Motley Fool Hidden Gems Investing - Under the Radar Stocks

Episode Date: June 2, 2017

Motley Fool analysts Matt Argersinger and Jason Moser discuss some under the radar stocks and stories. And behavioral economist Dan Ariely discusses his newest book, Payoff: The Hidden Logic That Shapes Our Motivations.  Learn more about your ad choices. Visit megaphone.fm/adchoices

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It's the Motley Fool Money radio show. I'm Chris Hill. Joining me in studio this week from Million Dollar Portfolio, Jason Moser and Matt Argersinger. Good to see you guys. It is our mid-year review special. We're going to revisit our conversation with best-selling author Dan Ariely, and as always, we'll give you an inside look at the stocks on our radar. But, guys, FoolFest, which is our biggest investing event of the year, is going on this week at The Motley Fool. So, we are taping the show a little early and using it as a chance to go big picture on 2017 so far. Even though, yes, I realize technically we're not quite at the mid-year point. As of this taping, the Dow Jones Industrial Average and the S&P

500 up around 6-7% for the year. NASDAQ up around 15%. So, we like those numbers, Matty. going in the right direction as far as shareholders are concerned. But when you think about the year to date, what stands out as the big business investing story for you so far? To me, it has to be the absolute destruction of the traditional retail market. I always harken back to this quote. This is a quote from Howard Schultz on a Starbucks conference call in early 2014. And Howard says this. He says, the fundamental truth is that traditional brick-and-mortar retailing is at an inflection point. No longer are many retailers only required to compete with stores on the other side of the street. They are now required to compete

with stores on the other side of the country. Navigating this seismic shift will continue to be very, very difficult for many. And it has been extremely difficult. And that was three years, more than three years ago. And look what's happened since. And we've seen, of course, JCPenney, Macy's, Target, so many struggles, bankruptcies, Sports Authority, Gander Mountain, HH Gregg, Payless Shoes, companies that have been around for decades, suddenly gone. And so, this consumer channel that has been so strong and been such a big part of the American consumer experience for so, so long, it's just really, it's not even a seismic shift at this point. I'll call it an earthquake, let's be clear. And so, companies that aren't navigating

it correctly, aren't developing those omni-channel ways to reach customers, they're failing. They're failing in record numbers. I don't see it getting any better anytime soon. Jason, you think about so many people in the United States who live in small towns, live in rural areas, they're still going to bricks-and-mortar retailers. It's very much a part of their life. But if you go big picture and you just look at how much retail space there is in America versus other countries. Per capita, there's just so much more retail space here. And I just look at those numbers and I think, I just don't feel like this is sustainable. No, and we're trying to figure out

exactly what's going to happen with all of that space as it becomes less and less used. It's going to turn into warehouses and fulfillment centers as opposed to actual showrooms where you go buy stuff. I would say, certainly, when you look at small-town USA, my mom and dad live in a pretty small town, Moultrie, Georgia. I go down there, and it's very much the same sort of dynamic there. Maybe they just got a Starbucks there shortly ago, just had a Publix open up there. There weren't a lot of choices. But I'll tell you what opened the world up for them really quickly was Amazon. They became Amazon Prime members a few years back and have fallen in love with the convenience, and talk about opening up the entire world

to them, and it brings it right to their doorstep in no time at all. I think you're seeing really the power of what the internet continues to do, e-commerce, it is really amazing the effects it's having from coast to coast. When you think about Amazon, I'm thinking more and more, not just about the rise of Amazon, but to that point that Jason just hit, Matty, and that is the shipping. I think that is the part when we talk about, like, how did people miss Amazon? I think there were a lot of very smart people who looked at Amazon, looked at their business model and said, well, there's no way they're going to be shipped. Yeah, it's going to work in

big cities, but there's no way it's going to work in small-town America. They're not going to get stuff there next day. It's such a key point, because that was always the argument, right? Well, this can never work. No one's ever going to buy this stuff online, because they're not going to want to wait a week to get it. They want it now, they want it today. And Amazon solved that better than anyone's ever solved it. And so, when you asked, you kind of asked this initially before the show, what was our biggest story? I actually wanted to lead with Amazon hitting $1,000 a share, because I think it says so much about what's happened to the market and

