Motley Fool Money - Motley Fool Money: 02.14.2014

Episode Date: February 14, 2014

Comcast and Time Warner Cable agree to join forces.  Jos. A. Bank buys Eddie Bauer.  And AIG reports a profit and hikes its dividend.   On this week's show, our analysts discuss those stories and share three stocks on their radar.  Plus, Motley Fool co-founder Tom Gardner talks business with Malcolm Gladwell, author of David and Goliath: Underdogs, Misfits, and the Art of Battling Giants.   Learn more about your ad choices. Visit megaphone.fm/adchoices

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Hey, taking back the daylight. Exactly. We've got the latest from housing, retail finance, and more. Best-selling author Malcolm Gladwell is our guest this week. And as always, we'll share a few stocks you can put on your watch list. But we begin this week with the big macro. U.S. retail sales fell unexpectedly in January. And economists are placing the blame squarely at the feet of Mother Nature. The unusually cold weather across the country this winter is having an effect on retail sales, auto sales, and traffic at restaurants. And Jason, from time to time, I think it's fair to say we've made fun of companies when they have a disappointing quarter and they're

blame the weather. I kind of feel like, given the weather that we've had over the last few months, should we just give everyone a pass next quarter? I like a pass. I mean, my back is kind of sore today from the shoveling I had to do yesterday. And so, yeah, I mean, we do, I think, have a lot of fun with the companies that sort of quarter in and quarter out bring weather as an excuse. Now, with that said, it is certainly understandable that some businesses may be more susceptible to bad weather than others. However, I will say that for investors that take the long view, like we do, weather just shouldn't really ever come into play.

I mean, unless you're investing in like insurance companies, it should never come to play. But it can provide opportunities in the short run, because the headlines focus on the weather. These executive teams focus on the weather and their earnings calls. And when they bring the weather up, it can certainly cause some short-term movements in the stock prices. But I personally like winters like this because we're kind of wrapping it up, hopefully soon.

You're coming into this nice spring. I'm going to be watching Home Depot and Lowe's because I think that those are the kinds of companies that really stand to do well when the weather turns, because everybody's really antsy to get out there and do something with their house, their yard, whatever it may be. And it's probably all going to kind of head out there at once. So I bet you that'd be something to keep an eye on, at least in the near term. Yeah, no question. The weather finally had a real impact.

I mean, if you look at restaurants or retailers and you look at their same store sales, a lot of bad news out there. And I think, you know, when the weather's really really bad, you know, when the weather's really bad as it has been. It's really just tough for a lot of these businesses to do well. Customers just aren't interested in going out. Even the government's saying the weather has played a role, if you look at the manufacturing data that came out today, it was the lowest since the first quarter of 2009. And really, they're saying the weather was predominantly the reason for that. And even a company like Whole Foods, which most of us love here at the

Fool, they never plan the weather. Never. But there was Walter Rob, CEO we all respect. He was on CNBC yesterday saying, nope, you know, the weather had a little bit of impact on our traffic, no doubt. I wonder if you'll ever have like an executive, just take a stance and never. He's going to like vow to never use the weather no matter what, even if he's wrong. David, we were talking this morning. You basically said, nope, I'm not giving anyone a pass. I'm just not concerned. I'm brutal. I'm cold, but I'm not concerned. I mean, we're buying businesses for the long haul of cash they're going to produce over 20 years. A single

quarter is not going to make a big difference to me. Is there any potential winter here? I have to believe the Florida Tourism Board is thrilled about the weather the rest of the United States is getting here. Well, look no further than Netflix. Netflix has hit a new all-time high every day of the past two weeks. And if there's one company you have to think about that's getting a lot of usage over the last several months now with this weather. It's got to be Netflix. You had House of Cards coming out today, I guess, too.

So that'll be a big boost. Just in time for Valentine's Day. A new marriage in the cable industry. has made a $45 billion bid to buy Time Warner Cable. It is an all-stock deal, man. But this is the two biggest companies in an industry merging. And regardless of the industry, anytime you see the two biggest getting together, it sets off a lot of red flags. Oh, sure, sure. I mean, look, if you look, Michael Copse, who's the former FCC commissioner, was on the news yesterday saying, look, this deal is so over the top that it ought to be dead on arrival at the FCC. Now, so there's a lot of questions.

whether this deal can actually go through. If it goes through, though, I mean, this is going to be a massive company. We're talking, you know, over 30 million customers, 100 billion in revenue. As we were talking about with the show, we think, and rightfully so, I think, that this is really a broadband play. We know that cable companies are facing a lot of competition. You've got Amazon out there, you've got Netflix out there, even Apple and Google to a certain extent. The pipes, owning the pipes is big, and if you can own it across bigger geography with more customers, it gives them more pricing power. It's good for them. Ultimately, probably a little bad for customers.

