPro and Fitbit are valued higher than Sears right now. And that's scary when you consider the real estate on Sears' portfolio. And remember, that's how many investors were looking at Sears. But also, you take the flip side of

the coin, Macy's is actually doing a very good job of exploiting the value in that real estate portfolio. So, it shows that it is possible, but it just looks like in Sears' case they failed to do it. Maybe Sears needs to take a page from Best Buy. Yeah, steal Hubert Jolie as your CEO. All right, Jeff Fisher, Jason Moser, thanks for being here, guys. Thank you. Up next, it's Rick Harrison from the hit TV show Pawn Stars.

Stay right here. This is Motley Fool Money. What do you get when you mix a Las Vegas pawn shop with the History Channel? Television gold. Pawn Stars is the highest rated show on the History Channel and one of the highest rated shows in all of cable television. And one of the stars is Rick Harrison, the owner-operator of the world-famous Gold and Silver Pawn Shop and author of the new book, Licensed to Pawn, Deals, Steals, and My Life at the Gold and Silver. Rick, welcome to the show.

Thanks for having me. Now, your pawn shop really is a family affair. You work with your dad, you work with your son. How did you get started in this business? When we first moved to town in 81, my dad went broke in San Diego. You know, in 1981, he sold real estate at 19% interest rates. You can't sell a lot of houses. Yeah, it wasn't going too well back then.

And he'd always bought and sold gold and always wanted a pawn shop, so he figured, what the hell, I'll move to Vegas. For people who have seen your TV show, obviously a lot of what they're seeing is the selling, people coming in to sell items. where does it shake out in terms of selling versus pawning what what you know what percentage of your business at the shop is selling versus pawning oh i do much more ponds than i do uh people selling stuff but there is a stigma attached to the whole um pawning thing and um there's not really to

selling something so um the people who pawn stuff never want to be on television i mean and after two and a half years of filming i've more or less given up even trying to get those people on television. And for those who don't know, could you just give a thumbnail sketch explanation of what are the dynamics involved in pawning? How do the economics work? The economics are pretty simple. It's the oldest form of banking. I mean, it's literally in the Bible. You bring in a piece of merchandise to me, say it's a wedding band. I offer you $100. If you accept it, I give you $100. I take in your merchandise. I put it in an envelope. I put it in my safe. And I hand you a pawn ticket and say you come back in 30 days. You give me $115. I give you your merchandise back

and that's the end of the transaction. Here in Nevada, the laws are that I have to hold the stuff for a minimum of 120 days. So if after 120 days, you don't pick up your merchandise, it becomes mine, title, 100% transfers to the pawnbroker. Now I can put your wedding brand in my showcase and put it out for sale. I can scrap it. I can do whatever I want with it. nothing goes on your credit report. I don't sue you. I don't go out there to break your legs and get my money back. Thank you. That's the end of the transaction. All right. Let's talk about a few of the items that you've carried and that you write about in your book. One of them, the battle plans for the attack on Iwo Jima. Yes, there was a lot of people who had those

prior to the invasion. No one kept them, though. You've got to remember the mindset. It's the 1940s. People didn't really think about things like that. And there was actually one guy who was a landing craft operator who kept the entire set of plans

in his inside coat pocket for the entire war. And his son ended up selling them to me. One of the other items you write about is a pimp's ring that's shaped like a king's crown. Yes. What is the story behind that? Being in the pawn business my entire life, I have seen every single walk of life. I have talked to pimps, prostitutes, single moms, politicians, and billionaires.

So you get to know every aspect of society. And back in the day, up until like 10 years ago, every pimp had to have a crown ring. And if you read the whole book, you'll realize that pimps always have to have a lot of jewelry. When a pimp is generally arrested, he's arrested for pandering. So any cash he has on him will be confiscated for evidence. But the jewelry won't. So when he gets arrested, the jewelry is impounded. He sends someone down to pick up the jewelry, which can be taken back to the pawn shop so that they can get money for bail.

And that's also why pimps always buy their jewelry in pawn shops, because if you buy something in a pawn shop, generally the agreement is you can always pawn it back for half of what you paid for it. You're listening to Motley Fool Money. Our guest is Rick Harrison, author of the new book License to Pawn, Deals, Steals, and My Life at the Gold and Silver. In terms of the pawn shop, what's the best deal you've ever made? The best deal I've ever made was back in the early 90s.

