Motley Fool Money - Are You Paranoid or Complacent?

Episode Date: January 25, 2019

Is the recent stock market volatility par for the course or an aberration? Is it better for investors to be paranoid or complacent? On this week’s show, award-winning financial columnist Morgan Housel tackles those questions and talks stock market history and psychology. Plus, analysts Aaron Bush, Ron Gross, and Jason Moser dig into earnings from Comcast, Intuitive Surgical, McCormick, and Starbucks. And we discuss the latest news on eBay, Mastercard, and Papa John’s. Thanks to Molekule for supporting our show.  Get $75 off your first order at http://www.molekule.com by using the promo code “fool75”. Learn more about your ad choices. Visit megaphone.fm/adchoices

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Full Global Headquarters. This is Motley Fool Money Radio Show. I'm Chris Hill and joining me in studio this week. Senior analyst Jason Moser, Aaron Bush, and Ron Gross. Good to see you, as always, gentlemen. Hey, great. We've got the latest headlines from Wall Street. Award-winning columnist. Morgan Housel is our guest, and as always, we'll give you an inside look at the stocks on our radar. But earnings season is heating up, and we begin this week with Starbucks. Same store sales in the first quarter grew 4% here in the United States, shares of Starbucks up on Friday. And Ron, close to a new all-time high. Pretty solid quarter. Beat expectations. As you said, 4% comps. Traffic was flat. Something to keep an eye on, though. So all the growth came from

spending more money, not on an increase in the number of stores. So, you know, we don't love to see that. We'd like to see both. But China's the big story here. We have to rely on growth in China. They entered 10 new cities. They expanded their store base by nearly 18% during the quarter, nearly 3,700 outlets, and the growth is on track, but there is some worry about China, whether Apple or many other companies, we need to keep an eye on it. Yeah, I would add that as my yellow flag. They did grow their store count 18%. But in China, the comps were just up 1%, which is below average for the whole world.

And thinking about as we talked last week with potential slowdowns in China, if their China growth strategy is so reliant on opening new stores, at some point, that could come to bite them. I mean, not just regular stores, right? I mean, those big reserve roasteries that they've been talking about opening. And I think Schultz, at one point or another, he talked about this grandiose vision of a thousand of those around the world. I mean, that obviously has been pulled back quite a lot.

But I think it's really interesting to see, I mean, China has been a big part of the story, a big part of the growth story that we've talked about for the last few years. With Howard Schultz at the helm, it was a bit more clear and understandable the strategy and perhaps a little bit more believable based on the time he's spent there. Now, I think that today, with Schultz gone, perhaps we have a few questions there as to how that strategy is going to play out or if they maybe need to pull back on their own expectations. But at the end of the day, it's still Starbucks, it's still coffee, and it's still going to do okay, I think. I think so, too. I like some of the moves Kevin Johnson has made, turned over a lot of the

consumer business, products business to Nestle, got them out of the tea business. As you said, curtailed that 1,000-store build-out of the reserve brands, which I was questioning from the get-go, adding on delivery, increasing mobile ordering. So a lot of good initiatives in the works. You know what it's all going to hinge on? China. But it's also, I mean, getting out of the tea business, you mean unloading those physical Tvon stores, right? And really just bringing that brand in-house. And with the success that they had with Tazot, back when they first launched that business, I suspect they'll be able to continue that success going forward with Tivana. It's still a strong brand. I'm actually kind of happy to

see them bring that in-house and just not deal with all what extra baggage. 25 times earnings at the moment, not incredibly expensive, not they're cheap by any means, but it's a growth story. It's probably a fairly good investment at this point. Comcast's fourth quarter profits and revenue came in higher than expected. The company also raised its quarterly dividend. Aaron, this is a good quarter for a company worth $160 billion. I think it's fair to say that for you and me, these results were not the most interesting part of the conference call. Right.

So maybe unsurprising, maybe surprising some. They're looking to launch their own streaming service using the NBC Universal brand. And I'll give them some credit because NBC has a lot of, they have a pretty deep catalog. They have a lot of sports and events and stuff that they could put to work. But how many of these streaming services do we need? A dozen. Yeah. And so, well, maybe.