Jason, the last time Comcast made a big acquisition, it was NBC Universal. That was a deal that took more than a year to get regulatory approval. So I have to assume, to Maddie's point, this is going to take even longer. I would think so. I mean, what would Teddy Roosevelt say, right? He's probably rolling over his grave on this thing. But no, I don't think this is going to be just some cut-and-dry quickly done deal. It's going to take a while.

And if it does go through, yeah, they're going to be, there are going to certainly be a lot of implications, winners and losers. I think that we've seen enough from Comcast to know that it probably doesn't look like it's all that great for customers. I mean, prices will go up at some point, no matter how they sort of frame that verbiage there. But, you know, I've always thought, what if you flipped it around on the other side of the coin? We've always said, you know, Comcast, they just have this reputation for just awful customer service. And I don't know anything about that, Chris, because I had four I have some Fios at my house. Yeah. Lucky punk.

What if they took like the Bezos Hastings approach of trying to focus primarily on their customers and really upping their game on the customer service side? I think that could change the perception a little bit, because then at least people feel like they're getting more value, more bang for their buck, but yeah, this is going to probably drag out for a while. David, let me hit you with a quote. This is Executive Vice President David Cohen at Comcast on the conference call with regards to pricing.

We are certainly not promising that customer bills are going to go down or that they will increase less rapidly, which on the one hand, I give him points for being about as frank as he could be. On the other hand, as a customer, I read that as my bill is absolutely going higher. I'm going to take an interesting stance on this and somewhat defend the cable operators. You see the price increases, but a lot of that is not just them being like, okay, we're going to be completely evil companies and just gouge everybody. You look at companies like ESPN. And they are charging the cable operators more affiliate fees, which they have to pass on to their customers in order to maintain margin.

So you're a little bit shooting the messenger when you blame the cable operators for increasing cable costs. A lot of it is because of companies like ESPN. So I'm going to defend them a little bit. Kind of get that Monty Burns accident. Maddie, the idea of a la carte cable has been on the table for at least two decades. And yet one of my thoughts, when I look at that this story is that I think we actually are getting a little bit closer to it. I'm not necessarily

saying in the next year or two, but the idea that someone can just have one provider and then they just check the box on which channels they're going to pay. And if they're like David Hanson and they're a big ESPN fan, they're absolutely going to pay whatever ESPN is going to charge them. Well, if you do, yeah, I think that's possible because if you do give the pipes more, sort of more power, more, you know, a bigger bargaining chip at the table, they can do do that, and they can negotiate with the affiliates and decide, okay, here's what we're going to pay, here's how customers can interact with the service now, more so than they can

before. So that could be one side outcome from this deal. Joseph A Bank is buying Eddie Bauer for 825 million. They are buying them from private equity firm, Golden Gate Capital. David, on this news, Joseph A Bank was, the stock was only down a few cents. That was it. Which makes me wonder, have they just made a good deal? I don't know if it's a good deal. It seems like it's being received that way. They're not getting punished for it. Let me put it that way.

You can put it that way. I don't know if it's a good deal. So the story is kind of evolving. Back in October, Joseph A. Bank made a bid for the larger men's warehouse. Men's warehouse said, absolutely not. And then men's warehouse said, well, how about we buy you? And Joseph A bank said, I don't think so. So they've really been trying to make some sort of move.

I guess they see Eddie Bauer as, all right, we're not going to get together with men's warehouse. So let's go out and buy Eddie Bauer, like you said, from a business. private equity firm for almost three times with a private equity firm paid for it a couple years ago. So I don't know if it's the best deal. That never makes me feel good when you're buying something that you paid a lot less for a couple years ago. Right. And we discussed. You mean, you don't want to be a private equity firm's ex-a strategy at any point. But I just, the strange thing with Josie Bank, I just feel like, are these guys just itching to do a deal? I mean, it just seems when a company is doing

this and sort of making offers and deciding what to do, it makes me think their business, their organic business isn't all that great. If they're looking for a way to spend money, usually a prudent company will realize that the returns on their capital that they're getting from their business aren't good. We need to invest that elsewhere. That's obviously what the message they've got to be sending, especially if they're willing to pay a price like this. And yet, when you look at the stock, shares of Joseph A bank over the last 12 months are up more than 35%. They're beating the market, which I don't think any one of us would have predicted. No, not at all.

I think that's because if you buy one share, you get like free. I mean, I probably pushes the demand up a little bit. If nothing else, David, does this fend off, does this help them fend off men's warehouse a little bit? I think it probably does. Yeah. All right. Coming up, we will hit some earnings and give you a look at the stocks on our radar. 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 ourselves stocks based solely on what you hear. Welcome back to Motley Fool Money. Chris Hill here in studio with Jason Moser, David Hansen, and Matt Argusinger. Guys, Whole Foods.

