Motley Fool Money - Michael Lewis on The Undoing Project

Episode Date: March 10, 2017

Facebook signs a deal to stream soccer. Vail Resorts heats up. And Bojangles' stumbles. Plus, best-selling author Michael Lewis talks about his new book, The Undoing Project: A Friendship that Changed Our Minds.     Learn more about your ad choices. Visit megaphone.fm/adchoices

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A million dollar portfolio, Jason Moser and Matt Argusinger, and from Hidden Gems, Chief Investment Officer, Andy Cross. Good to see you, as always, gentlemen. Hey, Chris. We've got the latest headlines from Wall Street. Best-selling author, Michael Lewis is our guest this week. As always, we'll give you an inside look at the stocks on our radar. We begin with the beverage industry.

Move over soda. There is a new leader in the U.S. According to the latest research, Americans drank more bottled water in 2016 than soda. Jason, we've seen soda consumption on the decline for over a decade, but I was still a little surprised by this news. I actually was not, and the reason why is because I look at myself, and I think, wow, if I, I mean, I have been so ingrained in my Diet Coke habit for so long, and if I have made such a drastic change in my Diet Coke consumption, and I really have, you

look at the kids today, I mean, there's just soda is, it does not maintain the same position in the typical U.S. household that it did perhaps when we were growing up. And I think that's just a real proxy is what's going on here. When's the last time someone brought a soda into this studio for this show, like, and just sat down like a Coke bottle right here? I mean, I might have to believe it. I see a water bottle. I see coffee.

I'd like I see tea. We got coffee. I feel like I did it probably at some point this week. But, I mean, to your point, I mean, this really was a matter of when, not if. And if you look at just one example, look at the litany of Coca-Cola's earnings reports where it seems like every quarter, sparkling beverage unit case, volume, decline 2% for the quarter, and still beverage unit case volume grew for the quarter. And that's just been the story for the last probably two to three years.

So again, I mean, it's not a surprise. The health benefits were clear. Well, and I think I applaud Coca-Cola for making some pretty early investments in those kind of still beverage areas, honest tea being one, which is a really popular one. And just diversifying as much as they can, it's still amazing to see that such a, I don't know, Is it fair to say, staple of the American diet has come down so much? Now, I know they have a lot of growth outside of North America overseas and internationally emerging markets. And so there's still obviously healthy demand for carbonated beverages.

But I'm surprised, too, to see the decline. Pepsi was on this years ago when they expanded into the snacks business, which is very nicely profitable. And actually, is under a lot of pressure as well, too. And they're starting to diversify away from that and trying to get more than half their sales tied to more healthy alternatives are people outside of soda and snacks, too. So it's definitely the trend that's playing. If these guys aren't picking up, there are plenty of upstarts. And really young, innovative companies are going to come in and take that share from them. And let's be clear, while water is on the rise, it is in particular packaged water.

So I couldn't help think about a company like Soda Stream when I was looking at this story where they've got the reusable bottles and you can make it at home. You know, you can make your own, you know, carbonated water, that sort of thing. And one ripple effect of this story is the ecological one. Like this, you know, bottle water sales on the rise. That's great in terms of health, except if we're talking about health of the planet. Well, I think more places are also setting themselves up with water coolers like we have, for example. So, I mean, I'm drinking more water, but it's not like I'm buying a bottle of water every time.

I'm just refilling that same bottle. So we'll probably see more and more of that type of behavior as well, which certainly doesn't hurt the environment. Yeah, and Lake Laquois, which offers their seltre water in a can as opposed to a bottle, which is far more recyclable and better from the environment than the bottles that you get from some of the other providers. The battle for live sports programming just got more interesting. Facebook has signed a deal with Major League Soccer and Univision that gives Facebook exclusive

English language rights to stream at least 22 regular season soccer games in the U.S. This is going to start later this month, Maddie. We knew they were going to jump in at some point in a bigger way, and they've done just that. Smart move. It follows kind of in the heels of what Twitter did last year, kind of breaking the ground with the NFL Thursday night games. And I think, as we know, as people, we were talking before the show, people are cutting their cord and just relying solely on the internet, the one thing, whether you maintain Netflix, HBO, Amazon Prime, or maybe you have some kind of skinny bundle out there, but the one core thing that's often missing is live sports. And if I can

rely on some of the social media platforms, Twitter, Facebook now, to get my sports. And by the way, I think soccer is the right place to be. If you look at Facebook's 1.9 billion monthly users, about 35 percent of them are connected to at least one sports page. And the vast majority of those are soccer fans, which is not surprising given the world popularity to the sport. So I like the bet here by Facebook. I think it's the right vertical. I think it's the right sport. I couldn't help but think of Yahoo when I saw this story, because remember it was a couple years back where Yahoo made headlines because they were going to live stream an NFL game.