to the retailing world. But that's certainly what they've done. That's the key advantage, for sure. Jason, what's your story so far in 2017? Yeah, to me, you may have heard Chris at some point during the year, I bought a house. You mentioned that. Sold a couple in the process. An amazing process, whenever you go through it. But to me, everything is really screaming from the top of the mountain that the housing market is really, really healthy, it seems. We didn't really have any trouble selling our homes. We didn't really have any trouble buying our home. But when we look at the metrics here, housing prices in March rose 5.3%. Now,

the interesting thing is, housing pricing is outpacing wage growth. And that could be problematic down the road, as we see more and more people trying to get back into the housing market. And certainly, the homeownership rate has come down over the last decade to below where it was really around 1995, 1996, 1997. So, we'll want to pay attention to that prices versus wage disparity there. But really, if you go back to the times of the housing bubble, we talked about that 5.3% price growth there, that was less than half of what we were seeing during the housing bubble. And really, that housing bubble, that was the problem, right? That's unsustainable behavior that shouldn't have been happening. It was

happening because everybody and their brother was going out and getting a loan and buying a house, because apparently, flipping a house is a really easy way to make money. We know in hindsight, obviously, that's not the case. And I think that, really, what we're seeing today is proof that the regulatory infrastructure we have in place is working. For us to go through and get a loan, it was really fascinating. My wife and I had two good-paying jobs and responsible, good credit scores. We had to bring everything to the table to prove our income and that we could take care of this loan. And I think that's good stuff. I want to look for that to continue. I know there's some concerns out there with the White House

possibly trying to reel back those regulations a little bit. I think that's a bunch of hot air. I don't think they're going to be able to pull that off. When you think about overlooked investing stories, certainly there are a lot. I mean, it's such a cluttered landscape in terms of headlines, Matty. But what's been slipping under the radar? Well, one stock in particular just stands out to me, and that's iRobot, which is somehow up 60% year-to-date. I think it's more than doubled from a year ago. I used to follow this company a lot closer when I was on the Rule Breakers team here at The

Fool. It was always a company that had a great product. It has the Roomba, which, by the way, was the No. 1 vacuum cleaner in terms of sales of any kind in the U.S. last year. Which is pretty phenomenal, OK? Because as a guy who has a Roomba in his house, the Dyson cordless? I mean, the Roomba's clever, but it doesn't hold a candle to the Dyson. I know, but you've got to physically push the Dyson. I'm 44, man, I need some exercise. But, you know, it's not just here in the U.S. The company's having massive success in China. In fact, CEO Colin Engel, for a long time, talked about, well, there's going

to be this robotic revolution, but it's going to happen very incrementally. It's going to happen in things like vacuum cleaning and floor scrubbing, because that's just what people want, and there's a consumer need for it. And, hey, it's working out for iRobot. They recently raised their guidance to about 20% growth this year. So, one of those companies I watched for a long time, and all of a sudden, it's finally working. What about you, Jason, when you think about Overlook stories so far this year? Let me just clean something up real quick for anyone out there, lest you think I'm a Roomba hater. Hey, man, I love my Roomba, OK? We're just talking about apples to oranges

here. To me, it's interesting, the Overlook story of 2017 just came out as Michael Kors' earnings just came out. Yeah, wolf is an understatement. We've talked about retail a lot, had a lot of questions on Michael Kors over the years, especially when it came out and it was competing more against Coach. To me, the lessons we learned with Coach made this a pretty easy bear call to make. I've not ever been very high on Michael Kors, let's be very clear. I think, while they're never really sure of things investing, I think when we look at the lessons we've learned from Coach, this was a pretty easy one to spot coming. Double digit drops in comps, they're shutting down more than 100 stores, margins are getting

killed. I mean, Chris, when they talk about affordable luxury, you need to turn and run the other direction. Because that's what this is, right? Affordable luxury. That's sort of a ... It's like a horror movie where you're just screaming at the screen, like, Get out of the house! It's a dilemma. At some point or another, they have to figure out what they want to be. If you want to be affordable, well, you've got to make your pricing as such, and your margins are going to feel that down the road. So, they're trying to become more of a lifestyle company. Sounds an awful lot like what Coach is going through, and that has been a very tough spell for them. Michael Kors' company has had a brutal year,

I don't think things are going to get better anytime soon. Not one we're hearing a lot about, but not a terribly surprising story. But a great lesson, I think, there. Learn lessons from your mistakes, right? Look at Coach. Learn from some of those mistakes. We've talked retail, we've talked housing. What is an industry that you're watching? Because, again, that's the great thing about being an investor. In stocks, there are so many different directions you can go in. Well, speaking of inflection points, the video game industry hit a serious inflection point a few years ago, I guess about the time Howard Schultz was calling the end to retail.

