Motley Fool Money - Dave & Buster's New High Score

Episode Date: June 10, 2016

Dave & Buster's racks up big earnings. Restoration Hardware gets hammered. Keurig Green Mountain goes cold. And Disney gets ready for its Shanghai debut. Plus, Motley Fool columnist Morgan Housel shares some surprising insights on risk. For a preview of our Fool Fest Digital Pass, go to digitalpass.fool.com/money .     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 Ellen, joining me in studio this week from a million-dollar portfolio, Jason Moser, from MDP and Supernova, Simon Erickson, and from Motley Fool Pro and Options, Jeff Fisher. Good to see you, as always, gentlemen. Hey there, Chris. We will dig into the latest headlines from Wall Street.

Award-winning columnist Morgan Housel is our guest this week. And as always, we're giving the inside look at the stocks on our radar. But we begin with specialty retail. The most recent quarter was rough for most general retailers. But now we're seeing this same story play out with niche retailers, too. Restoration hardware and urban outfiters. in particular, let's start with Restoration Hardware, Jeff. The first quarter was bad, and the guidance for the full fiscal year was even worse, and the stock down 26 percent in the last two days.

Sure, Chris. So same store sales, which were running around 14, 15 percent a year ago, were only 4 percent this year, which is still up, still positive. But they have inventory issues. They're working out their distribution center strategy. They've launched RH. Modern, a whole new line of furnishings that has a modern sleek look. How's that going? It's going all right. They say demand is there, but their ability to meet demand is lacking. Well, much with modern art. We just don't quite understand it, Chris. Well, so the management comes out and they're talking about currency headwinds. They seem

to be offering up a lot of reasons for why they're struggling that have nothing to do with their own operations. When it seems like, as, you know, to your point, they're having trouble just with basic inventory issues. It really is. They're making big bets. They're opening these giant iconic stores, and of course filling them with furnishing that they hope will sell well. But they're investing at the same time in new distribution center strategies, and they've

invested, over-invested in those, and now they're scaling back. They've launched their R.H. Gray card, which for a $100 fee, you get 25% off of everything in the store, which makes you question their pricing on everything. It makes me question their ability to do math. Yeah, I'm just, I mean, like, forgive me here, but I mean, everything you're saying is like a total red flag. I mean, in the age of e-commerce, they're building more physical stores. In the age of e-commerce, they're cutting prices even more.

I mean, this doesn't sound like it ends well. Yeah, Jason, I've followed their conference calls for about a year, and we stopped recommending them in Motley Full Options because of these red flags. They do not want an online strategy. They try to discount Amazon's approach to selling things. They think by... It could be, but that doesn't sound right either. Their goal is to recreate the physical store shopping experience.

So they have cafes, coffee cafe, inside their stores and water fountains and this and that. But there's so much out there that you can do, entertainment-wise, that trying to tie it into a shopping experience is not always going to work. Let me broaden this beyond restoration hardware and ask a question about specialty. retail in general, which is that obviously, whatever your retail business, whether you're Walmart or Target or a specialty retailer, you're going to have to deal with inventory issues. Do specialty retailers, by the very nature of the fact that they're going to a narrow segment, do they have to be better at things like inventory control than general retailers?

In my mind, yeah, I mean, absolutely. They have to be much better. I think that with anything furniture-related, I think that's really really difficult from the get-go, because with furniture, typically, you're looking for something. You're not quite sure what it is. Perhaps you're looking for a couch. You don't necessarily have a brand name in mind. You might not even necessarily know what you're looking for. You need to browse and find what piques your interest. So when I look at a lot of these specialty retailers like restoration hardware, I just find it really difficult to believe they can maintain any kind of pricing in today's day and age where you have something like Wayfair, on the other

hand, that's extremely capital light, doesn't carry inventory, and it just connects buyers and sellers all over the country. And it's just logistically much more easy to implement. Yeah, specialty retailers have to give consumers a reason to come to the stores, Chris. I mean, Restoration Hardware, I find it difficult to believe that you're going to go out and take an evening to go visit Restoration Hardware, and that's the reason for going out. But we have seen some pockets of specialty retail do very well with this. Lulu Lemon is hitting all-time highs right now, even though retail is kind of having a tough time. But they're giving their consumer base a reason to come to the stores.