Maybe. One for each of our listeners, right? Very well-plained. But no, I think that what we'll probably see is it will succeed to some degree, but really what they're trying to do is just be a mini-Hulu. So it'll probably play out at a CBS All-Axcess scale. So really, they're just going to be one of many. And really, when I think about what they're doing, it just makes me that much more bullish about

Netflix. So Comcast was very clear that they're looking at the first half of 2020 to launch this. And as you said, they have a lot of properties. Obviously, with NBC, they also have universal pictures, DreamWorks, animation. They've got the news properties. They've got sports and every Olympics from now until the end of time. So they have a lot of IP. But it really does seem like we are slowly, methodically moving maybe five years from now, maybe sooner, to a world where everyone just takes their own shows and keeps them to themselves. So if you want Disney shows, the only way you're going to get them is on Disney. Am I wrong? Is that the most probable outcome five years from now?

I think that companies are realizing that having that direct customer relationship is valuable. And there's also that saying that the two ways to create value in business are by bundling and unbundling. And I think if you look at the history... That'd have to be a good investment banker. You roll them up, you take them apart. You roll them up, you take them apart. And if you look at the history of entertainment and cable, it really just has been that story. cable is all about bundling things together to create value. And now we're at a stage where things are increasingly getting unbundled for a reason.

But at a point, when there are too many services out there, we'll just come back to, well, we need to bundle things all over again, which leads to more deal-making all types of moves that could possibly be made. I tend to agree with the bundling thing there. I mean, we saw early on how it was just so convenient to have just Netflix, and you can basically watch what you want. But then more competitors enter the fray, new services enter the fray. seeing things like with YouTube and Hulu live offerings that bundling can work as long as you're bundling the right things and offering it for a reasonable price. And I think that Hulu and

YouTube are doing that. And Aaron and I were talking about this earlier today. It's going to be really interesting to see in the coming five years if Netflix doesn't really pursue more of these live and sports types offerings. Because we're seeing a lot of demand for that kind of stuff out there. Hulu just raised the price of their live TV offering. And they're going to be able to do that, I think, without much of a problem at all. I agree with Aaron. I mean, the advantage Netflix has, it's so big now. They have so many subscribers. It's going to give them a chance to try a lot of different things. And really, we are seeing that you need to be more things to more people. Shares of McCormick falling 13 percent this week. Fourth quarter profits and revenue came

in lower than expected for the Spice Maker. Jason, this was the stock on your radar last week. Kind of a surprising miss for them. Wait a minute. I thought we were going to run with this. He's always covering McCormick. I'll pass. He's always pumping this company, right? No, okay, listen, let's remember there is a big difference between a bad quarter in missing some set of arbitrary expectations that is established by people who don't have anything to do with a business. This was a good quarter. They missed expectations on the operating profit side. They did hit their revenue target that they reestablished last quarter.

And let's also remember that 2018, while the market was down, McCormick was on fire. Now, with that said, there are reasons to be a little bit down. Looking forward, they did note a large retail partner's disruption in its replenishment system, its inventory system. So that is a headwind they're working through. And I mean, again, let's face it, the stock wasn't cheap to begin with. But they continue to establish a very large global presence. They're opening a new manufacturing and distribution facility in Thailand very soon, far ahead

of schedule in repaying the debt for this RB Foods deal. That RB Foods deal is a done one, it's a good one, and it's paying dividends, and a big way. And speaking of dividends, they just raise their dividend for the 33rd consecutive years. So remember, you're not owning this stock for its high-flying growth prospects. You're owning it for its market-dominating position and reliable dividend. And it's one of those that you can hang on to for a long period of time. And I told people that were asking me on Twitter about this this week, this is a gift. If you had interest in this company, this sell-off is one where you've got to take a close look because at 20-22-time full-year estimates, the market has already

shown. It will pay a higher multiple for a company that's leading in its space. Well, and one other thing they have going for them, and it's one of those things that doesn't really show up on the balance sheet, I have no idea who their main competitor is. Who is the Pepsi to their coat? That is a very good point. And there really isn't an obvious one. And a lot of people will ask the question, what about the generic offerings you see in grocery stores and one night? Well, the thing is, McCormick owns a lot of that space as well. So you see some mom and pop operations out there that are doing their own thing. But you know, but, you know,

But McCormick has proven time and time again that its scale in the space and the resources they have at their disposal, it is a very tough one to go up against. Ford Motors sales in the fourth quarter were strong in North America. Unfortunately for shareholders, Ford also sells vehicles in other parts of the world. And that's not going very well these days, Ron. No. Is there any reason to get excited about owning a stock like Ford or GM? I have a hard time coming up with one unless you get into the value investing argument. But in this case, there's too much that you would need to bet on.