This is pre-internet. A lady came in with four photograves. I could tell right away they were photograves. It's a late 1800s, early 1900s photographic process that was really expensive to do at the time. They were of American Indians. I knew they had to be worth something, but they were worth it. I had no idea.

So I took a shot. I gave her 50 bucks for them. And I used to have to go to the library like once a week. There was all sorts of weird things I'd buy, and I'd have to do some research on them because I found out, I mean, a long time ago, if you put a story behind something, it's a lot easier to sell it and you can get a lot more money. So I go down to the library, I start looking everything up and I find out that in

the world of American photography, you have Ansel Adams and one step. And the next one down is Edward Curtis. Uh, these were all photographs by Edward Curtis and the, um, negatives were in the Smithsonian. Wow. And I got $20,000 for the, uh, for the photographs. Now, unfortunately I have to ask you the flip side of that which is what's the worst deal you've ever made

the worst deal I've ever made um this was like two years ago and the guy was actually filmed doing it wow

I bought a pair of earrings off a guy in a suit with receipts everything I gave him $40,000 for the earrings

the next day the police came down and took the earrings they were fakes no no no they weren't fakes they were stolen and i mean and uh there was when that happens i lose every dime now are there ever times where

where you or members of your staff won't buy something because it's it's too personal um or or is this a job where you just can't allow sentimentality to enter the equation a pawnbroker with a heart is a pawnbroker out of business fair enough yeah so um you know i'm not here to judge anybody or anything else like that. The way I look at it, thank God you had your mother's wedding ring so you could actually pawn it or sell it to make rent. It's much better than the other guy who didn't have anything and is out on the street. Now, one of the things you write about in your book is learning to negotiate by watching your father negotiate. Yeah. For our listeners out there, what's one thing we should keep in mind when we're negotiating? Okay, first

off, never give the first price. I mean, why throw out there the first price? I mean, why tell someone you'll pay them $1,000 for something when you can say, how much are you looking to get out of it? They say $500. I mean, the second you give the first price, you're always negotiating against yourself. The second number one rule I always have, never fall in love with it. I mean, if you have to have it, you've already lost. Always be willing to walk away from a bad deal. All right, Rick, we're going to wrap up with buy, sell, or hold. Let's start with the founder of PayPal recently started a $2 million fund aimed at getting college students younger than 20 to drop out of school and start a business.

You dropped out of high school. You've been very successful. So buy, sell, or hold the value of a college education. The value of a buy. If I knew everything that I know now, I knew it a lot earlier, I'd have been a rich man a lot earlier. One of the stars of your TV show, Pawn Stars, is Chumlee, your employee. Buy, sell, or hold Chumlee-branded merchandise. Oh, buy, buy, buy.

Now, are you saying that just because you make a profit off of that, or is that really the most popular stuff? Oh, 50% of my merchandising is Chumlee. He is a rock star. He tweets that he's going to be at a nightclub. A thousand people will show up. And women flock to him. I don't get it.

I don't get it whatsoever. All I know is it works. And finally, you have now got both of these things, buy, sell, or hold, fame and fortune. Buy. It beats the alternative? Oh, definitely, definitely. My girlfriend just thinks it's the greatest thing in the world because every time we go to the strip or a restaurant, they go, oh, Rick, right this way. Up next, we're talking decision-making with bestselling author Dan Heese.

You're listening to Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. Are you looking to make better decisions? Of course you are. Who are you kidding? Dan Heath is the senior fellow at Duke University's Center for the Advancement of Social Entrepreneurship. And along with his brother, Chip, he is the co-author of bestselling books like Switch and Made to Stick. And their brand new book is Decisive, How to Make Better Choices in Life and Work. Dan, thanks so much for being here. Thanks for having me on, Chris. So not to dwell on the mistakes, but what are one or two of the biggest mistakes that people make when making decisions? You know, I think there are

a lot of candidates for that, but I think my number one might be what psychologists call narrow framing, which is our tendency to limit our options too much, to get trapped in one way of thinking about our dilemmas or to be only considering one alternative. There have been a couple of fascinating studies, one of teenage decision-making. The researchers from Carnegie Mellon studied the process that teenagers use to make decisions, which I suspect a lot of parents are kind of chuckling at the notion that their teenagers are using a process to make decisions. But what they found is that in only 30% of the cases when teens made decisions,