I think that's a secret sauce for any retailer. Well, and William Sonoma has demonstrated for years their ability to operate well, not just online, but in stores as well. Well, the CEO of Restoration Hardware, Gary Friedman, said they're seeing increasing headwinds by their targeted audience, which is more affluent customers. They're not spending as much, and they see that increasing. So I don't know how much that holds true across the industry. It sounds also like maybe they're trying to take a page out of the IKEA.

a playbook and making it more of an experience when you go shopping there. I think that's fine, but the benefit that IKEA has their far lower price points, they exploit that with their consumers. You know what you're getting when you're going in there. You're not going to pay nearly as much, but at the same time, you do enjoy that experience. It's a bit more palatable to kind of take a day and go to an IKEA than perhaps a restoration hardware. Well, and Simon, we saw urban outshitters down about 10% this week.

They're doing the same thing in terms of warning. this case, it's their current quarter-same store sales, and they're having the same kind of trouble. Now, Chris, are you ready for the most unexpected response ever from me on the show? Yes. I like what Urban Outfitters is doing right now. Really? Yes, I do. So when they bought that Pizza Cheney six months ago, you're saying thumbs up.

Again, they've got to find a reason to get people into their stores. They're appealing for the millennial demographic, 18 to 28-year-olds, right? 40% of sales is still coming from that core Urban Outfitter's brand out there. And they're doing things like this pizza brand and other tactics they're taking to get people into these stores for the existing bricks and mortar locations. And let's not forget that, like we said, in the age of e-commerce, urban outfitters is actually doing a fantastic job with this. Mobile accounts for 30% of the company's total revenue right now. They've got the demographic. They've got the technology to tie it in. I think this company is undervalued in the stock market right now.

You agree with that, Jeff? I don't know enough to say, but I'm skeptical. Jason, all of this is playing out against the backdrop of this story we saw this week of institutional investors moving away from places like specialty retail and moving into consumer staples. And as a result of that, some of these sort of boring, basic consumer staple stocks are starting to get a little pricey. Yeah, and I mean, I think that makes sense. The nice part about staples is they're seen as more or less the things that we need that

we're not going to really forego, whether you get it at the great level. grocery store or have it sent to you from Amazon or something. I mean, the only real difference there is whether you're buying a brand name from the grocery store versus a private label. But I think Staples, that makes a lot of sense, which is interesting when you look at it on the surface. You would think this retail environment would favor shoppers. I mean, employment is better. Commodities are low. Fuel prices are low. But I think in the face of that, you've also got a situation where, I think, honestly, we're facing a little bit of an underemployment situation. Wages aren't necessarily taking off. And I think that you couple that with high debt loads and very

low personal savings rates. I think the consumer has reason to be at least a little bit cautious. And so that plays out on any of this kind of specialty retail, discretionary retail, indeed. And so staples would come to look a little bit more attractive. And of course, when more money flows into it, that's more demand, that pushes those prices up, and you've got to be a little bit more picky about what you're finding in that space. Yeah, it's a little concerning because in the past you see staple stocks become inflated in price towards the end of a bull market when money managers are looking for a so-called safe place to put their money, no matter what the economy does.

That said, Simon may be right about urban outfitters. I would just be cautious on retail as a whole, especially bricks and mortar retail. And remember that valuation really matters with restoration hardware going back to them. They traded at 40 times earnings a year ago. The stock is down 70 percent, and now trades around 16 times earnings. which at least is more reasonable if those earnings are stable. I think a really good rule of thumb with retail these days. Biggest market opportunity wins.

And I think you look at that and say, well, restoration hardware, sure, not a bad concept. Probably a small opportunity. Urban outfitter's pretty small market opportunity. Amazon, very big market opportunity. Kroger or something in that Staples industry, very big market opportunities. So I would look at the bigger market opportunities as being the wiser bets in a faceable market like this. And one last thing.