They've got to really turn this business around. The restructuring is ongoing around the globe, China, Europe. They're betting bigger on trucks and SUVs in the U.S. There's an 11 billion restructuring overseas. It's going to take several years to complete that. Who knows how successful it will be. They're cutting $25 billion in costs by 2020. There's a lot on the come here.

It's hard to say what's going to happen. They declined to give profit guidance for 2019. But they tried to dance around and make some comments, which left investors a little unpleased, unfulfilled. So, you know, this is one I would just, I'd watch it and take some interest in it, but I would not want to own it. I'm not saying he's necessarily on the hot seat, but Jim Hackett's been the CEO of Ford Motor for about a year and a half. The stock's down 20% during that time. It really seems like if that guy and his executive team have any rabbits that they can pull out of their respective hats, This would be the year to do it.

Yeah, but it's tough to do that. You take the reins of something that's kind of a mess, and you've got to set up expectations where you say, I'm going to come in here and do my best, but you've got to give me several years because I can't turn something like this on a dime. Any chance these guys go knocking back on Alamolale's door at one point or another? Are you interested in Part 2?

You never know. You know that game show deal or no deal? The real-life business version of that played out this week in the financial industry. Details coming up. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. Chris Hill here in studio with Jason Moser, Aaron Bush, and Ron Gross. eBay's fourth quarter report comes out next Tuesday, but shares were up nearly 10% this week when activist investors publicly called on eBay to consider selling

off its classified business as well as stub hub. Aaron, their conference call just got a lot more interesting. Oh, yeah. Lots of ways that this could go. But really, I'm not surprised to see this happening. I mean, What, as we talked about earlier this week, what eBay does a great job of is buying these companies early on. Buying PayPal, fantastic. Buying StubHub, fantastic. Spitting up the classifieds business, fantastic. But as it turns out, eBay, the core marketplace platform is really bad as a, like, a connection point for all of these different things. They don't go together very well. And in the case of Stubhubbhub in particular, I think it makes a lot of sense that we could see logical pressure be put on them, and StubHub does go stand alone. The classifieds business I'm not

as sure of, though, because I feel like that does. People buying and selling goods and services, even if it's more international, I think that does still connect into the core eBay business. But yeah, it'll be really interesting to see how open-minded the CEO is, what tone he takes in the earnings call to determine how eBay attacks this situation. So in the lead-up to eBay spinning off PayPal, there were a real-up. a lot of people, I think including all four of us, who were pretty excited for PayPal to be a standalone company and to own shares of that. If they end up spinning off Stubhub, is that a business that you're putting on your watch list?

I think that it could be. So it probably is a good business because ticket fees are just exorbitant no matter where you go. Because if you have to buy tickets to something that you're interested in, you can only go to so many places to get it. But what I think could happen with Subhub is that they could be acquired yet again by someone in the music industry to create a more complete music ecosystem, because live is more important in music than ever before. But it also could give someone a starting foothold in sports ticketing as well. So it could be Amazon, it could be Sirius XM, Spotify might even have some partnership in there somehow. If one deal is made, I think it could

just be the beginning of a snowball. In late December, Visa announced the acquisition of Earthport, a British payments company for roughly $250 million. On Friday of this week, MasterCard announced the acquisition of Earthport for $305 million. Jason, what happened to the deal with Visa? It looks like we've got a good old-fashioned bidup, Chris. It's just a matter of who wants it more, I think, and right now it seems like it's MasterCard. I mean, that's a 10% premium, I think, to what Visa was offering. Like we said with Visa a few months ago or a month ago with this deal, I mean, it's a drop in the bucket.

it for either a company, right? I mean, they could acquire this company today, write the whole thing off next year, and nobody would probably bat an eye. But it ultimately is about getting a better cross-border payments business for either Visa or MasterCard. If you look at MasterCard, the cross-border payments volume grew 17 percent last quarter in those cross-border payments, such as just transactions that involve parties in two or more countries. And as we know, those are becoming more prevalent as the world gets smaller, and electronic payments continue to grow. So we'll see if Visa wants to counter MasterCard's bid there. I think it seems like at least the board with Earthport was a bit more on board with being a part of the MasterCard family.