For years, we know video games as buying a console, buying CDs, buying cartridges, plugging it into our TV, playing and having a great time. Well, starting more than several years ago, but really several years ago, the digital side of the business, in other words, the idea that not only am I buying a game, but I'm going online, playing with other players, I'm downloading map packs, I'm paying for special weapons and special characters. That whole marketplace has just exploded. And it's made companies like Activision, Blizzard, Electronic Arts, Take-Two Interactive so much more profitable than they've ever been.

And then looking further out, you see things like esports and in-game advertising. There's so many ways now that companies are going to be monetizing some of their big game franchises. And it's an exciting industry to watch. And the idea of interactive entertainment, especially now you can layer on virtual reality and things like that, even farther out, it's an exciting place to be watching, and so I'm paying close attention to video games. What about you, Jason? What are you watching? Well, Chris, everybody has to eat. And so that, to me, is what makes restaurants such an interesting market to follow.

I mean, just the repeat sales that they garner. And sort of looking at three different paths here, in Chipotle, for example, where we're finally seeing that comeback gain some traction. It's been about a year and a half since all of this E. coli stuff went down, but it sounds like they're gaining some traction. Your comps are on the way back. I like the idea that they're going to be bringing a second assembly line in there to the stores to take care of all of those mobile orders, because mobile ordering is so successful. I think that's a really big driver of traffic for them. You look at something like McDonald's, which

is really trying to figure out its second act beyond the all-day breakfast. They are getting into that mobile space and trying to use more data to bring more impromptu deals to drive traffic. And then you look at Buffalo Wild Wings, which has been such a big winner for so long, now they're running into this sort of ceiling, where we wonder how much more they can grow, just as the Buffalo Wild Wings concept. You've got activist investors out there calling for Sally Smith's ouster. I don't know that that's necessarily the right move. I have a lot of respect for Sally and what she's done for that company. But fascinating to see these three companies in the face of a restaurant industry that really, honestly,

is having a tough time figuring out what direction to go. There's a measurement there, a data point they used, the Restaurant Performance Index, the RPI, it stands at 101.8 today. 100 is the equilibrium. Anything above that means expansion. It's kind of fluctuated up and down here recently. It's a restaurant industry that's having a really difficult time figuring out a direction. Three very interesting stories there, I think. Do you think, like retail, we're over-restauranted? We just have too many restaurants? There is a surplus out there, there's no question. I think we're seeing a lot of people are valuing the ability to be able to cook their own meals at home. And whether they're

buying those prepared meals in stores or having those things sent to their doorstep via those meal kit companies, I think restaurants are facing a bit of a problem here. And unless you're a big restaurant with a good sort of presence and brand equity, it's an uphill battle. Coming up, we'll dip into the Fool mailbag. Stay right here. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. Chris Hill here in studio with Jason Moser and Matt Argersinger. It is our mid-year review special. Our email address is radio at fool.com. From Alex in West Virginia, is it time to abandon ship with Dragon Wave? I've lost 70% on it already. Ouch. Sorry about that, Alex. That never feels good when your stock goes down

70%. DragonWave, this is a micro-cap. They do microwave solutions for IP networks. That is electronic components. That's a tough industry, Matty. I don't even know what microwave components of IP, whatever you just said. But it's a micro-cap, I think it's a penny stock. It's a tough, tough place to be. And I've been there before. I've had companies that have gone down to the penny stock territory and 99% of the time, those don't turn around. Those eventually end up in bankruptcy or some kind of liquidation. O' You get a tax write-off? I guess you get the tax write-off. That might be the only good thing about it.

O' Let's have full value, huh? But yeah, I'd look to reinvest that capital somewhere better as soon as you can. O' Moving away from Dragon Wave, Jason, when do you decide to abandon ship on a stock? That's really difficult to say. I'm very sorry about the losses there. I think a good lesson, probably, that hopefully will keep him out of penny stocks from here going forward. Pretty easy to cut bait when you feel like the company is broken, and you look back at something like an HH Gregg or something, and you see the writing on the wall. I think there is also a lot to be said, though, for just not selling and keeping on going.