And we sat here in this studio. One of the things we said was, this may work, this may not work, but I guarantee you that Facebook and Google are watching how this test goes for Yahoo. Because if it goes well, they're just going to jump in and say, well, if Yahoo can do it, we can do it too. Yahoo. I mean, so you know how like with your kids, you kind of look at it and you say, okay, there's things that happen throughout your life and you look at them perhaps as examples of

what you don't want to do. So I think Facebook, Twitter, Google, all of them. They watched what Yahoo did there, and they thought, okay, that's the precise example of how not to do this. We don't want a London football game. We like the Jacksonville Jaguars. We like the idea, but we're not going to do it quite that way. I mean, to Maddie's point, I think, yeah, you look at sports. It is consumed live. It's one of the most engaging things out there for sports fans. I mean, that's all they really want. And so when you look at platforms like Facebook, Twitter, YouTube, they're trying to be. They're trying to figure out the best ways to boost their engagement. They have a lot of data on what

their users care about. And so we look at something like Twitter, for example, we were talking about this morning. They're going to ramp up with about 1,500 hours of video e-sports content this year. And part of that is because they know that that core Twitter user base really likes their e-sports. So when you have the data where you can really cater to what your users want, it becomes kind of a no-brainer to start investing in that content, because ultimately it does boost engagement, and that's a positive. Yeah, Yahoo's got to stick to streaming the Berkshire Hathaway annual meeting. That's about all they're doing really well right now.

Guys, stop me if you've heard this one before. Shares of Alta Beauty hitting a new all-time high this week after fourth quarter profit and revenue came in higher than expected. And, Andy, when we talk about retailers attempting to go after the Omni Channel approach, you look at what Alta Beauty is doing, and they're really setting a great standard in terms of how to balance e-commerce and physical stores. Yeah, you got that right, Chris. Mary Dillon came on a few years ago as a CEO and just really revolutionized that inside

the Alta business and their e-commerce sales were up 60% last quarter. They'll probably be a little bit, not that quite explosive in 2017, probably, but still 40% growth. This company continues to just knock it out of the park on both the retail side and the e-commerce side. They have 22 million people tied to their membership rewards. I think that's twice as much as Starbucks's. It's just a substantial amount, and those people drive a lot of their sales and a lot of high return sales,

both in store and on commerce where their comp growth still continues to be 13. I mean, I think last quarter, the comp store growth was up 17%. That includes e-commerce, but just in the retail environment alone, which we all know the struggles retailers are having. For alter, the retail comps were up 13%. That's remarkable. And their salon comps were up 9%. So they continue to do it well, and cosmetics is probably the problem. one of the only areas really doing well inside retail if you're not named Amazon.

Or if you're not a home-improving retailer, like Home Depot or Lowe's. True. Yeah, good point, Maddie. I mean, yeah, it's remarkable because I think looking at OUTA, we've had OULTA on our million-dollar watch list and not bought it, stupidly, for a long time. But, you know, you try to identify those businesses that are truly Amazon-proof, and by all accounts, OUTA looks like it's completely Amazon-proof. Yeah, just another factor, Chris, is that their sales are up 25% in the quarter and up 24% for the year, and their store footage was up 11% and their inventory, average inventory per store was up 11% as well, too. So you just think about the economics. That works its way through to the bottom line, and that's why their earnings grew 30% last quarter and 30% for the year.

Well, and Andy, you talk about the cosmetics industry in general. Elf Beauty, also hitting a new high this week. They had strong fourth quarter results. I was completely unfamiliar. I mean, come on, the name of the company is Elf. Beauty, which, as I since learned, Elf stands for eyes, lips, and face. Yeah, don't Google that. You'll get some interesting little photos if you Google Elf Beauty. It does stand for eyes, lips, and face. It's a really relatively new company, newly public. So, all-time high is kind of all relative. Venture capital still owns most of the stock, 40% of the stock. And you're right. It's basically a fast fashion business, cosmetics business that is offering own brand products, much different than Alta does, which offers 20,000 different products across 500 different brands. Elf is really just its own thing. It's a $1.2 billion

company, $1.3 billion company compared to the $17 billion for Alta. So much different business. And, I mean, Alta continues to grow actually faster than Elf does, even on the size. Elf has some opportunities because of the way they operate to potentially juice those growth rates, which has investors excited, which is why it sells at six-time sales versus three-time sales for Alto. But that's a lot of growth baked into a very young company. Shares of Children's Place hitting a new high this week. The Kids Apparel Retail are putting up strong numbers in the fourth quarter and announced that they are doubling their quarterly dividend. Jason, this is not like two cents to four cents. They're going from