But we will see. I think either way, you can't be a loser if you're in either one of those two networks. Can I just say that Earthport is a standalone public company and a month ago it was at about $7 a share and now it's at about $36? I mean, it's a very good point also to know. It's good to be an Earthport shareholder. Well, it is now, but it wasn't about two months ago because the EU is really tightening down on these regulations that is going to make these cross-border transactions less profitable. So Earthport was really stuck between a rock and a hard place. And so an acquisition was really a gift for them to get in a nice little situation like this

with two companies competing for them. That's just icing on the cake. Shares of intuitive surgical falling a bit this week. Fourth quarter profits for the maker of surgical robots fell short of Wall Street's expectations. I don't know, Aaron. This really seems like a speed bump for this business. Yeah, the miss was negligible. I'm not even really thinking about that. I think the bigger deal about this quarter, really filling out the rest of the year, is seeing how they topped this year's procedure goals.

So at the beginning of this past year, the management was calling for 9 to 12% procedure growth. Over the course of the fiscal year, they delivered 18% procedure growth, and in this fourth quarter delivered 19% procedure growth. So, by most accounts, they still are topping expectations when it comes to the core metrics. Part of that has to do with adding new systems. This quarter alone, they added 290 systems, so I think we're at about 5,000 total systems. So still making good progress there. But we're also seeing clear growth and more procedures happening per system,

meaning that doctors and patients are increasingly choosing to go use intuitive surgical's equipment. And because of all this, now over 70% of their revenue is really. recurring, which I don't think many people realize when they think surgical robots that it's a recurring revenue business. I thought they just sold the systems. They get paid based on the number of procedures? Yeah. It's high margin recurring business.

It's fantastic. And so I think this is a company that even though this was a speed bump, they continue to be underestimated. For 2019, they're guiding for 13 to 17 percent growth in procedures, which is more optimistic than it was this past year. But when you realize how large their markets are, the fact that they're improving their machines, building new ones. They're attacking more types of procedures. Competition is lagging. They're starting to accelerate. They're pushing the China. There are still a lot of levers here that they can

pull to keep growth going for a long time. That recurring revenue is a big deal, and I don't want to undersell that because that's high profit margin revenue. And in the healthcare space, it seems like a lot of companies are pulling that off Massimo, Idex Laboratories. It's a really neat space to be looking for those kind of models. Restaurant Brands is the parent company of Burger King, Popeyes, and Tim Hortens. Reports this week that Restaurant Brands is considering adding another restaurant to its portfolio. of Johns. I don't know. You say that with a question mark in your voice. I don't know. I mean,

it seems like a buyout could certainly be good for shareholders, including and especially former CEO, John Schnatter. Yeah, I don't begrudge restaurant brands wanting to maybe take this one into their portfolio. I'm not sure they want to get in bed with Schnader, if that's part of the thought there, along with 3G. I could see them maybe wanting to go it alone and buy Schnader out as well. That might make more sense. However, I do love what the company is doing right now. Their new ad agency of record Endeavor Global Marketing has put together a great PR campaign called Voices, where they're really trying to change the narrative away from Papa, John himself, to many of the other folks involved in the business, including all the people that own franchises.

This is a stock that's been cut in half in the last two years. So if you're John Stannert, don't you really have to consider ways to boost that? Yeah, there's a lot of ego going on here. I think he's a little bit angry about how this all went down. So he might have to let some of that go. All right, Aaron Bush, Jason Moser, Ron Gross. Guys, we'll see you later in the show. Up next, financial columnist Morgan Housel from the Collaborative Fund stops by for a conversation. Stay right here. You're listening to Motley Fool Money. Hey, before we get to my friend Morgan Housel, I want to tell you about my friend Melissa. Melissa's worked here at the Motley Fool for the past 10 years plus. And earlier in the week,

she came running up to me because we have a molecule air purified. here at the office, and she took it home with her. Unlike me, where I just sort of stole it and didn't tell anyone and then brought it back, she actually went through the proper channels. She brought it to her home. She's been an allergy sufferer for a long time, and she was just so excited. She's like, oh, my God, I woke up this morning and literally turned to my husband and said, is this what it feels like to be a normal person who can breathe through their nose? I'm not congested. My eyes aren't puffy. This feels amazing. I'm buying. buying one of these, I might be buying several of these. That's what Molecule did for Melissa.