were they considering an alternative, that what was far more common was for them to make what the researchers called a whether or not decision, meaning they were considering one thing and the choice was do I do this or not, do I go to the party or not, do I smoke a cigarette or not. So we might be tempted to say, well, of course teens act that way, that's why they're teens. But what's interesting is there's a guy named Paul Nutt

who did essentially the same study of organizations. And he studied the way managers made decisions. And in one of his studies, he found that only 29% of organizations considered more than one alternative when they made decisions. And so, you know, to the best of the psychology researcher's abilities, what we have found is that most organizations are making decisions like hormonal teenagers. Fabulous. There is this kind of grand trap that we all fall into to think about our options as being one,

rather than the full spectrum of things that might be available to us. You're listening to Motley Fool Money, talking with Dan Heath, co-author of the new book, Decisive, How to Make Better Choices in Life and Work. At the other end of the spectrum, one of the CEOs that you cite in your book is Andy Grove, the great leader of Intel for so many years. And in a story that I love, he finally figures out a way to get Intel out of the memory chip business and invest everything 100% into microprocessors. How did he do it?

This is one of my favorite stories in the book because what it shows us is that to make a better decision doesn't require lots of analysis. It doesn't require a convoluted process. it can often happen in an instant. And so the back story here is that Intel actually started as a manufacturer of memory chips. In fact, for a while in the 70s, they were a monopoly provider. And soon enough, some Japanese competition came into the market and just started eating everybody's lunch. By the mid-80s, two things had happened.

One was Intel was increasingly sliding in the memory business thanks to the Japanese competitors. But they had also launched this very promising microprocessor business. and, of course, had won the crucial IBM account. And so the question was, what do we do with memories? And, boy, they agonized about this, as you can imagine, given the history and given the importance of the business. And, you know, there were many different camps inside Intel, and some people were fierce loyalists,

and some people thought they should get rid of it. And they went back and forth and back and forth. And, you know, there was lots of politics and infighting involved. And one day, Andy Grove talks about this in his memoir, He says he was in his office with Gordon Moore, who was the chairman at that time. And Grove remembers looking out his window and seeing in the distance the Ferris wheel at the Great America Amusement Park just rotating in the distance, and it triggered a thought for him.

He said, hey, Gordon, what if we were fired today and they brought in successors to take our roles? What do you think they would do with the memory business? And Gordon Moore apparently responded instantly, oh, they'd get us out of memories for sure. And Andy Groove said, well, why shouldn't we walk out the front door together right now, turn around and come back in and do it ourselves?

And that was the epiphany. That was the moment when he realized this is what we have to do. And that was the moment when he kind of divorced himself from the short-term pressures and emotions and stresses that were pulling him towards keeping that business, even when, from an outside perspective, the merits of the business case meant that they should probably get rid of it. And they did. And we all know the rest of that story. It was an enormous success. And that really seems like one of the keys in your book, the whole notion of, as you put it,

attaining distance, to the extent possible that people, either in business or in their personal life, are able to depersonalize or distance themselves from the decision they're trying to make, and almost cast it in alternative terms, like, well, what if someone else were faced with this decision? I think this is a really important point, and this is something that the decision-making literature is a little bit weak on, because the decision-making literature deals with such kind of rational, analytical terms. and anybody who's ever made a hard decision in life knows it just ain't that easy.

It's not something that can often be solved in a spreadsheet. And what happens to us is that the short-term emotion in our lives starts to overwhelm what's good for us in the long term. We get stressed out. We get caught in visceral emotions of anger or outrage or we just get caught in the politics of the situation And so what we've got to be able to do is not to eliminate emotion. That's not the goal of this at all.

It's rather to try to kind of equalize short-term emotion and long-term. And so what Andy Grove did in essence with that thought experiment of what would our successors do was he was basically doing this perspective shift that allowed him to see the big picture and to get out of the muck of this intense and hard-fought debate with an intel. I'll tell you as a follow-up to that, if any of your listeners are struggling with a personal decision right now, there's something inspired by the Andy Grove question

that Chip and I have just been amazed. I mean, this is the closest thing to decision-making magic that we've come across, and it's a very simple question, which is, if you're struggling with a personal dilemma, ask yourself, what would I tell my best friend to do if they were in this situation? And I know that sounds so simple, But I've been on calls with people who are telling me about intensely personal dilemmas that they've struggled with by their accounts for months or even years. And I ask that question, and I'll tell you, nine times out of ten, they've got an answer popping out of their mouth in 10 or 15 seconds.