I mean, that's one of those things with investing you can do if you're able to continually add money. But really, when you feel like the story is broken, the business is broken, if you can't figure out what turns that thing back around. That's when you really have to start rethinking. Especially if you have another idea that you can invest in, that you know or have much more confidence in. And I made a joke about the tax thing, but that is actually a real benefit that you should consider. I mean, that sale will give you a tax benefit at the end of the year.

Real quick, before we get to radar stocks, one prediction for the second half of 2017, Matty? Well, I think investors are going to wake up and realize that Disney doesn't live and die by its cable business. And I think Disney hits an all-time high by the end of the year, just about the time Star Wars The Last Jedi is breaking box office records in December. Nice. Jason? Well, this thing's been up and down like a roller coaster, and I've been kind of tough on them this year. Deservedly so, I think. But I actually think that Twitter will

gain traction in its comeback. I do think they are making the right move in trying to bring all of this live video content to the platform, because it will keep eyeballs there for a longer period of time. It's neat to see that they are going after so many demographics between sports and music and news and everything else. It's a very powerful network. It's just a matter of getting a smart management team behind that to really do the right things with it. And I honestly do think that Jack Dorsey is the man for that job. They're giving him a little time. I think this story gained some traction. Let's get to the stocks on our radar. Our man Steve Broido will hit you with a question

from behind the glass. Jason, what are you looking at this week? Yeah, you know, Wayfair, we talk about e-commerce and just retail, and Wayfair is one that has really sort of defied the common sort of thread out there that these guys are in big trouble because Amazon's considering getting in the furniture game. I mean, Wayfair has done really, really well. It's not terribly surprising. It's a business that, for those of you who don't know, they get you furniture to your front door. I mean, right, it's e-commerce on the home goods side of things. And that is a big market opportunity. And so we look at Wayfair and the metrics that really matter. They're growing sales at an impressive rate. The one that really

matters, the percentage of orders from repeat customers. This quarter, they just reported 60.4%. That was versus 55.4% a year ago. That's a tremendous improvement. Gross margins are staying pat. That's a good sign. I don't know that Amazon's foray into this market is necessarily the demise that a lot of people are predicting for what is clearly a very customer-centric e-commerce business. Steve, question about Wayfair? Is the name Wayfair an asset or a liability? I don't know what Wayfair means. Well, it better be an asset now, because they keep on advertising with it, and what we're

counting on for them to become more profitable is to pull back on that ad spend at some point, so people are going to remember it for better or worse. Mattie, what are you looking at? I'm looking at Baidu, ticker B-I-D-U. Baidu's underperformed, really, for the last few years now. They had a major shift in their business. They're investing in a lot of places outside of their core search business. And that's cost a lot of capital, a lot of resources, but I think they're going to get back to growth later this year. The core search business is really going to shine through, especially now that they've kind of passed over some of

the regulatory problems they were having with their search business, and making big investments in artificial intelligence, autonomous vehicles, things that probably can happen faster in China than they can happen here in the United States. So, pay attention to Baidu these days. Steve? When are companies like Baidu unnecessary, where we have one global platform for this sort of stuff? Well, unless Google somehow breaks in China, I just don't think it's going to happen. You're going to still have Baidu, Google, and a few search engines out there. You got one you want to add to your watch list, Steve?

I might go with Baidu. All right. All right. Jason Moser, Matt Argersinger. Guys, thanks for being here. Thanks, Chris. Up next, a conversation with bestselling author Dan Ariely. Stay right here.

You're listening to Motley Fool Money. Money, money, money, money, money, money, money, money, money, money. All right. Before we get to my conversation with Dan Ariely, I want to say thanks to Bombfell for supporting this week's episode of Motley Fool Money. Bombfell is an online personal styling service for men that helps find the right clothes for you. And here's how it works.