20 cents to 40 cents. Yeah, and we talk about this challenging retail environment. You would look at this Children's Place news and think, oh, these guys must be immune to all of this. That's not actually they case really. This has been a fascinating stock to watch, because if you look over the past five years, top line revenue for this business has remained ultimately flat. I mean, it's gone nowhere, but in the same period, we've seen the stock price more than double. And so you start trying to wonder, what are they doing to actually make that happen? At least over the past couple of years, they're relying on that big retail buzzword we've come to know so well, Omnichannel, right?

As the Internet takes over and e-commerce sort of spreads its presence there, these businesses are trying to take advantage of their physical infrastructure in translating that in more digital sales. I think that Children's Place is doing that to a degree, but I think they're also letting technology ring out some efficiencies in the business. And so while sales have remained flat, margins have improved. And I think that is something that's slated to continue. And ultimately, I think management has just done a very good job of bringing results down to the bottom line. I mean, we can see that through modest growth in net income, better growth in,

in earnings per share, and that is partly because they brought the share count down about 25% or that same period of time. So this is a good example of where, no, it's not a business that's sort of firing on all cylinders, as Ron Gross might say, but management is really doing right by shareholders here in managing the business well, and ultimately looking out for all stakeholders involved. And ultimately, this brings me back to one of my better investments I ever made, and that was in Jimberie. And it was right after I'd become a father.

And as you guys know, I have two daughters. So I made the leap pretty quickly that with Jim Marie, if a company had figured out how to make it easy for a dummy like me to buy clothes for little girls and actually do okay with it, there was something there. And I think that children's place is a similar style of investment. I mean, that is just a specialty retail niche that really is tough to disrupt. Jimberie was taken private, not too long after that, by Bain Capital. I wouldn't be terribly surprised to see private equity take an interest in children's place either, because this is a good business. I mean, they're not going to be growing that store base,

but I think we could expect to see modest topline growth and continued operational efficiencies play out pretty well for shareholders. Coming up, more earnings and a few stocks we've got 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, no, buy or sell stocks based solely on what you hear. Welcome back to Motley Full Money, Chris Hill here in studio with Jason Moser, Matt Argusinger,

and Andy Cross. Shares of Vale resorts hitting a new high on Friday after second quarter profits in revenue both came in higher than expected. Maddie, they're crushing it. If you want to see a thing of beauty, a beautiful mountain, look at Vale's stock price over the last five years. From $40 to over $190 on Friday, it's a thing of beauty, and so is Vail's business. They're not making new mountains. So, Vail's got some of the most premier resorts. That's a tough business to get into. It is. Once you're into it, some of the premier resorts across the world, Vail, Breckenridge, Keystone.

They recently acquired Park City in Utah, Whistler. They actually bought Stowe Resort in Vermont, which is a mountain I used to ski when I was growing up in New England. So they have just some of the best mountains across the country, and they have the Epic Pass, which, if you don't know, is this annual pass that skiers can buy. And it gives you unlimited access to all the resorts. You can ski as much as you want. And as that portfolio of resorts grows, that becomes more and more compelling. And, of course, if they get you to the mountain, you're buying equipment or renting equipment, you're buying food, you're staying at the hotels. That's all money flowing directly to

Vail. And so great results. They raise their dividend, 30 percent, by the way, too. I would just add that this is a company that's made a lot of acquisitions, trades at a high multiple, and at some point there just aren't enough good mountains to buy anymore. So the growth is probably going to slow down at some point. Bojangles' fourth quarter was the company's 27th straight quarter of growth, which is good because same store sales fell off a ledge in February. And Jason, that's not my observation. That is Bojangles' CEO, Cliff Rutledge.

They fell off a ledge. You never want to hear the CEO say that. No, you don't. And I think that's really the best question for this company in 2017. The stock was off to a could start for the year. But they have really had a lot of challenges growing those comp numbers. And guidance for 2017 is not all that encouraging. There's a lot of competition out there.

