Motley Fool Hidden Gems Investing - Year in Review

Episode Date: December 19, 2014

What was the business story of 2014?  What was the biggest surprise?  Which CEOs deserver some holiday cheer?  Who deserves a lump of coal?  We tackle those questions and revisit our interview with How Not To Be Wrong author Jordan Ellenberg.     Learn more about your ad choices. Visit megaphone.fm/adchoices

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That's why they call it money. From Fool Global Headquarters, this is Motley Fool Money. It's the Motley Fool Money Radio Show. I'm Chris Hill. Joining me in studio this week for Motley Fool Pro and Options, Jeff Fisher. for Motley Fool income investor James Early, and for Million Dollar Portfolio and MDP Deep Value, Mr. Ron Gross. Good to see you, gentlemen. Good to see you, Chris.

We are going to put a bow on 2014, the stories, the stocks, the CEOs. And yes, of course, we're going to share a few stocks you can put on your watch list. But Ron Gross, let me start with you. A lot of big stories this year. Recently, we've seen the oil prices falling. We had Alibaba. If you name all of them. I'm just going to name two. The oil prices in Alibaba, the biggest IPO in history. Well, that happens to be the one I've got right here. Go for it. All right, Alibaba, the largest IPO ever in the history. Actually, the one before that,

the largest, was Agricultural Bank of China. I know you're all very familiar with that one. Not a household name. Not a household name. They raised $25 billion, stands at a market cap of $270 billion right now. Jack Ma sold 15 million shares into this. Yahoo took out a big chunk of change. Stock's done pretty well. I would say we're up 16% year-to-date. It's off of its high. Where are we? $109 now. It was probably at $120 at its height. But, big, big bucks. Is this something you're hoping in 2015 falls down into value territory, so you could take a little nibble? You jest! I think it would

have to fall quite a bit. James Early, what's your business headline? I'm going predictable, but I like the bizarre angle on this. I'm going with the fall of oil, which is the predictable part. But what's the bizarre thing is that it's really brought down the prices of many, many companies, even those who would benefit from cheaper oil, which basically indicates that nobody really knows what's going on. And that's my favorite time to invest. Actually, we can look back for comparable. I wrote this in my recent income investor newsletter. In 2008, the price of oil in July was $147 a barrel. By December, it was $30 a barrel. So that was an even bigger drop

And we've had now from $110 to, what are we, $60, something like that. And two years later, oil had tripled to $100 after 2008. So are you a buyer of oil stocks right now? Only an idiot can be confident in this kind of situation. So I asked again. But largely, I would be inclined to be a longer-term buyer, yeah. Jeff Fisher? Business investing story of the year I like is that S&P 500 companies have spent

or are about to spend more than $900 billion this year, nearly a trillion dollars on buybacks and dividends. So it's a record high. They're spending about 95% of earnings on buybacks and dividends this year. And some quarters, they're spending more than their actual earnings. So they're using cash or, in some cases, debt to make buybacks or issue dividends. That clearly is not sustainable. And this record high level of buybacks and dividends, I think, is partly to credit for the stock market's rise.

Is this necessarily a good thing? I mean, we've talked many a time about a lot of companies just not being that good at stock buybacks. I think it's been academically proven, or at least shown historically, that buybacks tend to occur at the worst possible times, i.e. when companies have a lot of cash because of good results and high stock prices. So, yeah, it's usually a contrary indicator. I was surprised to find, though, that since 2002, S&P 500 companies have spent 85% of their earnings on buybacks and dividends. So even though it's at a record high, it's an ongoing thing that they do. James, you have to be cheerleading the dividend buyback.

I like the dividend part. Yeah, the dividend is sort of like the thinking man's buyback, because they're returning the money to the shareholders. I mean, it is not as tax-advantaged as a buyback, all else equal, to be honest. But generally speaking, the tax penalty is still significantly better than the overvalued buyback, overpayment, whatever you want to term it. But I don't disagree with these AA. You don't disagree? I agree with these companies that have great credit ratings that are borrowing billions of dollars at extremely low interest rates. Sure, sure.