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First of all, it's completely simple to use. I love the interface. It was a really easy questionnaire to fill out. And then I got my stylist, I got stuff shipped to me, and it was perfect. My stylist nailed my clothing. By the way, with Bomfell, you pay for the clothes that you keep and you send the rest back at no charge. The clothing is shipped right to your door so you don't have to go shopping for clothes, which for me, frankly, is one of the most soul-crushing things, to actually go to a store and shop for clothes. So, the fact that Bombfell ships right to my door is a beautiful thing. Bombfell is also the only styling service that doesn't charge a styling fee or subscription fee. So, check it out. We've got a special offer for our dozens of

listeners, $25 off your first purchase. Go to bombfell.com slash fool. That's B-O-M-B-F-E-L-L.com slash fool. Welcome back to Motley Fool Money. I'm Chris Hill. Dan Ariely is a professor of psychology and behavioral economics at Duke University. He is also the bestselling author of books including Predictably Irrational and The Truth About Dishonesty. His brand new book is Payoff, The Hidden Logic That Shapes Our Motivations. And he joins me now. Dan, thanks for being here. My pleasure. I don't want to try and sum up your book in one sentence, but in reading through your book, one of the takeaways for me was the phrase, not money. That when we think about what motivates

people, that was one of my takeaways from your book, was that for all the talk of salary and compensation and what it means in the world of business, it turns out that money in and of itself is not really the greatest motivator. It's not just that it's not the greatest motivator. sometimes it actually takes motivation away and what's interesting is that in our kind of arsenal about what we think will motivate people money plays such a big role but when we do experiments about it and we try to figure out what actually motivates people you know we should pay people and people should get paid well but money is just not the remedy for motivation when you are designing experiments and i want to get into some of the experiments that you

conducted in your book. But when you're setting out to design experiments, how does money factor into those experiments? Because I would think with all your years of experience, all the stuff that you've written, all the experiments that you've done, I would think that you know right off the bat how it's going to end, particularly with respect to money. Well, you know, my research center is called the Center for Advanced Hindsight. And we use this name to remind ourselves that we don't always predict our own results. And in retrospect, it's always easy to take credit for things and say, oh, yes, I knew that all along. But there are often nuances of things that we kind of thought would go in that direction but don't.

And if you don't mind, let me describe to you a study that kind of illustrates this. and I'll describe a study that you haven't read about so you don't know the results yet so in this study we were trying to convince very poor people to save a little bit of money these are people who live in Kibera, Islam in Kenya and they live on about $10 a week so very very poor people

and we want them to save a little bit of money not because we think they'll have money for retirement that's just not going to happen but we want them to save a little bit of money because we want them to have some kind of cushion when bad things happen and lots of bad things happen to the poor so for example imagine that you have a goat

and the goat gives you 20% of your income and one day your goat is sick what do you do? you already live hand to mouth you have no capacity so you need to borrow if you're in Kibera you might be borrowing at 10% a week and let's say that four weeks later your goat is healthy

Great news, but now you're four weeks behind plus interest. Very, very hard to get out of it. So the first principle of the design was to say, let's design something where it will be easy for people to put money in, but hard for them to take money out. Easy in, hard out. So we teamed up with M-Pesa, the phone payment company, and what we created is a system where people could text money into their account,

but every night an investment bank will take the money and invest it in the Kenyan stock market. And we can argue about that decision, but let's keep it this way. Okay. And what happened was it was people could text money in, but to take it out, they had to take a bus, go to the city, submit a form,

wait for about an hour, get the money, and take the bus back. So it would take about three or four hours to get the money back. And we wanted that because what we wanted is that it would be easy to put the money in and complex to take it out. We knew that they will have many emergencies,

but we didn't want everything to become an emergency. We just wanted real emergencies to be emergencies. Okay, so that's kind of the basic system, and we gave it to lots and lots of people, and then we added things on top of it. Some people, we gave just this system. Some people, we gave that system plus a weekly text message that said, try to save 100 shillings, about $1 this week.

Some people got the same text message, but it was phrased as if it came from their kids. their message said hi mom hi dad this is little johnny whatever the name of the kid was try and save 100 shillings this week for our family another another group got a 10 match we said save up to 100 shillings we'll give you one shilling for every 10 shillings you save another group got a 20 match we say save up to 100 shillings we'll give you two shillings for every 10 shillings you save. Two other groups also got 10% and 20%, 10 shillings and 20 shillings, but they got it in what we call pre-matching. What is pre-matching? Pre-matching is based on

the idea of loss aversion. Loss aversion is the idea that people hate losing more than we enjoy gaining. So we said, what if we deposited the full match, the 10 shillings or the 20 shillings in their account in the beginning of the week? And we said, if you save 100 shillings, you get to keep all of it if not we take some of it back so financially it's equivalent to to matching at the end of the week but matching in the beginning of the week has this extra force of loss aversion and we had another group that we gave them a coin it was a coin that we made it had 24 numbers written on it and we asked them to put it somewhere visible in their hut and every week we said please take the coin and scratch that this the number for this week week one two three four scratch it