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doorstep when you need them. They want me to tell you all this, and I'm happy to tell you all this. But really, what I want to tell you about is how Melissa's life has been changed for the better because of this device. So if you're suffering, from allergies if you're dealing with asthma, you might want to check it out. And you can get $75 off your first order. Go to molecule.com, use the promo code fool75. That's M-O-L-E-K-U-L-E.com. Use the promo code full-75. Now, let's get to Morgan Housel. There is nothing quite as wonderful as money. There is nothing quite as beautiful as cash. Welcome back to Motley Full Money. I'm Chris Held. Joining me in studio. It's the one and only,

Morgan Housel. Good to see you. Thanks for having me. You've been traveling. We're going to get to your travels. But let's start with this. The last time you and I were talking in the studio, it was last June. Yeah, sounds right. And I checked and the SMP 500 today is just about where it was when you and I were talking back in June. Although it's visited a lot of different places in between those two times. And I'm curious, Studying the market the way you do, what do you make of the volatility that we've seen over the last six months in particular? Someone asked me a couple weeks ago, a similar question, but they said, you know, the market has been so calm for the past two years. And now the last three or four months, it's been up and down all over the place.

What do you make of the ups and downs? And I said, well, no, it's the calm that was the outlier. That was the abnormal part. I think the volatility that we've experienced in the last three or four months is what is more close. to historical normal than what we experienced in 2017 and most of 2018, where the market just went up consistently 1% per month, very little volatility. That's the outlier. But it happened for so long, even if it was only 12 or 16 months, I think people got accustomed to, you know, even if you're a long-term investor, you've been doing this for a long time.

If you go through a period of 12 or 18 months where things are calm, it's really easy to extrapolate and just assume that that's kind of how the market works, especially because it feels so good, it's so calm, everyone's having a good time. And then when you get into a more volatile period, It's hard to remember and remind yourself that that's what markets are supposed to do. And that's why you're going to earn a higher return than other assets because you're putting up with all those ups and downs. So we've talked before for years on this show about as great as the bull market run has been for roughly the last decade. One of the potential ripple effects is we're going to have a lot of new investors who, when the volatility hits, when the market drops suddenly, that's going to be really their first time encountering it. We've focused, I think, more on the returns

and sort of gearing or stealing ourselves for people not being ready for the market drops. But is it the volatility that really is as important, if not more important, in terms of investor psychology? I also think you can break it up into two groups. In terms of there's a group of investors who started after 2008 and have never experienced a big downturn. And then there's the people who were investing in 2008. and they have all the scar tissue from 2008. And both of those groups, I think, can be equally dangerous. You have the new investors who might not understand what it's like to watch your net worth go down by 25%

and what that's going to do to your psyche and how that's going to affect your outlook on your retirement and your kids' education. And then there's another group like you and I who did live through 2008, invested through 2008, who are probably a little bit overly paranoid that that's what's going to happen next. And we keep anchoring to 2008 and assuming that the next business, big downturn is going to be like that next big one. It's like if you live through the 1906 San Francisco earthquake, you probably assume that every earthquake after that was going to devastate the city. If I realized like, no, that was a big outlier. You probably shouldn't expect that to keep happening. So I think in terms of the psychology about it, those are kind of the two

camps out there today. You have the complacence and the paranoids. And I don't think one is better than another, but I think both groups kind of set themselves up. Both groups can anchor on scenarios that are statistically, probably unlikely to occur again. Do you think we can get like team jackets made with, you know, paranoids written on the back? That would be good. I would do it. I'd wear it. Let's talk about your travels. You've been speaking literally all over the world. You were in India. You were in Mexico. Let's start with India. How is the trip and sort of in terms of investing focused reflections, what can you share from the trip?

If you haven't been to India, you can relate with this, which is that it's a country of just huge extremes in terms. of wealth and poverty. And it was some of the glitious wealth that I had seen. Some of the nicest office buildings, some of the nicest hotels you've ever been into. And then you can step outside on the street corner and it's some of the deepest poverty that I've ever seen to a degree that I was not expecting or prepared for. It's just a country of amazing polar opposites. And I think from an economic standpoint, it's interesting in that India does have so much going for it. And there's parts of India that are as developed, if not more developed, than a first a top tier city here in the United States.