And either putting that money to work in the business or buying back stock. That is very opportunistic, and I don't disagree with that. I'd borrow billions of dollars if I could, too. So, moving on to stories that didn't get enough attention, or maybe just surprised you. Ron, when you think about all the stories from 2014, from that category, what stands out? I think it's the tale of the two stock markets. The S&P 500, another strong year, up 15%. While the Russell 2000, not so much. The small cap index, up about 4% now. It actually was negative up until very recently. We've had some strong days. And there's not a lot of

talk about the disparity there. I think a lot of hedge funds are struggling for multiple years in a row, but this year specifically because of that disparity, a lot of them were benchmarked to the S&P, but they're not necessarily participating in the S&P rally. A lot of folks that are focused on small caps are saying, well, where are my returns? Everyone's saying this is such a great year, but I'm not seeing it. And I'm not seeing that talked about as much as i would have expected james well i will go east and say that there is a in november there there's a hong kong shanghai stock connect uh opening which basically allows people in hong kong to buy a shares which nobody could before on the chinese market everybody thought this was

going to be this big thing and chinese people could also buy hong kong stocks now it's kind of hasn't flopped but it but it's showed a lot less demand and that's interesting to me uh that the The demand wasn't there, meaning there's just not enough trust still in the Chinese market. But long term, I think it's actually a very meaningful story because it's going to bring sort of Western-level scrutiny to China, which is now the world's largest economy in purchasing power on a purchasing power parity basis and is obviously very fast-growing separate from that, too. Jeff? I think one of the biggest surprises here in the U.S. is that treasury rates, bond rates, declined. The 10-year treasury started the year around 3%, paying 3%.

it's all the way down to 2% now. And going into this year, really the consensus was that rates would go up as the Fed eased on its stimulus. Many were even predicting 4% rates on the 10-year Treasury. Well, 2% is a long way from 4%. They got that absolutely wrong. And again, I think these lower rates have certainly helped the stock market go up. Have you seen Switzerland has negative interest rates now? They're actually charging people to put money into the banks. Switzerland? Yeah. How's that working out for them? Just brand new, we'll have to wait and see.

For me, it is the airline stocks, which historically have been underperformers. Two of the top 10 performing stocks in the S&P 500 this year, Delta Airlines and Southwest Airlines. And just as an industry, I mean, in early January, if you just decided, I'm just going to go out and buy shares of every airline, you have done so well this year. And I can't help but wonder if this is going to be sustained into 2015, or if this is just going to be seen as an aberration. Well, that's a good question, Chris. I would say it's largely dependent on oil prices, on energy prices in general.

My stock of the year, actually, if we want to get into that, would have been ... Nobody asked for your stock of the year yet, Rod. I was told before the show that that might come up. I'll talk about what I have for breakfast today if we want to talk about that. Southwest up 114% this year on an improving U.S. economy, industry consolidation, and lower energy prices. I don't think these low-energy prices are sustainable. They might be for some time, but probably not in the longer term. So, they won't continue to benefit from that. But the company has had an amazing year, definitely.

I love Southwest. I just have to point out, the other weekend I was flying to Chicago, and for the first time in my life I went to the wrong airport, I went to Baltimore instead of Washington, and Southwest just changed my ticket for me, no fee, very kind. It's pretty good. They've also benefited from removal of legislation that dictated how many destinations they could fly out of from their hub, and that has actually helped the company quite a bit. So Southwest used to only go out of Baltimore. That's what threw me. That's what you – okay. And my ticket was from Washington.

I didn't know that. Interesting. I'm surprised they didn't dock you with some sort of like idiot tax or something like that. I think – no, she didn't even give me an idiot look. Wow. She was very kind. Kind employees over there at Southwest Airlines. James Early, your stock of the year? You know, utilities have had a good year, but I'm going to go with a pharmaceutical company, Malincrot. This is an Irish company.

It makes a lot of pain management. It's up 54%. Do you think you can spell it? I have poo-pooed. Can you spell it correctly? I can if I look at it. It's the last three letters that we throw you. Yeah, M-A-L-N-I-N-C-K-R-O-D-T.