If you're going to go after the bigger market opportunity, you have to do something that Amazon can't already do. One company that's definitely benefiting from higher discretionary income is Dave and Buster's. First quarter profits came in higher than expected this week. Their revenue was up. They raised guidance. And maybe no surprise that the stock is up 15 percent this week, Jason. Yeah, this has really been an interesting story because, again, they see a lot of room to grow

from their current store base. And I agree with that. It makes perfect sense. The strength of Dave and Buster's model right now is the Dutch. diversity and its revenue, where you look at most restaurants and they make their money by selling food and drinks. About half of Dave and Buster's sales come from the entertainment side, games and whatnot that people play when they go there. So while we are in the face of a more cautious consumer, I think there probably are some consumers out there that are

foregoing the expense and the time involved with going to the actual game, perhaps, in finding solace in the local Dave and Busters and having a couple of drinks and some people. food and playing some games there and enjoying that, it is going to be a less expensive way to sort of enjoy the day. I would imagine, or evening, whatever it is. I still think that with Dave and Busters, though, sustaining that success is going to be crucial because we know that a lot of that money is tied to the entertainment side of the business, and there is a lot of competition out there for entertainment dollars today. So true. And Jason, we saw them, you know, this is their second time around. They were, they

I remember them growing up in Chicago in the early 90s, they really came onto the scene and we would go there sometimes as a young man. And so to see them then come public and then go away again and now come public again, I'm leery myself given my past experience with them, suffering in the past. And I can't, but I can't help but go back to Chuckie Cheese. I mean, this just strikes me as Chuckie Cheese for adults. And Chris, I can't tell you how much I loathe going to Chuckie Cheese. I've never been to a Dave & Buster, so I can't speak from experience. But they've already got a big hurdle to clear with me. And I just can't help but wonder if at some point they don't sort of follow that same path.

Because if that is the case, if that does happen, then this is not an investment that works out very well. All right. Before we go to break, more pain for Currig Green Mountain. Last fall, the company, best known for single-served coffee machines, unveiled the Curig cold, a carbonated beverage machine for your home. This week, Currug announced it is discontinuing. the product. Boy, that was quick, Jason. Yeah, I kind of feel like maybe

we called this a while back when they were talking about putting it out. I mean, this is probably going to sound pretty harsh, but I think I tweeted this out earlier in the week. I mean, sometimes the idea can be really as stupid as you think it is, even when big money is bought in. I mean, Coca-Cola

sunk like $10 million in this thing. And I think a lot of people thought, well, hey, if Coca-Cola is dropping that kind of coin on this thing, it must be a great idea. and I think a lot of us still thought it was a stupid idea. And lo and behold, it turns out it was. It was a giant machine, more than $300. It took a long time to make a single eight-ounce serving of soda,

and people are drinking less and less soda. So it had three strikes before it even launched. It's like the restoration hardware. There are so many red flags. I don't understand how they greenlit it at the beginning. Coming up, we'll dip into the full mail bag. Stay right here. This is Motley Full Money.

Welcome back to Motley. Motley Full Money, Chris Hill here in studio with Jason Moser, Jeff Fisher, and Simon Erickson. You can hear Motley Fool Money on radio stations across America. We've got a brand new station, but it is not here in the States, gentlemen. We'd like to welcome Share Radio, a financial station in London, broadcasting throughout the United Kingdom, and online at shareradyo.co. . So, welcome. Radio at full.com is our email address from Stephen Roman in Golden, Colorado. The market

is feeling frothy, but Activision Blizzard just seems to be getting better. The new Warcraft movie is coming out, and Overwatch is a success? By now, before it breaks out above $40, or will a market pullback present a better opportunity to add to this long-term holding? It's trading around 38 right now, Simon. Is Warcraft going to be a success? Based on the reviews, maybe not. I hear highs and lows in the reviews. The truth is somewhere between the two of those, I guess. Division as a company is just doing fantastically at hitting their own expectations and actually beating Wall Street's expectations. They've beaten earnings expectations by at

least 40 percent for each quarter of the last year, which is incredible. And after the company had Vivendi unloaded stake a couple of years ago, they've been able to allocate their capital towards growth, which is exactly what they've done a great job of lately. Trading it about 35 times earnings right now, though, which is about double the S&P, so you're paying up for that growth. But this is a great job of lately. company that continues to find ways to win, Chris. And we've called it expensive in the past, and it's continued to impress us. Next week, the Walt Disney Company's new resort in Shanghai will officially open its doors. Jason,