There are parts of India that you can walk down and you feel like you're in the middle of Manhattan. And then there's parts that it's just so, so devastatingly sad poverty. So I think that, the juxtaposition between those two is what stood out most from the trip. It was pretty jarring. But there's parts of the Indian economy

that are absolutely booming and have the infrastructure as any other first world country in the world. So that's really what stood out from the trip. I wasn't there that long. I was there for 48 hours and did three talks in 48 hours and got back on the plane and left. But the other thing, you know, when you brought in Mexico City as well, and also I've done Australia and England and South Africa, every one of these countries that you go to, everyone talks about the strength of the U.S. dollar and how it's impacting them. And even people on the street, your cab driver will be acutely aware of the currency ratio between their local currency and the U.S. dollar. They talk about it, they know about it, which in the United States, We don't, like, no one ever talks about the value of the dollar. What is the value of the dollar relative to the pay so done? I have no idea.

I have no clue. For everyone else in the rest of the world, it is like one of the top variables that everyone, not just investors, tracks. So that's a big thing that sticks out when I go to other countries and speak to them. Everyone wants to talk about the strength of the U.S. dollar, and they want my opinion about it. And my opinion is, honestly, I had no idea that it had done so well in the last year. It's not something that you and I track on a regular basis. So for a number of years,

And this almost has sort of like a virtuous cycle effect in terms of the U.S. stock market. But for a number of years, part of the rise of the U.S. stock market was due to a lot of other countries just weren't that great to invest in. Yeah. I'm curious with the recent downturn in the U.S. stock market, now that we are in month two of a government shutdown, is there worry setting in in some of these other countries? Or do they think, you know what, on balance, the dollar is strong, the U.S. economy is strong? They look at it and say, yes, the U.S. economy is probably the strongest country in the world right now economically, and therefore the dollar is strong, which to them can be a really difficult thing to deal with because all of their U.S. dollar imports become way more expensive.

South Africa that was at in September, the U.S. dollar has increased like 35 percent against the RAND over the last year, something in that range. So everything that they purchased from the United States is 35 percent more expensive. which is a big deal just for everyday people. So it's a weird thing where they do look at the U.S. as a source of strength, but it's also relative to their purchasing power. It's a burden on them. Next month, we're going to celebrate the 10th anniversary of doing this show. One of the guests that we had on in the early years was Dan Yergan.

And for those unfamiliar, Dan Yergan, one of the leading authorities in the world on energy, Pulitzer Prize winning writer at the time, and this is fall of 2011. He had just written a book called The Quest, Energy Security, and the remaking of the modern world. The latest piece that you just wrote, which folks can read on the Collaborative Fund website, starts with that book and with something that you call the biggest energy story of the last four decades. And it's something that Dan Yehagen writes about a lot, which is one of the biggest impacts on energy markets the last four decades had nothing to do with oil or gas or solar or wind.

was simple conservation and general efficiency, that our cars got much better gas mileage, our factories are much more efficient in terms of how much energy they need. Plains have much longer ranges than they used to be. And the impact that increased efficiency has had over the past four decades is bigger than any new energy resource that we've come across. All the new oil drilling, all of the new sources of energy from solar and wind, pale in comparison to how much improvement we've had in simple efficiency. I use the example in the book, of, you know, a 2019 Chevy Suburban gets better gas mileage today than a 1989 Ford Taurus did. There's just been massive improvements to where a huge SUV now is as efficient as a mid-sized

sedan was 25 years ago. And so that's been the biggest story in energy over the past 40 years. There's nothing to do with what's in the ground. It's just of what we've done with the energy. We can do twice as much with the energy today as we could have in the 1950s. So other than maybe thinking twice about investing in oil and gas stocks, what do you think is the ripple effect for us as investors and everyday consumers? Well, I use this as an example to talk about how we're trying to get ahead as investors. And using it as an analogy that in energy, most of the focus is, how can we get more oil? How can we find more gas?