I mean, it is just unreal what happens when we're able to make that quick switch and kind of take a step out of the muck and see the big picture. You're listening to Motley Fool Money, talking with Dan Heath. His new book with his brother Chip is Decisive, How to Make Better Choices in Life and Work. You cite some wonderful examples from some not just great business leaders, but I would argue historically great business leaders. Sam Walton, Andy Grove, Indra Nooyi, the CEO over at Pepsi. But you also find some wisdom in some unlikely places. David Lee Roth, the former frontman for Van Halen, has been called many things, some of which cannot be repeated on broadcast radio, but you and your brother refer to him

as an operations master. I have become, I'll tell you, I was a Van Halen fan as a kid. I think 1984 was one of the first 10 albums I bought. But as an adult, I have grown to respect his decision-making genius, and I'll tell you why. So in the 80s, you know, during their heyday, the 1984 era, they were touring like crazy, you know, 100 dates a year. And they were one of the first rock bands to bring really sophisticated shows to second and third tier markets. And so, you know, they'd pull up in some local town like Chapel Hill, North Carolina with, you know, nine 18-wheelers full of gear. Just an incredibly complex production writer that went with this, you know, the technical setup and the specs and so forth. And so they were always

terrified that some of these local venues and their stagehands would screw something up and put the band at risk. You know, this is the same era when stages collapsed at a couple of big public concerts and Michael Jackson set his hair on fire in that Pepsi commercial. And so they were worried, you know, what happens if we get caught in the situation? And during the same era, Van Halen acquired, and I know this will shock your listeners to their core, but they acquired a reputation as being quite the party band. No. Yeah, no, it defies belief. Those clean-cut young kids. And by the way, I highly recommend David Lee Roth's autobiography, where he talks about these things in detail, and he's actually a very, very good storyteller. But there was one story

that people told about Van Halen that really gave them a bad rap. And it was this notion that in their contract rider, the band requested a bowl of M&M's put backstage with all the brown ones removed. And people were just horrified by this because, I mean, what a power play, right? You know, these band members, these divas, they're getting, imagine these, you know, poor stagehands backstage He's kind of manually picking the brown M&Ms out of the bowl.

And what a nasty thing to do to another human being. So we researched this, and in David Lee Roth's autobiography, he admits it. He admits it was true. And, in fact, it was called Article 126. It was in their contract writer, and it said that, you know, there shall be a bowl of M&Ms backstage with all the brown ones removed upon penalty of forfeiture of the show with full compensation. But it wasn't about them being a diva.

The real point of that was they had buried this contract right, or this clause rather, right in the middle of that big, thick technical contract. And so whenever David Lee Roth would get to a local venue, he would march right backstage and he'd try to find the bowl of M&M's. And if he saw even one brown M&M in the bowl, he would immediately demand a technical line check of the whole production. Because he said, they haven't read the contract. They haven't read the thing.

And if they haven't read it, that puts the show at risk, and it puts us at personal risk. And so the band had managed to put this kind of canary in the coal mine in their contract that told them in this very visible way whether their contract was being taken seriously. And I just think that that is absolute genius. Coming up, more with Dan Heath, including advice for investors. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. Chris Hale talking with Dan Heath, bestselling author of the new book, Decisive, How to Make Better Choices in Life and Work.

I want to ask you a couple of questions with an eye towards investing. One of your big pieces of advice in the book, as you've talked about, is the whole notion of widening your options. And for investors today, there is no shortage of information available to them and, frankly, no shortage of options when it comes to investing. What would you say, what advice would you have for someone who wants to widen their options, but to do so in such a way that they're not paralyzed from having too many options? Yeah, it's a good question. And I'll tell you, a lot of investors are not going to like the answer that I'm about to give. But one of the... Well, that's all the time we have, Dan. I'm sorry.

Thank you for saving me, yes. Commercial break. I think one of the hallmarks of a good decision is that they happen when we trust the experience of other people over our own predictions. And so, you know, if you and I were going out to a restaurant tonight, we might go to Yelp and look at the reviews, because we know, hey, if 128 people have eaten at this place, then we should probably trust their actual experience over our ability to guess and how good this restaurant will be based on the menu or what have you. But what's interesting is this concept, which seems so obvious when it comes to picking restaurants

or picking books or what have you, we don't apply that logic to our investments. And in fact, the research is very clear that over the years, thousands and thousands of people have eaten at the mutual fund restaurant and found it sorely lacking. And here's what I mean. There was a study of every mutual fund over a 20-year period. This is every mutual fund that had more than $100 million in assets under management. Followed them for 20 years.