That's good radio. They are. You don't get that from those other channels. And they're the only company. Like when Coca-Cola takes the cocoa leaf, they have to separate the cocaine from the rest of the product. So, Melon Crot is the only company that actually gets the cocaine to make, they use it in like a topical analgesic kind of a thing. What are we talking about?

Stock of the year. Oh, 50-something percent this year. Nice. Ticker? What's the ticker? M-N-K. Jeff? Yeah, I got to look at that one later.

My stock of the year, I'm giving it to Apple. A-A-P-L. It's up 40% year to date. Well, Google is down 10%. Samsung is down much more. Apple added more than $200 billion in value this year, more incremental value than most companies are worth in total. And the iPhone 6 is a big hit. Apple Pay is off to a great start, and we get to see what the watch does next year. So, Tim Cook, finally getting some props.

Google is down a little bit this year, and yet, given the recent troubles in Russia, Google by itself is still bigger than the entire Russian stock market. So, they got that going for them, which is nice. Coming up, we're heading to the corner office to find the best and worst CEOs of 2014. Stay right here. You're listening to Motley Fool Money. As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. Welcome back to Motley Fool Money. Chris Hill here in studio with Jeff Fischer, James Early, and Ron Gross. Your CEO of the year,

Ron, who are you going with? So many good ones. I was going to go with Tim Cook that Jeff mentioned earlier, but I decided to go with Bob Iger of Disney, who, as I'm prone to say, is really knocking the cover off the ball, firing on all cylinders and all things to that nature. You haven't used firing on all cylinders in a long time. I brought it back a couple of weeks ago. Oh, you did? Okay, okay.

Maybe I didn't miss that one. Stock's up 21%. $157 billion market cap company continuing to grow, and all of its segments are really doing quite well. So many good things on the horizon, whether it's Star Wars or Shanghai Disneyland. And he's just done a wonderful job, recently extended his contract through the mid-2018. So I hope shareholders are happy to see that. This shareholder is very happy about that.

James? Jack Ma made more money than any other person on earth in 2014. Alibaba. Yeah, about $30 billion. Now, he has a reputation for really knowing how to hose people. And maybe that's okay for, I mean, in terms of how he's taken all the pay out of Alibaba. And he's done a bunch of shady things. But he's also been pretty philanthropical, so I like him in that respect.

Jeff? I have two quick ones. Lifetime Achievement Award to Larry Ellison, long-time CEO of Oracle, who stepped down this year, but he's still chairman. That stock is up 20% year-to-date, more than 200% the last 10 years, and is the largest enterprise software company in the world. He built Oracle from nothing, and that was his life's work. I'd give a close second place, though, to David Aldrich at Skyworks Solutions, ticker is SWKS. S. This analog semiconductor designer has been planning for Internet of Things or connected devices for years, and now it's paying off. The stock was up 150% this year, 600% the

past 10 years. Not exactly the household name that Oracle is. How big is that company? Skyworks' market value is about $13 billion, so it's a small mid-cap. Bigger than Apple, yeah. It sounds like 2015 might be the year someone makes them some sort of godfather offer to just bring them in-house? I don't know. I think they'll stay independent. They're doing so well in so many ways. I'm not suggesting we give out a Lifetime Achievement Award for our next category, but let's face it.

There are a lot of great CEOs out there, a lot of great business leaders. There are also a lot of bad ones, or leaders who had bad years, and that's what this is, Ron. What if we all picked the same guy? That'd be interesting. It's quite possible. We may have. I'm going to go with Mr. Dove Charney. Is that how you pronounce it from American Apparel?

Stock's off 85% over the last 10 years. Shares are trading at one. he was finally let go after being fired, and then brought back, and now fired again. Misconduct, allegations all over the place of all different kinds, and we won't need to harp on them, but the company has done quite poorly, and him at the head has not helped matters. James? I'm going to go with Petrobras' CEO. She's only been there since 2012, Maria Desgraces Silva Foster, kind of a long name. But Petrobras is now getting all these allegations of corruption,

And it was at once, and I'm a little bit bitter, but it was once the best performing income investor stock by a big margin. And we sold it recently. It's one of the worst. It's now one of the worst now. No Malincrodit. No Malincrodit. An example, they had a $20 billion cost overrun on a project. For perspective, the project was supposed to cost $2.5 billion.