It's just fast food. I certainly love the food that they're lobbying up there, but there is a lot of competition. I think the restaurant brands deal to acquire Popeyes, which is a bigger competitor in the space anyway, is probably going to add to those competitive headwinds. And let's not forget the wildcard in all of this, the bojangles of the future, right? I mean, that actually is a technical thing that they're doing. It's improving their store experience. I just, I feel like we've kind of left this one slide lately, but let's go back to the Biscuit Theater that they're talking about there. I mean, you all can do it. to a jangler and you're sitting there watching the Biscuit Theater?

I mean, that sounds compelling, gross. I don't know about you, but I just want to go check it out. I would definitely check that out. All right, let's get to the stocks on our radar this week, and we'll bring in our man Steve Brodo in from the other side of the glass to hit you with a question. Andy Cross are up first. What are you looking at? Nike is reporting some time in the next week or two. Obviously, a well-known brand and well-followed here at the Motley Fool, continuing to look to see if they can maintain some gross margin and what's happening on the international growth side. So I think it's a stock that's really reasonably price. I think it's a stock you can buy and hold for through thick and thin. Phil Knight's still tied to it. Lots of great, amazing brand power in Nike. And Under Armour's struggling a little bit, so Nike may be a way to go. And the ticker?

N-K-E. Steve, question about Nike? What's Nike doing in the personal fitness space, aka Fitbit space? They pretty much got out of it with their Nike fuel band, which I actually still have a couple at home. I'm looking maybe putting them on eBay. They have gone the other way than Under Armour, who has spent, I think, close to a billion dollars in that space.

So I think they're patiently saying, you know what, we're going to own apparel and own it well. Jason Moser, what are you looking at? Yeah, we always talk about ways to get health care exposure, and one of the businesses I've been looking at, HCA Holdings, ticker is HCA. Healthcare's tricky. You want to look for the leaders in the space that have advantages that are a bit more difficult to displace. I think the facilities themselves are pretty difficult to displace, and that's what HCA does.

They operate 170 hospitals. They have 118 free-standing surgery centers all around the country. And I generally think there's a lot of high fixed costs that come with a business like this, But health care, it's not like the restaurant business, right? It's pretty resilient and everybody's looking for it. So, generally speaking, I like what they're doing, and the stock has performed very well. It's when I got my own. Steve, question about HCA.

Do you worry in the face of repealing potentially of Obamacare and Trump's stuff, is this concerning to you, health care-wise? Listen, I'm just trying to figure out a way to get done in the studio so I can get to my emergency center and get this cough checked out, Steve. That argument is. I'm going with Crown Castle International, ticker CCI. I think last time I was on the show, I mentioned American Tatic. I just love the wireless infrastructure space. You've got one of the biggest tower operators here alongside American Tower. So Crown Castle, nice 4% dividend yield. Steve, question about CCI?

Who's your cell phone provider? I'm an AT&T guy. Regrettably sometimes. Steve, three very different businesses. You've got a stock you want to add to your watch list? I'm going health care today. Hey, now. I like it. All right, we'll wrap up so Jason can get out of the studio and get his cough checked out. Andy Cross, Matt Argusinger, Jason Moser. Guys, thanks so much for being here. Thanks, Chris.

Up next, it is the one and only. Michael Lewis, you're not going to want to miss this, so stay tuned. You're listening to Motley Full Money. Yeah, we'd save it all up for any day, but it's always sunny. Guess all of happiness and the world can't buy you money. I got an old work truck. It'll barely get me to time. I try and put in a little normal.

All right, before we get to Michael Lewis, got to say a quick word about Casper, an online retailer of premium mattresses for a fraction of the cost. Casper is revolutionizing the mattress industry by cutting the cost of dealing with resellers and showrooms and passing that savings directly on to the consumer. Casper is made of supportive memory foam for a sleep service with just the right sink and just the right bounce, and they offer free delivery and painless returns within a 100-day period so you don't have to lie down in the showroom, which no one wants to do. That's the worst part of buying a mattress is going to some bright,

showroom and lying down and trying to pretend like it's actually the room you're going to sleep in. Casper's mattresses are made in the U.S. They offer free shipping and returns to the U.S. and Canada, and you can save an additional $50 towards a mattress purchase by going to casper.com slash fool and entering the promo code full. That's casper.com slash fool and enter the promo code full. Terms and conditions apply. Welcome back to Motley Full Money. I'm Chris Hill. Michael Lewis is the author of such bestsellers as Liars Poker, Moneyball, and The Big Short. His newest book is The Undoing Project, A Friendship That Changed Our Minds. Michael Lewis, welcome back to Motley Full Money.