Less than 4% of these funds outperformed the Vanguard 500 index funds. Now, to put that 4% in context, if you're playing blackjack and the dealer deals out two face cards to you and your inner idiot shouts, hit me, you've got an 8% chance of winning that hand. So in essence, by investing in mutual funds, what investors are doing is they are dining at a restaurant with 96% negative reviews. And so that's one example, I think, of where there might actually be more choice in the world than people really need, because the research suggests that we'd be a lot smarter to have that boring meal at the index fund cafe.

Along those same lines, and we talked about this with Intel and Andy Grove and the whole notion of attaining distance, when you consider so much information in the world of investing is really tied to the short term, any suggestions for how we can attain distance as investors? I think one of the most important things that, well, really for decisions of any kind, is that we've got to start avoiding decisions that we can't handle. So, you know, whenever I'm on a diet, I make darn sure that I don't put myself in situations that are going to tempt me.

You know, if my buddies are going out for a pizza buffet at lunch, like, I'm a lot smarter to avoid that situation than take myself to the pizza buffet and try to get away with eating a salad because I know I'm just not that strong. And I think it's similar with investments where some of the smartest investors are those who just set up smart defaults for themselves and tune out. You know, they get their 401k match set up. They get themselves in a target date fund or a collection of index funds.

They set up auto-escalate where each year their contribution will increase. And then they just leave it alone. And what I would say is opposed to that is this idea that every day we're checking our stocks, We're following the news, we're watching the ups and downs, and there's a writer named Carl Richards who has this great graph that shows the way most investors behave. It's this, imagine kind of a sine curve, and he says what happens is when the market goes up, people get greedy and they rush in and buy, and then when the market goes down, they get fearful and so they sell, and then the sine curve continues, and eventually at the

end, it says, repeat until broke. And I think that's a good example of how our day-to-day emotions and being on that roller coaster ride can actually be our enemy. And that's a good reason to attain some distance. How has researching and writing this book changed the way that you make decisions? I think the thing that has made the most difference in my life is something we call in the book, ooching, which is spelled O-O-C-H. This is a term that we got from a company called National Instruments. And it basically just means to run an experiment. So if you're considering a particular decision, rather than stew about it in your head, rather than agonize about it, can you just try something? And I think the classic example of this, and this is

appropriate for this time of year with college graduates, you know, about to go on their way, is career choices. I mean, every year we get thousands of students enrolling in graduate schools of law and medicine and pharmacy, having never spent a day in a hospital or a law firm or a pharmacy. And that is just absolutely bonkers as a decision-making process. And yet, you know, I can testify I did it myself. At one point in my life, I was signed up to go to law school. I had these kind of romantic ideas of what it would be like, you know, it was going to be just like L.A. Law or Ally McBeal, as far as I knew. And so that's a situation that cries out for an ooch, that cries out for a sample. So if you've got someone in your clan that, you know,

is considering a graduate program, the best favor you can do for them is to encourage them to spend, you know, a week shadowing a lawyer or a month, you know, doing grunt work at a hospital or anything that will give them a more vivid picture of what that profession is like. Because a hallmark of good decisions is that they happen when we start getting outside of our head and we start gathering real world information. The book is Decisive, How to Make Better Choices in Life and Work. It is already an Amazon bestseller. And by this time next week, I'm sure it'll be in New York Times bestseller. Dan Heath, thanks so much for being here. Thank you. It's been a pleasure. Dan Heath is the author of Decisive, How to Make Better Choices in Life and in Work.

The book is available everywhere. Remember, 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. You can check out past episodes of Motley Fool Money and all of our podcasts. Just go to our podcast center at podcasts.fool.com. And while you're there, you can check out David Gardner's investing service, Rule Breakers. The latest issue just came out with two new stock recommendations from David and his analyst team. Just go to the podcast center, scroll to the bottom of the page at podcasts.fool.com. That is going to do it for this Thanksgiving edition of Motley Fool Money.

Our engineer is Steve Broido. Our producer is Matt Greer. I'm Chris Hill. Thanks for listening, and we'll see you next week. We'll be right back.