I mean, that's like answering a personal ad for someone who says they weigh 100 pounds and finding out they weigh 1,000 pounds. Off by a factor of 10. I mean, that's a huge cost overrun. And this money is like getting funneled to who knows what. So long term, it might interestingly be a value play. But for this year, we're CEO. Jeff? All right.

I think Santa Claus should bring Sears Holdings, a new CEO. Eddie Lampert at Sears has driven it into the ground. He's driven the brand into the ground. He's really an investor. And when he bought out Sears, he became CEO of this retailer. And I don't think that's where his expertise resides. sides. And this year, he gave one of his own investment funds what looks to be a very sweetheart deal, possibly at the expense of Sears shareholders.

It's only $400 million now, isn't it? You know. So, I think he needs to give up on this poor, beleaguered retailer and move on. Alright, let's get the stocks on our radar this week. We'll bring in our man Steve Broido from the other side of the glass. Steve, one news story this week. Darden Restaurants, parent company of Longhorn Steakhouse, Capital Grill and your beloved Olive Garden. Put up some good numbers. Same store sales up at Olive Garden for the first time in a long time. Thanks to Steve. I feel like you and your family should get a little bit of credit for that. I'm happy to take some responsibility for that. Absolutely.

When was the last time you were there? We had a to-go order somewhat recently, and I will say they do a terrific job packaging everything up. They give the salad dressing its own little bin. It's really, really nice. Curbside, or do you have to go in? Yeah, you do have to walk into the store. That's the one thing. Steve, was the food okay when you got home, or was it kind of soggy? It was quite warm. No, it was delicious. Wow. I feel like they should be paying us, or at least Steve. All right, Ron Gross, what's on your radar?

I've spent the last 20 years not analyzing the stock, and it's time to put it on my radar. It's Nike, NKE. They reported this week shares are down. They actually beat expectations, but future orders look a bit weak, and that's because they're coming off some really strong comps from last year. But I think it's time to dig in. Steve, question about Nike? The Just Do It campaign, what real value did that add? Can you put a number to that campaign?

I probably could put a number in a very analytical way by trying to figure out how much it cost to create it and slapping a multiple on that to derive some kind of brand asset value. But it's guesswork at its best. We talked about that. Those are the last words of some serial killer. Remember that? No. The show comes to a halt.

No, there was someone on death row. Yeah, in 1979, and that's where Nike got the, it didn't cost much to make. Is that true, or that sounds a little urban legend-ish? That does sound like it. All right, we'll hit the Google machine after the show. James Early, what's on your radar? I'm on with One Oak, O-K-E. This is an Oklahoma general partner of One Oak Partners, which is an MLP, Master Limited Partnership, ships natural gas.

So it's kind of boring, but they pay a 5% yield. They've gotten beaten down because of this oil price stuff, but they don't really ship oil. It's a natural gas company. They pay 5%. I think they're going to have a double-digit dividend increase in the next year. And this is an income investor recommendation. Steve, question about one of the partners? What is your outlook for MLPs in general?

They've gotten crushed this year. I think they've gotten crushed largely without good cause. I mean, certainly if the higher-cost shales get taken out because of cheap oil and we just don't produce, then, yes, some of those MLPs are going to be exposed. But a lot of MLPs have just been washed away that have sort of mainstream pipelines. So I'm generally bullish on MLPs at these prices. Jeff Fischer, what's on your radar? In Motley Fool Pro, we are short shares of Caesars Entertainment.

Ticker is CZR. It's the most indebted casino operator in the country with nearly $30 billion in debt. This week, they chose not to pay $250 million in interest payments. They chose not to. So, when you say you're short, you're betting the stock is going down. Exactly, Ron. And so, they're now in a 30-day grace window period, grace period, where they have to make that payment. Otherwise, there'll be involuntary bankruptcy January 15th.