it took five years and five and a half billion dollars to make this thing. So it's got to be a hit. Well, the expectations are high. They should be. We talk a lot about Disney's diverse revenue stream as an advantage. But that definitely does not take the pressure off of this opening, needing to be a big success. I mean, it is viewed as a major catalyst. And the park The parks represent about 23% of operating profit for the whole company. So expectations are very high. One little side note to this story, I'm going to be very interested to see how the Starbucks

so strategically placed at the opening of the park performs. Chipotle's three-year run as the most popular Mexican restaurant chain in America has come to an end, according to the latest Harris poll. Moe's Southwest Grill is the new number one brand in the category. Jeff, obviously, this is a poll about sentiment, but Chipotle didn't fall to second place or even third. They're behind Taco Bell, Cudoba, Baja Fresh. They fell all the way to fourth, and it just shows that the company hasn't done enough yet to convince customers that the food is safe to eat and semi-healthy. And the challenge lies

ahead of them as well. A good reminder of this is Yom Brands and it's KFC in China from two, three years ago. When they had real problems with the chicken, their sales suffered for more than two years and even still now to the point that they spun it off. So, Chepotoli has to do a lot more work because people are a creature of habit. And Chappolet was their habit, for many people for a long time, and they broke that habit. And now Chepotillet has to get them into that habit again, and that's not easy. So they're giving away, they keep giving away two-for-one burrito offers or free burritos, but they still have a lot of work ahead of them. A lot of fools here are optimistic that they will eventually recover.

We've talked about self-driving cars before, guys, as well as the space ventures of various business leaders like Jeff Bezos and Alon Musk. Google co-founder Larry Page has a pet project of his own flying cars. According to reports this week, Larry Page has secretly poured more than $100 million into a company called Z-Aro. What do you think, Simon? It's a bird. It's a plane.

It's a car? Yes. This is the next age of transfer. In addition to Zero, he's also got another one, Kitty Hawk also, which is two of about a dozen companies that, yes, Chris, are already working on designs for flying cars, which could be very interesting. These are automated aircraft that can take off and land vertically. Pretty impressive.

To me, the story in this is this is another shot against the automakers, right? Why do you buy a car anymore? That's just a regular car. If you can have a flying car or an Uber or any of the other options that are out there, a self-driving car. I think this is the next step from a tech company and a tech visionary leader. We've talked about the challenge, the regulatory challenge around flying drones. And I have to believe, if you're a U.S. regulator, this is just one more thing that you don't want to hear about, Jason. Because you're already trying to wrap your head around

Amazon delivering packages of the flying drones. Now I've got to worry about you driving around with your flying car. You wake up on a Monday morning, probably going to a job. You're not all that happy to be at anyway. And then you see that paper across your desk. You're like, oh, my God. Let's bring in our man, Steve Broido, in from the other side of the glass. Steve, what do I got to do to get you inside a flying car? Everything. Because it just sounds like such a problem. What if I bump into something? What if someone bumps into me? Who's coordinating airspace? It's just, it sounds like a lot

of fun, but not for me. Oh, I think it would crush the traffic problem that we have around here, though. You have all the air to fly through? Yeah. On the flip side, if you work for the Washington subway system, you're three thrilled about this news, aren't you? Well, first of all, please do not litter if you have a self-flying car. And secondly, Larry Page, he's going to have algorithms built into this. He wants this all to be completely automated, I think, is his take on this.

So we'll see what comes out of this. I've already nervous about a self-driving car. Now I've got to be nervous about a self-driving car, too? That's right. Drones before cars, guys. Until they do the drone, right? I wouldn't worry about the car, right? Steve?

I don't know. I don't know what to tell you. I just say, look out above. Look out above, because they're coming for you. All right. Simon Erickson, Jeff Fisher, guys. We'll see you a little bit later in the show. Coming up next, it's award-winning columnist Morgan Housel. Stay right here. You're listening to Motley Full Money. All right, before we get to the interview with Morgan Housel, I've got to say one more word about Harry's. Father's Day is coming soon.