Thank you, Chris. The Undoing Project focuses on the relationship between two Israeli psychologists Daniel Kahneman and Amos Tversky, who created the field of behavioral economics. What should investors know about the work of Connemon and Tversky? You know, if you go back to the, you find the people who are... These are two very different people. Amos Tversky is an extrovert, very self-confident, very comfortable being the center of attention. Danny Conneman is not just an introvert. He is, as you go through this book, he is plagued with self-doubt. I'm sort of tempted to ask, how in the world did these people...

deal with one another. They're just so different. You have visited full headquarters here in Alexandria a few times. One of those times was after the book Moneyball was published. And you said that one of the central lessons of Moneyball went largely ignored. And the lesson was that essentially be careful what you measure because it can become fetishized. Do you think there's a lesson from Conneman and Tversky's work that is being ignored or misinterpreted in some way? That's not what they were. Did your work on this book change the way that you think or the way that you make decisions?

Because part of my reaction to this book is it's a little unsettling just to think of how, as you said, how the brain is wired and how there are just far more mental traps out there that we have inadvertently set for ourselves. And they are while he was training. So when you look through the lens of Conneman and Tversky at the presidency of Donald Trump, what do you see? Their mental errors by making up stories seem more knowable. You never know what he's going to do next. I mentioned Moneyball before. And one of the things that comes up in Moneyball and other books of yours, including this one, including the big short, there's this theme of the role that confidence plays for better and for,

worse. What separates people who are able to successfully harness their confidence from those who are just blinded by overconfidence and end up paying the price? Promise an outcome. The markets, you know, that's the deadliness of overconfidence is making decisions you don't need to make. Coming up, I'll talk with Michael about the business of writing and we'll play a round of buy-seller hold. Stay right here. This is Motley Full Money. Welcome back to Motley Fool Money, Chris Hill, here in studio talking with bestselling author Michael Lewis about his new book, The Undoing Project, A Friendship That Changed Our Minds. I want to ask you a couple of questions about writing before we wrap up with a round of buy-seller hold. When you pitch this book, the relationship between Danny Kahneman and Amos Diverski, to your literary agent, to your publisher, was there any pushback at all?

because sort of on the surface, other than the fact that you're the one writing it, on the surface, this doesn't seem like a book that a publisher is rubbing their hands together with glee at. It seemed like a little bit of Danny Kahneman's self-doubt creeped in. Yes, that's also the problem. This is absolutely true. And I'm a bit of a chameleon. Well, and, you know, not to give too much away from the book, but there's a part where he's trying to get friends of his to convince him not to publish a book. Patchett jobs of his book so that he could to persuade him that he shouldn't publish, which he engages in his...

So I think this question is not so much about your writing, but maybe about your emotions around your writing. A number of your books have been optioned for movies, The Big Short, The Blindside Moneyball. And I know that you are largely not involved once that happens. Once the book gets optioned, you get your money, and then the studio does what it does. curious, though, does it affect your emotions when you start to hear news of who's involved in a movie? When you hear that Brad Pitt is the one who's championing Moneyball or that, you know, Aaron Sorkin's going to write the script or that Adam McKay is the one who is at the helm of the big short. Do you get more excited or are you detached from the moment you get the check?

Much of it. That's serious. All right. We'll wrap up with a buy-seller hold. This is a private company with embattled leadership. Buy seller hold the future of Uber. Why? Next week, the SEC is expected to decide on a proposed rule change that would clear the way for a first-of-its-kind ETF. Buy-seller-hold Bitcoin. Yes.

I guess. This is the next big thing, unless, of course, it isn't. Buy-seller-hold driverless cars. And they read a million people. And finally, Las Vegas bookies give them. the second worst odds to win the American League pennant, buy seller hold, the Oakland A's, going to the World Series in 2017. He shot? Well, that's a, you don't, you sell that.

Come on, the Cubs last year. If you gave me the Buckey's odds, I'd take them. Right now they're going off. Because I think they always. Right now, I think the odds are about 90 to 1. I take that. The New York Times calls the undoing project one hell of a love story. It is available everywhere, and it is a,

a bestseller because it's written by the best nonfiction writer in America. Michael Lewis, always great to talk to you. Remember, you can check out past episodes of Motley Fool Money and all of the Motley Fool's podcast at our podcast center. You can get there just by going to podcast.fool.com. You can also find us on iTunes, Spotify, Stitcher, Google Play. Anywhere you find podcasts, you'll find the Motley Fool's Sweeted Podcast, including our two daily podcasts, Market Fullery and Industry Focus.

next week on those two shows, it's South by Southwest Week. You're definitely not going to want to miss that. We're going to be going to Austin, Texas, for the South by Southwest Interactive. So check that out. That is 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.