So, what the company is trying to do is reach a voluntary restructuring agreement with bondholders. But meanwhile, some bondholders are suing Caesars because they've moved valuable assets under different operating companies. It looks like a mess, and we are short shares in pro. Steve, question about Caesars? What does Atlantic City look like five years from now? A wasteland. No, it's actually moving away from casino entertainment to more shopping malls and family sort of entertainment is the hope. All right, Caesars, Nike, One Oak.

You got one you like there, Steve? I may have to go with One Oak in support of my MLP friend over there. Anytime, Steve. All right, guys, thanks for being here. Up next, we'll revisit our conversation with Jordan Ellenberg, author of the New York Times bestseller, How Not to Be Wrong. Stay right here. You're listening to Motley Fool Money. Welcome back to Motley Fool Money.

I'm Chris Hill. For many people, the subject of math was not particularly enjoyable back in our school days, but our guest this week says that knowledge of math is like a pair of x-ray specs that reveal hidden structures underneath the messy and chaotic surface of the world. Jordan Ellenberg is a professor of mathematics at the University of Wisconsin, and he is the author of the brand new book, How Not to Be Wrong, The Power of Mathematical Thinking. Jordan, thanks for being here. Thanks for having me on.

First, what is it about math that fills so many people with dread? Because it really does seem like apart from any other topic that we learned when we were kids, math is the one that some people almost have a physical reaction to where they just say, well, I'm not a math person. Right. And it is very different from other areas, right? Like some people are really into reading books and some are not, but people wouldn't say I'm not a reading person as if there was a kind of person to whom books made sense. And I think people do have that reaction to math. I think one reason is that the way we teach math is as if it was this kind of completely separate alien construct from everything else that we do with our minds and do with our lives, like as if it was something invented, like just to make eighth graders lives more unpleasant. And that's not why math was invented, right? That's not why we have algebra and why we have geometry.

Those things were invented to solve real problems. And I think sometimes in the classroom, we can lose sight of what's actually going on. Let me work backwards in your title. I'll start with the subtitle, The Power of Mathematical Thinking. What does that mean, to think mathematically? Well, it can mean all kinds of things. One thing I would say is that, I mean, many things in the book don't have formulas, don't have equations, don't have calculus or trigonometry or something like that.

I think a reader may say, well, it looks like it means thinking reasonably, thinking with common sense. And in many ways, that actually is what mathematical thinking is. It starts from our common sense, but it builds on it and it extends it to apply to situations where maybe our common sense is not as helpful. How not to be wrong. First, was there any debate with your publisher about the wording of that title well you know when i was first pitching the book and talking to different publishers one guy asked me what was actually a very deep question he's like why is the book not called how to be right since that's what people want right they want to be right about stuff um which is actually something i had never considered and what i thought was a rather

profound question to be asked and um maybe one way to put it is that to not be wrong is a more modest goal, right? I'm not a math supremacist. I don't hold the position that you can figure everything out by computing and calculating and reasoning logically, right? That's one of the tools that we bring to bear on our world, but only one, and it doesn't give us the final answer. So I don't think you can be right about everything by doing math, but I hope that it's a way to inoculate yourself against certain kinds of mistakes that you might otherwise make. That is kind of a refreshing take in our current environment, because it certainly seems like more and more, whether it's politics or even especially sports, where numbers come into play almost to the point where no one is willing to be surprised. I think a couple of years ago when Jeremy Lin, the basketball player who just appeared seemingly out of nowhere as a star for the New York Knicks, I think part of what people liked about that story was just the surprise aspect that in a world where so many people are measured by various statistics, here's a guy who sort of fell through the cracks and surprised everyone.

Right, and people love that, and they're right to love that, right? The emotion of surprise, it's like the joy of a good joke or, like, a great line of poetry, or, for that matter, a great mathematical proof, right? I mean, one of the things I want to do in the book is to show you that to think mathematically is not to be a robot. In some sense, it's the exact opposite, right? It's not to kind of just, like, look out at the world and constantly say, that does not compute about everything that's, like, slightly surprising or weird or irrational.