one way if you saved in a different way if you didn't save so so think about all of those conditions control text text from kids 10 at the end of the week 20 at the end of the week 10 in the beginning of the week 20 beginning of the week and the coin so let me ask you which one of those do you think created the highest level of savings now my my you know cold-hearted business uh sense tells me that it really should be the 20 because that's the greatest financial gain but uh something tells me it was the text message from the kids okay so so interesting right and you're also talking to me so you know something might be a fishy to start to start with um but but uh when we ask people, we ask people both in the US and in Kenya to predict the results, and people

basically think it's money. Money, 20% is the most important, 10% less important, everything else would be the same. Here is what happened. You give this system to people without anything else, and people start saving a little bit. That's already kind of good news, right? You add a text message once a week, saving increases. You add 10% at the end of the week, saving increases. 20% at the end of the week, just like 10%. No difference. 10%, 20%, the same thing. 10% in the beginning of the week helps some more. 20% at the beginning of the week, just like the 10%. And by the way, the kids were just like the 10% and 20% plus loss aversion, right? So it's kind of amazing when you think about it that the power of kids was equal to 20% match plus loss

version but but the biggest surprise in the experiment was that the coin condition uh blew everything else out of the water really saving was much much higher in the coin and of course now the question is why why why was the coin so so successful and when we looked at the results broken by the day of the week what we found was that when we texted people on friday people put money in. And the benefit of the coin was not so much on Friday, it came from all the other days of the week. So here's the thing. When do we think about savings? Not that often. When does something in our environment remind us about saving? Probably never, right? Everything that we see around us reminds us about spending, not about saving.

But those people with the coin had something in their environment that from time to time reminded them about savings, and from time to time they took some actions. So anyway, so this is kind of the story on saving, and I'll say one more thing about this, but it also is a story to tell you that, you know, sometimes our intuitions are just not right. You know, we might think, you know, it's 20% and so on,

but what we have a very hard time intuiting is that the real barriers to saving is that we just don't think about it that often. And if we just thought about it more often and we had an opportunity to take small actions towards savings, we would take more actions towards it. Now, I do want to say one more thing about motivation and savings.

I got the idea for the coin when I was in a different slum in Soweto in South Africa. And I saw a father buying funeral insurance. for a month, and taking the form, and give it in a very ceremonious way to his son. By the way, funerals in South Africa are very expensive. People can spend up to two years of salary income on funerals. And his father did not have much money, so he bought the funeral insurance only for a month. And what I thought was that, you know, a breadwinner gets recognized by their family for doing good when they, you know, bring food and water and fruit and kerosene, when they buy things for the family.

But when they do invisible things like saving or buying insurance, the most visible thing is that they're doing less for the family. The family experiences this as being negative, right? You're taking money away from us. You're not bringing things to the table in the same way. You're actually bringing less. And what his father did in a very nice way, he took something invisible, right, spending money on insurance, and make it visible and make it kind of center of attention. And there's lots of things in life that are actually invisible.

And, you know, as we move, for example, to have money in digital terms, We don't know what other people are doing. So, you know, 300 years ago, people saved in goats, you know, more or less. You got a bit more income, you would buy another goat. And your neighbors could see how many goats you have, and we could compete on how many goats we have, right? So their motivation was to compete on getting goats. Now, we don't know how much people are saving.

So what are we competing on? We're competing on spending, right? So there was a study recently that showed that when people win the lottery, their neighbors start spending more money. Why? Because we compete. We compete on spending. So our motivation, for example, the motivation to compete in this case could be incredibly helpful if we competed on savings. And it could be completely unhealthy for the household if we start competing only on spending. Coming up, Dan Ariely talks about the best way to lose weight and has some advice for getting your kids to help out around the house.