Steve Broido, are you ready for Father's Day? Big time. I have two kids, so now I'm definitely ready for Father's Day. I am hoping that they are going to get you some Harry's products for Father's Day. Me as well. Because let me tell you, I love Harry's. I've been using their products for a couple of years. And now, while supplies last, Harris is offering a special limited edition shave set for Father's Day. Steve, can I tell you what it includes? Please do.

It includes a matte black razor handle, a chrome razor stand, moisturizing, foaming shave gel, three, not one, not two, but three handcrafted blade cartridges and a travel cover, all for $40. It comes in this really nice box. You can get it personalized. Can I tell you how you can get this? Please do. Or rather how maybe you play this for your wife and she'll get this for you on behalf of your sons.

Just go to harries.com and we've got a special promo code. Enter the promo code fool when you check out. You get $5 off your first purchase. That's harries.com. H-A-R-R-R-Y-S. Harries.com. Use the promo code fool at checkout and get that something he'll actually use on Father's Day. Sound good, Steve?

Sounds great. All right. Let's get back to the show. Welcome back to Motley Full Money. I'm Chris Hill, joining me in studio, the one and only Morgan Housel. Thanks for being here. It's the least I could do. It's been a while since you've been here in the studio for Motley Full Money. I think it has, yeah. I won't take it personally, but it just is what it is. Nor should you. I want to get to some of what you've been writing about, but let me start with a couple of things that other people have been writing about. And let's start with

Connor Sen, who is a portfolio manager in Atlanta, someone who has a pretty keen interest in demographics. He wrote something earlier this week entitled, Why Housing is about to eat the U.S. economy. And what he means by that is essentially housing is poised to reassert itself as the main driver of the U.S. economy. Has it not been? Well, I think housing has always been one of the biggest drivers up or down of the U.S. economy. There's a really fascinating paper written several. years ago called Housing is the business cycle, which just means that if you look at historical recessions, almost all of them have been driven in a big part, if not overwhelmingly, by the

housing market. When we're building a lot of homes, the economy does well. When we stop building them, it does a lot less well. It's such a big purchase, a big levered purchase that employs so many people, local people, not outsourced manufacturing another country, but local construction, local Home Depot job, you know, it just spreads throughout the economy, that housing has always played a huge role in the economy. And I think we've kind of got set on this idea over the last seven years that, so housing construction has been extremely low over the last seven years, coming off of the housing bubble.

And I think there was a sense that maybe that was a new normal, people just got used to this level of construction. And there's a growing sense, I think from people like Connor Sand, who have put it, you know, really put some good news. numbers behind it, that no, we're not building enough homes right now in America to supply current and future generations. And that's going to need to change. And it already is changing. We're building a lot more homes now than we were a few years ago. But we're still probably underbuilding. And the housing industry is still probably undersupplied in terms of workers.

And it's definitely true that previous generations, baby boomers before that, bought homes in their early 20s. You graduated high school or you finished college and boom, you went out and bought home. That totally changed with millennials. And now they are pushing it back. Millennials push back homeownership until they're in their mid-30s and they're more stable and established in their careers. So when you have that, when one generation buys homes in their 20s and other decides to delay until their 30s, there's going to be a big gap where there's not a lot of construction. But it doesn't mean that millennials are never going to own homes. It just took them a while to catch up. And we're starting to get into that phase where the big bulk of millennials of that generation

are in their early and mid-30s, are doing much better financially than they were four or five years ago, and are demanding homes. And that's going to continue. And that is good for the housing industry, and it's good news for the U.S. economy. It was an interesting piece because it seemed to address not just consumers, as you talked about, with people who are just thinking about maybe buying a home for the first time or possibly buying another home, moving from one to another. Investors, sort of, a signal that this is an industry that is poised for growth. But it also seemed aimed at other businesses. It really did seem that part of the intent of what Conner-Send wrote was, don't

think that whoever your employees are going to remain your employees, because part of his belief is the homebuilders are going to start paying a lot more money and pulling workers from other industries. That's always how it happens. When home prices go up, home builders have more incentive to build, more money to pay employees with more incentive to build because there's higher profits involved gives them more incentive to pay employees more. That's just a free market at work. And it's always it was like that in 2004, 2005, where construction workers, you know, if you were a carpenter or a master plumber in 2004, you had good job security and could make a good income.