I mean, in math, we're very alive to those things. And you're absolutely right that I think part of what's difficult is that there's a discourse around numbers when numbers are thrown around in the public sphere. Very often they're not thrown around in the correct spirit of uncertainty and approximation and estimation and stuff we really don't know about. They're thrown around as if this is the final answer, like this is the way it must be. I mean, I wish I think that people who like write about the economy and write about sports and stuff like that, I would like them to know that every time they say, like, we proved something, all the mathematicians who are watching are kind of laughing at them because that's not what proof is. So are you in some ways a small nightmare to watch the news with with your if I were to get your wife on the phone, would she say that you're just constantly dissecting the numbers that are coming out in the news? Well, you know what's good? Like, now that there are blogs, we don't have to just sit around and complain to our family

when there's something annoying in the newspaper or on TV, right? That's what blogs and Twitter are for. You're listening to Motley Fool Money, talking with Jordan Ellenberg. His new book is How Not to Be Wrong, The Power of Mathematical Thinking. Let's get to some of the examples in your book. I got to say, this one surprised me just because at The Motley Fool, when it comes to personal finance, there are few topics we are more passionate about than the futility of the state lottery system and how people who are spending their money on lottery tickets really

should just get as far away from that as they can. And in your book, you actually illuminate the idea that, you know what, there might actually be a good time to play the lottery. Right. It's kind of a sympathy for the devil moment, right, for the lottery. I try to make the best case that I can. Well, I mean, the example I talk about in the book specifically was a lottery which is not very much like normal lotteries, in that it was misdesigned so that there actually was a reliably profitable investment that could be made by buying lottery tickets at the right time. And I can tell you, I have checked whether any lotteries that use that system are going right now in the United States, and they are not. All right, so I shouldn't hop

a plane and get to Indiana, because that's the one state that's running a profitable lottery for people. Exactly. I mean, you're welcome to keep looking. You never know. I mean, after all this lottery in Massachusetts I write about, it was based on a similar game in Michigan that closed down. When the guys had been playing it in Michigan, found out that Massachusetts was opening the same game, I can tell you they got right in their car and drove to Massachusetts to buy tickets as fast as they could. Let's get to the world of investing closer to home for people here at The Motley Fool. You write about the performance of mutual funds. How should people think about that? Because roughly half of the United States is invested, and a lot of those

people are invested in mutual funds through their 401k plans, etc. How should we be thinking about our mutual funds? Well, I think one thing I write about in the book is that you have to be very careful about judging the performance of a new fund. Because of this issue of incubation, because if somebody says, hey, we developed this new fund, you can buy into it now, look at these incredible returns, it's been beating the market by five to 10% over the last five years. What you may not know is they may have been trying out 100 different allocation strategies or 1000. Out of those 1000, maybe one of them beat the market five years in a row, and they're showing you that one and not showing you all the others. And if that's the case, it may very well be that

this very appealing looking investment vehicle actually was a winner by chance and going forward is not going to be that good i mean you know they always say what's the watchword past performance is no guarantee of future performance that's like i think often people see that and they think it's like the tag on the mattress you know like oh they have to put that there but i'm not really going to pay attention to it people should pay attention to that because it's really true and it's important. But in the world of math, at least, well, in the world of investing, there are people, whether they are mutual fund managers or people who pick stocks for a living, the longer they do that successfully, should we at least give weight to people who have done it,

not necessarily for three years or one year, because anyone can have a good one year, but if someone's able to do that over a 10, 15, 20-year period, should we maybe give them a little bit more credit a little bit more weight well i think even there a vigorous skepticism is warranted right because that somebody would beat the 10 the market 10 years in a row well of course somebody's going to because so many people are playing the market now there's so many people who are trying um that being said i mean this controversy about to what extent there are people who have a skill in consistently beating the market and to what extent it's just luck i mean that is a controversy that has been raging in investment circles and in financial mathematics circles

for decades. Let me put it this way. I think there's, from what I've seen, and I don't think this matter is at all settled, I think there is reasonable evidence that there's some amount of skill, but I think it's completely clear that there's much less skill than people think that there is. I think people tend to vastly overestimate how good people are at picking stocks. So knowing what you know about math and numbers, and having done the research you've done, how do you invest your own money? I stick it in a big, fat index fund and never think about it again. I know that's incredibly boring advice.