Stay right here. This is Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. This week, we're revisiting my conversation with Dan Ariely, author of Payoff, the hidden logic that shapes our motivations. One of the things you demonstrate in the book is how motivating it can be to make something, even if what you're making is not necessarily all that significant, even if what you're making doesn't even take all that much effort, which I, and I love this example. One of the ways you illustrate this is with the history of cake mixes. yes uh yeah so so cake mixes the story was that they made a cake mix that was basically just all powder and put it with water put it in a pan bake it you have a cake and these cake mixes were just not very popular and they thought it was maybe the flavor but no the flavor was great and what

they ended up finding is that it was the feeling of ownership that was the issue imagine you basically pour something into a pan and you bake it and you give it to a guest or your family and they say thank you for the cake how much can you take credit for this not that much so what did they do they took the milk powder and the egg powder out of the cake mix now you had to add something to it and all of a sudden people were able to take credit for it and they used it much much much more by the way it's kind of interesting to think about to think about credit because when I kind of walk around in all kind of companies, it is always shocking to me how stingy people are with giving credit to other people. It seems like people have this notion

that credit is a zero-sum game, that if I give you credit, I somehow have less credit for myself. And sometimes people seem like they're more stingy with credit than they are with bonuses. But the reality is that credit is incredibly motivating. If people feel that they are a part of something. It's a very big deal. And being able to claim some credit or connection and ownership is such a motivating force that by being stingy with credit, we're actually killing motivation. All right, before I let you go, let me spot you up with a couple different scenarios. And if you could give me one bit of insight that you have on what would be helpful on the motivation front. And these are things that I think a lot of people deal with in one way,

shape, or form. When it comes to losing weight, are we better off trying to motivate ourselves towards exercise or a healthier diet? No question about it, healthier diet. And not just that, what we need to do is we need to create rules. So think about something like Alcoholics Anonymous. We have a rule that says no drinking, right? The rule is not you can have half a glass a day. And the reason is that when we have strict rules, it is much easier for us to know where we are and to keep track. And the same thing goes for dieting. If dieting is always about the next forkful, it's really hard to do. But if you basically say something to yourself like no soda and no dessert unless it's the weekend, or you basically create some very strict

rules, those things help a lot. So diet and strict rules about diets. What about trying to motivate children to help out more around the house? So one of the temptation, of course, is to bribe kids and pay them to help. And that's very effective in the short term. The problem is that when the bribe or payment goes away, their motivation goes away as well. So when we think about helping around the house, we want to get things to be intrinsic motivation,

not motivated because they're getting something else, but because they really enjoy it. It takes a bit longer, but that's the path to take. So you want to tell kids that this is part of their role in the household, this is part of their contribution, that they are responsible for X, Y, and Z, and over time, they will develop some joy from knowing that it fits with a greater framework of this is their contribution to the household. All right, last one. What about if you're allegedly trying to talk your spouse into going on a trip to a particular destination that allegedly you might be more interested in than your spouse is? This may or may not be something I'm going through right now. Yeah. So I think the thing to do would be to frame it in a broader sense, right? It is not just about this one, this one vacation. It's about saying, I want us to, so here's what I would say. I would say, I want us to try lots of different things. I think we should experiment, we should figure things out. Why don't we just try something different? And if it doesn't work out, we'll learn for the future that this doesn't work out. But let's expand our set of things that we're going to try.

And if you move it from this one vacation, yes or no, to kind of a longer time frame of saying, you know, we have 40 more years of vacation. Let's try different things. Let's kind of experiment and so on. It's easier to take. It's kind of like portfolio theory, right? It says let's take a bit more risk on this particular vacation. By the way, I did the same thing a couple of years ago. My family wanted to go to Hawaii in the winter,

and I wanted to go to Iceland. I said, let's go somewhere really dark and cold for the winter and see what it is. And as you can imagine, there was not too much excitement up front. I can imagine that. But it turns out it was amazing. It was amazing to be for two weeks in a place where you had only very few hours of flight

and lots of snow and cold and so on. Certainly a very wonderful, memorable vacation. And I think it's good to experiment. You know what? Too many times in general, we have our own comfort zone and we don't deviate from that. And because of that,

we're not really finding better opportunities for happiness. So I think exploring, experimenting, trying things, these are all wonderful things to do. That's great advice, and I'll let you know how it turns out. The book is Payoff, the Hidden Logic that Shapes Our Motivations. It is out this week.

It is available everywhere, and it's fascinating stuff, as always. Dan Ariely, thank you so much for being here. My pleasure. Hope to talk to you soon. 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 podcast.fool.com. You can also subscribe on iTunes, Stitcher, Spotify, Google Play. Just click the subscribe button and you've got Motley Fool Podcasts on demand whenever you want. And if you could leave us a nice review, we'd really appreciate it. That's going to do it for this week's show. I'm Chris Hill. We'll see you next week.