So certainly when the when the housing market picks up as I suspect and Conradson expects it will, wages in that industry will likely pick up as well. Sure, you'll see some pull from other industries back into that. A lot of, I know in California, particularly, when the housing bust left, a lot of those construction workers, they weren't just laid off construction workers waiting for the industry to come back. A lot of them became agricultural workers or moved to North Dakota and became trained and started working on oil wells. So there's a lot of movement in between industries, which is different from other industries, maybe like law or whatnot. Whereas if you get laid off as a lawyer, you're probably not going to go become an engineer. You're going to

look for another law job for a lower degree. Earlier this week, Vanity Fair published a fantastic article from Bethany McLean, who you and I have both had the chance to interview, about the rise and fall of valiant pharmaceuticals, which is a company that has seen its stock drop 90% in less than a year. And I'm curious, what struck you? I printed it out. It was 20 pages printed out. It's a phenomenal story about how this company grew. Michael Pearson, the CEO, who really drove the growth. And then ultimately, I mean, it's still technically in business, but this thing's been decimated. Yeah, I should say, too, for people that don't know, Bethany McLean was one of the people who uncovered Enron back in the day. And she was a very young journalist back in the day at

Fortune Magazine, really uncovered it. And since then, has sort of covered as a journalist the topic of scandal. And she does it better than anyone else. And as Valiant started crumbling last summer, the first thing I thought to myself is, I can't wait to read Bethany McLean piece on this, because I knew she was going to, because this is what she does. She does it better than anyone else. And when I interviewed her last fall, you and I were talking about this earlier, Vangard, Valiant had already begun crumbling by then, but Bethany and I didn't talk about it at all. But I asked her in our interview, what is the characteristics that tie together the stories that you cover, whether it was the collapse of Fannie and Freddie or AIG or Enron? And she said, it's really simple. It's hubris.

And not just hubris among management, but hubris among everyone involved, investors, the media, regulators. It's so easy to get caught up in the idea of success without realizing that your success is not tangible. It's based off of confidence, and confidence can be pretty fleeting. That was true with Enron, where they didn't have a lot of substantial business, but they created the illusion of business that gave investors confidence to push a stock price up. And that's true in a lot of markets. There's really nothing tangible pushing it up other than people's belief that it should go up

because of their own talents. And I think we see that with Valiant, not only among, the executives at the company, but investors and the media. At the end of the day with these scandals, the executives at the helm are responsible. But there's a broader sense we don't talk about enough how much investors and the media are also culpable to some degree. We all sort of suffer from the same hubris that afflicts the people who are the most responsible. But everyone kind of has a role in this. Well, that was one of my takeaways, this idea that the cult of personality, and in this case it's Michael Pearson. The cult of personality is alive and well on

Wall Street. But it's interesting in this article to, and it's largely told chronologically, to see as Valiant stock drops from the, you know, 250 a share, down to about a hundred a share, that you have all of these, in theory, very smart hedge funds and portfolio managers making their decisions and some of them decide, I'm going to double down because I believe in this and it's cheap. And you have others say, I think there's a lot of fire behind this smoke and I'm out of here. But the other thing was, and you mentioned Enron, that was one of my other takeaways was what struck me was Enron, that was a time where there's less transparency, there's less

information available to individual investors than there is today. And in some ways, that's what makes this story a little bit more troubling to me, that we have arguably more transparency as individual investors than ever before, and stuff like this still happens. Yeah, you can have a lot of transparency, a lot of data, a lot of disclosures. But the two things. A lot of transparency doesn't mean full transparency. And more important, you can have transparency but still not have investors or analysts or the media connect the dots. And you know, with Valiant, what really got the story going was a professional

short seller named Andrew Left last summer who noticed that the phone number of a company that Valiant was doing business with was the same as a phone number of a Valiant subsidiary and putting the pieces together that this company that Valiant was doing business with was also owned by Valiant. That's what kind of got all of this going. And a lot of that is public information. And these companies do disclose a lot of information, but it takes a kind of sleuthing like that that someone like Andrew left or Bethany McLean with Enron. And just a sleuthing to the point of obsession that not one investor in a million has. So even though, even though, though we have a tremendous amount of disclosure out there, it still takes sitting in a library