It's like, eat a lot of vegetables and take the stairs at the office. So it's boring, but I have to admit that that's what I do. Well, eating a lot of vegetables and taking the stairs at the office, that tends to work out as a general rule of thumb. Yeah, there's a reason that that's the standard advice, because it is actually correct. And everybody wants that to be a magic bullet. You know what I mean? Oh, if I eat a kai berries instead, I don't have to do any of that.

But you're listening to Motley Fool Money, talking with Jordan Ellenberg, professor of mathematics at the University of Wisconsin. He's also the author of the new book, How Not to Be Wrong, The Power of Mathematical Thinking. We touched on this a little bit earlier in our conversation. But when you think about how math is taught, not at your level, we'll get to the college level in a minute, but at the grade school level. How should we be teaching kids about math when it's grade school, middle school, that sort of thing?

Well, that's the million-dollar question, and it's an incredibly hard question, right? So I should say, do you have kids? I have a son who's a second grader. I don't know if you have kids in school. I do. So I will say this. When I see the stuff that's going on in second grade, I feel like somebody out there in curriculum is really thinking hard about what should be in there. because I think this is pretty different from when we were in elementary school.

I mean, kids in kindergarten, first grade, second grade are making histograms and, like, learning about distributions, right? They're making bar graphs. They're doing little toy markets where they make little art projects and then sell them to their fellow classmates and, like, raise and lower the price and see what happens. Like, did you know this stuff was going on in school? I did not.

So I think that people really are thinking about what should we be doing in math going forward in the 21st century um there's a huge amount of probability and statistics in the curriculum now not in second grade but um in junior high school and high school that wasn't there before um i think all that is great but that is not to say that the situation is perfect i and i think in some sense teachers in k-12 are under tremendous constraints right because their students by and large are subject to high stakes tests and the future of the students and of the teachers and of their principals and of their schools all depends on the results of those test. So I think we talk a lot about what teachers should be doing. But I think we ought to be

talking more about what the people who write the tests should be doing. Because those tests control a lot. They're not going away. And if we want things to happen that we care about in the math classroom in K-12, we have to make sure the tests, to the greatest extent possible, are testing for those things. And I think that's something that's not talked about enough. Do I have this correct, that both of your parents were statisticians? Were and are. So they're statisticians. You're a math professor. How much pressure is there on your second grade son to go into the family business? I try not to pressure him. He likes a lot of different stuff. He is pretty sure he's going to be a Major League Baseball player. That's his plan right now. And I actually suggested to

him, just so he had options, I was like, you know, you like math and all the baseball teams now hire people who are interested in math like study the statistics of the players and he said well daddy that's great because most major league players retire when they're 40 and then i can go study statistics for the baseball team right after he walks into the hall of fame then he can get a job crunching numbers for his team exactly so he likes math but i want to make sure that he knows that he doesn't have to do that. Take me out to the ball game. Take me out with the crowd.

Buy me some peanuts and Cracker Jack. I don't care if I never get back. Let me root, root, root for the home team. If they don't win, it's a shame. Because it's one, two, three strikes, you're out at the old ball game. Coming up more with Jordan Ellenberg, This is Motley Fool Money. Welcome back to Motley Fool Money.

Chris Hill here talking with Jordan Ellenberg, author of the new book, How Not to Be Wrong, The Power of Mathematical Thinking. How did the research process for this book affect the way you teach your students at the University of Wisconsin? you know it affected it a lot and it really i feel like it really re-energized me in the classroom to kind of constantly be building this storehouse of stories related to the concepts that i teach you know every day in the classroom um and not just that but also i think you know math is taught in a very historical way right it's taught as if it's just been there forever and when you really i mean in the book i write about a lot of the history because one way to really understand an idea is to try to put yourself in the world where that idea was not there and see