What can we get out of solar? When the reality was the low-hanging fruit and the biggest, what moved the needle the most was this efficiency. And I think there's an analogy for investors in terms of there's two ways to get ahead. You can increase your investing returns, which can be very powerful, but can be very difficult to try to outperform the market by a huge amount over a long period of time. Or you can look at the other side of the equation, which is your own personal efficiency and fuel economy, let's say, which is your own savings rate and frugality. And I just made the point that, look, if you and I have the same amount of money and I can earn 8% return on my assets, and you can

earn 12%. But I can survive and be happy with half as much money in terms of just paying my bills month to month. I'm better off than you are, even though I'm earning much lower returns. So there's a source of financial outperformance in there that has nothing to do with market returns. It just has to do with your own personal efficiency and frugality and learning how to live with less. And I made the point of there's so many investors in the world who will spend their entire careers grinding away to outperform the market by half a percentage point per year, one percentage point per year. When in their own personal finances, there's two or three percentage points of just lifestyle bloat waiting to be exploited right there. And it's just a bigger source

of alpha than I think most people assume. And that you can make a bigger difference in terms of your financial well-being by focusing on that expense side rather than the income and return side. I think it's a great question for anyone to think about in their own personal life, particularly if we all frame it as, what is my level of lifestyle bloat? That's a nice question. Nice phrase. And for you, it's going to Dunkin Coffee 17 times a day. That's your lifestyle bloat. I've seen it.

I'm not going to deny that. I'm just going to find other efficiencies in my personal life. Don't take my Dunkin coffee for me. If you take that out, though, you are the next Warren Buffett, is what I'm saying. Last week, the investing world lost John Bogle, who really seemed like he was going to live forever. We talked a lot about him on last week's show. you think about Bogel, what stands out to you, whether it's something you encountered with him or just part of his legacy?

I think it's two things. And this point has probably been made many times, but it's what stands out in Bogel's career and that when he started the Vanguard group, he structured it as a legal entity so that it could never make a profit. And to be as talented as he was and had the vision that he had and to say, I'm going to devote my life to this. and I have basically zero chance of ever becoming rich off of it is astounding. And just think there's no one else.

That is a one in a billion personality of someone who's willing to do that. To be that talented and that smart, have the opportunity to make a fortune on Wall Street. And he went out and basically started a nonprofit. And the calculations that I've seen is that in recent years, between 30 and 50 billion per year is what Vanguard investors are saving relative to if they were in kind of a for-profit, higher fee, fund structure. And that's basically money that effectively could have gone to Bogle's pocket, that he's given back to tens of millions of ordinary retirees. And so I kind of think about it like Bogle is the biggest undercover philanthropist of all time. Without even writing a check, he took money that could have been his, and he gave it back to tens of millions of ordinary retirees that now sits in their retirement accounts.

That's an extraordinary thing. And I don't think there's any other – there's no other relevant example that's close to that to doing what he did. a great philanthropist, but they have people who made a fortune and then gave it away, where Bogle said, I'm just, I don't even want to make a fortune. I'm just going to let people keep the money that they earned. You can follow him on Twitter. You can read his stuff, and you should be reading his stuff on the Collaborative Fund's website. My favorite financial columnist, Morgan Housel, always good talking to you, my friend. Thanks for having me. Coming up, we've got a few stocks on our radar. Stay right here. You're listening to Motley Cool

money. As always, people on the program may have interests in the stocks they talk about, and the Motley Fool may have formal recommendations for or against, so don't buy ourselves stocks based solely on what you're here. Welcome back to Motley, Full Money, Chris Hill here in studio once again with Jason Moser, Aaron Bush, and Ron Gross. We are hiring. We are looking for writers, editors, developers. We're building up our tech teams, our marketing team, SEO. A lot of these jobs are here at full headquarters in Alexandria of Virginia, but we're also hiring for our office in Colorado, as well of some of our international offices. And, oh, yeah, we're looking for summer intern. So you can find all of that and more by going to Careers.fool.com.

That's careers.fool.com. And as an added bonus, you get to meet Ron Gross. Our email address is Radio at Fool.com. Question from Nick Burgess in Atlanta, Georgia. You're right. Hey, guys, love the show and everything it has helped me learn in my young investing journey so far. As I'm only 26 years old, I'm looking for companies that I can stick with for the long haul. I know I need to look for companies within my circle of competence.

with great management teams, but I always hear about looking for companies that are undervalued. With that in mind, what is your favorite way to value a company? Again, thanks for all that you do. Thanks for listening, Nick. Thanks for the question. Ron, you're up first. I can talk about this for hours. He literally could. We don't have that kind of time. All right, I'm going to give you one that is off the beaten path and is perhaps easier, and that's called earnings power value, and it assumes a company has no growth, and you value it assuming it's just stable, and then you can compare the no-growth value that you get to the current price to determine what you're actually paying for that growth.