filled with documents trying to put all the pieces together. So there's a big difference between a company that just dumps a million pages on the table and say, here's our business. It's much more different and difficult for investors or regulators or journalists to put the pieces together. So there's so much out there that we don't know. I've always said, I've been saying this for years, this is not related to Valiant. The odds that a household name company that everyone knows and loves is just a giant fraud. I think at any point in history

is close to 100%. It's always been true in the past, that there was some household company that is either a fraud or is under fictitious accounting or is just so poorly run that it's about to collapse under our eyes without anyone noticing it.

That's always been true, and I think it always will be true. And it's not because we don't have enough information. It's just because the way these things play out is more complicated than we think it is. You're listening to Motley Full Money talking with Martin Haasel. Let's get to some of the things that you've been writing about. And a few

weeks ago, we had our Fulfest Investing Conference. You made a presentation about risk. I think a lot of people think about risk in investing in terms of macroeconomic events that are outside of their control, a recession, that sort of thing. You made the case that the biggest risk for investors is themselves. By far. The things that we think about risk is a stock market. are going to decline this year? Are we going to have a recession this year? For one, those things are totally out of your control, and I think are totally unpredictable. The things that are in your control are the things that are legitimately seriously risky for you. And that's how you, as an investor, respond to those events. The volatility that you experience in the stock market

is not what's risky. What's risky is when you experience volatility as an investor, that you're going to panic at the bottom and sell. That's the risk. It's not the volatility. It's not the volatility. volatility. Volatility is a normal part of markets. The risk is that you're going to respond to it in a poor way. So I give several examples in the presentation from other industries of how complicated and messy risk can be in the real world. It's a really complicated topic risk, and it's counterintuitive and really sends people astray a lot. And there are examples from many industries. One of the examples I gave was right after 9-11. very predictably, air travel fell, air travel plunged. But people stopped flying, but they didn't stop traveling.

So miles driven by car in 2002 right after 9-11 surged. So people were driving more because they were flying less. And that was really important because driving is orders of magnitude more dangerous and more deadly than flying. So there was a German professor who, years later, went back and tracked all the numbers and showed that, you know, there was a measurable increase in auto fatalities in 2002 because people were driving more, and they're driving more because they're flying less. And when he put it all together, he came up with this pretty shocking statistic. And it's based on averages and trends.

It's not precise. But he basically showed that almost as, it's highly likely that almost as many people died trying to avoid terrorism in 2002 as died from terrorism in 2001. So that's just an example of how messy, and counterintuitive risk can be in the real world. You read more books than anyone I know. What's on your shelf these days? Saddamathar Mukherjee, who wrote the book,

The Emperor of All Malities, which I think won the Pulitzer Prize. It's on the history of cancer. It's a phenomenal book. He just came out with a new book on the history of the gene. And it sounds maybe boring or deeply scientific, but it is so... It really does. It is so fascinating and readable to people with no scientific background. Talking about what scientists used to think about,

genetics 200, 300 years ago, or even a thousand years ago, and how we learned about how the gene actually works moving up to the today and where we're going in the future. I love books that take a topic that boring and complicated and make it accessible to everyday people. It's one of the best books I've read in a while. All right. Before I let you go, what are you working on now? Well, I think there are a number of things in the economy that are really promising and exciting that we're probably not paying enough attention to. One of them, you and I were talking about this earlier is that generation that grew up with technology, computers in the internet, are entering management and politics. I think it's a really big deal because these aren't people who

learned how to use the internet in their 30s. These are people who have been using the internet since they were four. And it's just such a bigger part of their lives. And in the article, I made the analogy of young kids can learn new languages way better than adults. It's because when they're young, their brain is soaking it up much better than you can when you're an adult where your brain kind of shuts down. No, no, no, no offense to you across the table. No, no, believe me. It just happens. I'm counting on my kids to translate for me. I think it's true for technology. I think a 10-year-old who's been using computers for five years can be way more tech-savvy than a 60-year-old who's been using computers their entire lives. And technology is not something that enhances their work. It's something that it's just the way work is doing.

done, that generation is now becoming the people who run society in companies and politics. I think it's going to have a big impact going forward on just how technology is leveraged and utilized across businesses and governments and whatnot. Later this month, the Gerald Loeb Awards will be handed out. The Loeb awards are to financial journalism, what the Academy Awards are to movies. And for the second time in the past four years, Morgan Housel has been nominated in the category of personal finance. Good luck, my friend.