it be created, right? That's one way to really get a handle on it. And going back to those worlds and really seeing just how much the early thinkers in mathematics did not see it as this separate sphere that had nothing to do with the world, but was very tied in with their thinking about philosophy, their thinking about politics, even their thinking about religion in many cases. that was inspiring to me as a teacher. And it made me feel like I want every class I teach to have that and not be as if we sort of go through an airlock into math world when we walk into the classroom. So when do you think we got away from that? Because as we talked about earlier, there really is this separation, you know, the airlock of math, like you just referred

to. When do you think, did you discover a point in history where we just started to think differently about math and the way it's treated that's an interesting question and it's really in a way it's like a question about the history of math education which i don't write about so much in the book um one thing i will say we just got an amazing collection in the library at the university of wisconsin of math textbooks going back to about the 1880s and 1890s um so you can really see you know firsthand how math was being taught and one of the amazing things about looking through these but one thing is that these are like actually used textbooks from wisconsin so you can see that kids in like 1910 wrote the exact same stuff in pencil and their math books as

kids do now so that's kind of amazing um various like obscene slogans and all this stuff really the obscenities haven't improved in 100 years yeah i mean the obscenities we have that's a perfected system man um but the um but the other thing is just that the arguments that we're having now about math teaching like oh how much should it be about following precise algorithms and getting correct answers versus how much should it be about discovery and estimation and conceptual understanding this back and forth and people talk about it as if this is an issue about the common core right this thing that's been being introduced over the last five years these arguments are the same arguments that have been being played out in the pages of math textbooks for decades since

before you or i was born and since before our parents were born and it's quite startling to like really see that and see that in the 1930s people were wrestling with the same thing of like are the questions going to be kind of socially relevant or are they going to be more algorithmic and formulaic and things like that? These things are not new and they have nothing to do with the Common Core. For those of us who are parents and are looking to get our kids a little bit more interested in math than they may be at the moment, what advice do you have? Well, I think, so one thing is that there's just a vast array of resources, both old and new, that are great for kids. And obviously it really depends on the kid and what their interests are. So a kid like my son

or like I was at that age who's like super obsessed with baseball, like baseball statistics are a great way in. You know what I mean? Like there's still like a huge amount of obsessive writing about baseball and statistics and how we judge players and stuff like that. And of course, that can be translated into whatever sport your kids are interested in. I don't know, maybe your kids are super interested in investing for all I know. Is that how it works when you work for Motley Fool? That is absolutely not the case. But there probably are some kids, right, the Abt's P. Keatons of the world who are into that. I would say, you know, the Martin Gardner books, which are now 50 years old, this guy who wrote a weekly column for many years for Scientific American about math, those books are old, but they remain classics, and I think a lot of kids who are into math, certainly me among them, obsessively read those books.

but of course there are also like vastly more online resources that just are of a kind that didn't exist before like all kinds of like youtube channels and online courses and just stuff from where you can really see some of them are made by kids actually just people who are like super enthusiastic about math um i think the challenge though is if it's kind of like eat your vegetables like people are not going to be into it right if you're sort of saying do this because it's good for you most kids don't respond that well to that so sometimes you know there's a game called dragon box have you ever seen this i have not it's a um my kid plays it on ipad i think it's probably on every platform it's a very interesting game which to some extent teaches part of algebraic thinking

and algebraic manipulation but it really looks like a game like you would never know it's kind of the math equivalent of when you like feed your kid uh like kale and lettuce by like grinding it up into a meatball so they don't even know they're getting their vegetables. You know, it's a bit like that. Well, you already had me at dragons. So, you know, I'm already interested if there are dragons involved. Great. Yeah.

For kids who love dragons, absolutely. The follow-up book is going to have the word dragon in the title, but this book is How Not to Be Wrong, The Power of Mathematical Thinking. And a lot of people are buying it. It's already made the New York Times bestseller list. Jordan Ellenberg, thank you so much for being here. Oh, thank you for having me. It was great.

That's going to do it for this week's show. Our engineer is Steve Broido. Our producer is Mac Greer. I'm Chris Hill. Thanks for listening. We'll see you next week.