That sounds like it involves math. It's a little bit of math, but it's easy. Jason, what about you? Yeah, I mean, I preface this by saying that valuation is more art than science. It's an opinion, really, and everybody's is probably a little bit different. I know a lot of people like to look at cash flow. I do like to look at that. But I also think that generally speaking, most people are out there looking at actual

earnings per share. So, I do like to fiddle with these income statements and stretch out earnings per share five years down the road, get an idea of what the company's going to be earning and look at it from a multiples perspective. Yeah, I think it's important to learn how these different frameworks work, this kind of cash flow of value. I may be a little bit different in the sense that the companies I'm looking for are the ones that break all of these models. I'm looking for the companies that can grow faster and longer than what most people would plug into those models. So there are qualitative reasons why that happens. Optionality, great products, great leadership. But you could

go a million ways with it. And I think that's really the point. And something we've learned here with our years as analysts is the idea in analyzing stocks and valuing these stocks is having as many tools in your toolbox as you can. Because there is no one right way to value a company. There are better ways for certain markets and whatnot. So learning all of those different ways over the course of time really is the most valuable way to go about it. Let's get to the stocks on our radar. Our man behind the glass, Steve Broido is going to hit you with a question. Ron Gross, you're up first. What are you looking at this week? I've got Hawaiian Holdings. H.A. operates Hawaiian Airlines, 15 largest airline in North America by passengers carried.

Most extensive routes to the Hawaiian Islands, fuel and labor costs remain fairly stable, which allowed them to really increase the bottom line nicely. Stock is at historically low valuation, however, because of worries about increasing. increasing competition. But I think the company is in a pretty good place to combat that. 1.4% yield for those looking for a dividend. Steve, question about Hawaiian holdings? So this one might be a little bit tricky, but when we were in Hawaii, there seemed to be a lot of people going between island to island that lived there. What percentage do you think of that makes up this

business versus me flying here from Virginia? It's a smaller percent than people popping in from the mainland and from overseas. But it is an important part, and there are some airlines that actually specialized in that island hopping. Jason Moser, what are you looking at? Yes, Ameris Bank Corps. Ticker is ABCB. Ameris's earnings came out on Friday. No surprises, really, because it reinforced what they already told us about a month ago

when they announced the Fidelity Bank acquisition. Efficiency ratio down to 54% from 60% a year ago, and that's important because it's a ratio that tells you they're earning more than they're spending. Big exposure with this acquisition that's going to give them additional presence in Atlanta and Orlando. The stock actually fell 10% on that news a month or so ago. It actually touched under $30. But to me, it was a no-brainer. This is going to make this a bigger, more powerful bank, good business and an attractive space. One, you can plan on owning for a long time to come. And as a side note, I'm going to have the very good fortune of interviewing CEO,

Dennis Zember here very soon, and we'll have that available for industry focus and perhaps other podcasts do, Chris. Steve, question about Ameris Bankor? Convinced me that banks aren't just commodities. Steve, banks aren't just commodities. You can trust me. Thank you. Aaron Bush, what are you looking at? I'm looking at Elastic, ticker E-S-T-C.

Elastic is a search company, but it's nothing like Google. So they're an enterprise search company, and I'll explain that with a couple examples. So, Ron, when you're swiping left and right on Tinder, it's actually elastic that powers the search looking for your matches. And when after your tender date, you're looking to take an Uber back-hundred. home, it's Elastic that powers the search to find matches between drivers and riders. They help big companies work with find things in servers, network outages. So it's a really big opportunity. The company is growing like wildfire. The stock's expensive, but it's a really cool opportunity, I think. Steve, question about Elastic? Is the goal for this company to get acquired by somebody

like Google? I don't think Google would acquire them. I think this could be a standalone business, but still be a pretty massive business on its own one day. Three stocks, Steve, you got one you want to add to your watch list? I feel an elastic. Sweet. Honey, Aaron was kidding. Ron Gross, Jason Moser, Aaron Bush. Thanks for being here, guys.

Thank you. Thank you. That's going to do it for this week's edition of Motley Full Money. Our engineer is Steve Broido. Our producer is Matt Greer. I'm Chris Hill. Thanks for listening. We'll see you next week.