Well, thanks. Coming up, we'll give you an inside look at the stocks on our radar. Stay right here. This is 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're here. Welcome back to Motley Fool Money, Chris Hill here in studio with Jason Moser, Simon Erickson, and Jeff Fisher. Guys, before we get to the stocks on our radar, recently, we all, each one of us had the chance to take part in Fool Fest, which is our biggest investing event of the year. It's our two-day investing conference. We've talked about it on this show and on other Motley Fool podcast, and I'm happy to say

that we've now got the chance to offer a digital pass for anyone who was unable to go. It's videos of the most popular sessions that took place at Fool Fest, including Jeff Fisher, stocks for the next decade, which you were a part of. Simon Erickson, I know you had a breakout session as well. Jason Moser, you taking part in numerous breakout sessions. We had David Gardner talking about the stocks on his watch list, presentations from Morgan Howsell, Brian Hinman, Tim Hanson. It was a good time.

It was a good time. So you can check out the video highlights by going to digitalpass. .fool.com slash money. Boy, that's a mouthful. Digitalpass. . . . . . . . . . . . . . . we'll put that URL in the description of this podcast. All right. Let's bring in our man, Steve Broido, from the other side of the glass to hit you with

a question. Jason Moser up first. What are you looking at this week? Sure, Chris. Do you remember maybe about a year ago we did a taping of the radio show down in the Foolatorium in front of, I think everybody was able to bring their parents or something to work they? There was a young lady down there who asked, why had we never taken a look at her company

that she works for, Red Hat, ticker, R-H-T. So that piqued my interest. I'm taking a look here, and it's actually a very interesting looking company. They're into open-source software, a subscription model, and they provide services from cloud to mobile to storage with customers like Adobe, CERner, and the US government. They've doubled sales since 2011, make lots of free cash flow, and it's only about 21 times free cash flow right now, which is pretty reasonable for a bit. business like this. It seems like they're doing a lot of stuff, right? I want to find out more

about what that is. So I'm going to take a look at Red Hat. Steve, question about Red Hat? Didn't the Linux move just lose? It seems like there were so many companies in that space, and I just don't know what I have to do it. Well, Steve, that's going to be something I intend to learn more about because I don't know how to answer that question. Simon Erickson, what are you looking at? Chris, small microcop you've probably never heard of before. Starbucks, S-B-U-X. Of course,

I'm kidding. It's the world's largest coffee provider out there. Looking to have 10,000 locations in Asia Pacific by 2019. The majority of those being company-owned stores, which are excellent for revenue per location and excellent margins, it's definitely on my radar. Steve? Do you find it elitist that they just don't use the word small, medium, and large? It's Vente and Grande. It's part of the experience, Steve. Jeff Fisher, what are you looking at this week? Shake shack, tickers, S-H-A-K, sticking with our retail theme. I'm looking at this as a potential short. The stock trades at 29 times potential. financial earnings in 2019, which is a bit off. They have a slow growth strategy in the U.S.

and internationally they're expanding through a franchise program only, which does not let them control the quality of the experience. And they're already having some supply issues due to that. Steve, question about ShakeShack? Are the shakes any good? I've never had one, but they're not good for you. Okay. I haven't either. They are delicious, though. Shake Shack, Starbucks, Red Hat, any one of those three you want to add to your watch list, Steve? Not really, but I'd have to go with Starbucks.

All right, Jason Moser, Jeff Fisher, Simon Erickson, guys. Thanks for being here. Thanks, Chris. That is going to do it for this week's edition of Motley Full Money. Our engineer is Steve Broido. Our producer is Mack Greer. I'm Chris Hill. Thanks for listening. We'll see you next week.