First quarter profits rose more than 7 percent, but shares down this week after the company lowered guidance. Jason, I have to mention, for disclosure purposes, John Mackey, co-founder and co-CEO at Whole Foods, is also a member of our board of directors here at the Motley Fool. What did you think of the quarter? Yeah, I mean, on the surface, when you miss expectations, when you guide lower, when you speak of margins being threatened, I mean, it's understandable why the stock sold off. But, you know, I went through the call, I went through the release, and I think there are a lot of reasons to actually be encouraged. I mean, really, what Whole Foods has had to do for the longest time has sort of overcome that whole paycheck's hurdle, right? And that was, I think, what concerned a lot of investors was would they be able to expand their customer base? So what they're doing is are focusing on more value-oriented offerings, growing that 365 brand, bringing in more pricing options where produce and stuff like that is concerned.

And it's working to the extent it's starting to bring in more traffic. It's definitely expanding their consumer base. Now, it's a short run versus a long run sort of perspective here. In the short run, it's going to result in lower comps. And that's what we're seeing. The top line sales and the same store sales are going to be weaker in the short one. But the long run idea here is to expand the consumer base, more people buying more things, increase the basket size, which will in turn drive that top line revenue and gross sales higher.

So, I like that strategy. I think they're going to have to do that because it's becoming more and more competitive. I think that investors ought to at least keep an eye on the stock price. The multiple, you know, they've always commanded a very premium multiple because they are such a growth-oriented company. I think that the market's probably going to sort of bring that multiple down over time. But I think it's still a good look for a long-term investment. And, Maddie, it's bringing it down a little bit this week. Shares down about 5% after this latest quarter. Right. We recommended the stock, again, in my service.

Supernova service this past week. And our recommendation came out on Wednesday, and we, whether the stock went up or down or good earnings or bad earnings, we were going to buy the stock, no doubt. Because if you look at the results first, I mean, you know, 5% comps in the quarter that we saw were most, I mean, every other grocery store had negative comms, by the way, and then most retailers had very, very tepid comps. I mean, that's a good result. I just, I think it speaks to the brand power that Whole Foods has. But even if you just do some real basic projections on the company and say, all right, if they can grow comms, three to four percent a year, if they can grow the store count between 10 and 15 percent a year, you know, 10 years from now, they're going

to have something on the order of 1,300, 1,300 stores. Each of those stores are going to be making 60 million in revenue, give or take, on average. And that's a much bigger company. Now, to Jason's point, they get a high multiple right now. They get about 1.5 times sales on a multiple basis. They won't get that in the future. But even if you bring that down to 1.0 times sales, say 10 years out, you're going to get a good return from buying Whole Foods today. And I think that's just it. We saw on this call for the longest time, they've referred to their market opportunities around 1,000 stores in the U.S. They're now upping that to about 1,200 stores in the U.S. And that's what investors have to keep an eye on here.

At 373 stores today, there still is a long runway of growth ahead. So even when that multiple starts coming down, there's still plenty of growth in yet. AIG's fourth quarter profit came in higher than expected. They raised their dividend by 25%. David, all in all, it looked pretty good. And yet the those shares were trading down a little bit. Yeah, it was a pretty boring quarter at AIG, which is not what you used to get with AIG. Used to be pretty exciting in terms of the derivatives portfolio, winding that down, getting out of businesses that they frankly just should not be in.

Yeah, I liked it more when I was an owner of the company as a taxpayer. But anyway. It's a good point, too. Taxpayers have been paid back on the AIG investment, if that's what you want to call it now. But yeah, as an AIG shareholder today, this is really just a company getting back to fundamentals and being a boring insurance company, which this quarter looked like it was. So I think you have to be optimistic about the future, getting out of the businesses they shouldn't be in. So I still have a bright outlook for AIG.

Zillow's fourth quarter profits more than doubled the previous year. They also brought in record revenue for the quarter. Looks good, Maddie. Revenue is rising, but costs are also rising. Sure, costs. I mean, I'm not surprised here. They're investing in their platform and investing in new verticals. I mean, but still, revenue up 70%. But the one thing I liked about the quarter from the release and the conference call is, you know, last quarter, they talked about the idea that, oh, you know, our traffic is growing twice the rate of our number two and number three competitors in our space.

And there was all a speculating. They didn't name those competitors, and there was all speculation. Well, in this quarter, they did. There was a little footnote in the release that said, oh, by the way, our traffic is, yes, more than twice that of Trulia and reaeltor.com. So I don't know why that is, but they certainly just laid it out there. And so maybe as a way of saying, hey, look, we're the dominant internet and mobile platform in real estate right now. These guys, they're out there, but they're the imitators in the space. We're the leader. I thought that was interesting.

To go back to men's apparel, do you foresee any sort of merger in this industry over the next couple of years if Trulia and Realtor.com start to fall behind to the point where it's like, you know what? We'll buy you for a song. I don't know. After seeing what Josei Banks doing, I think they have a bigger chance of buying Trulia No, I don't see that. I think Zillow is going to keep focusing on its own dominance and without having any consolidation there.

All right. Let's wrap up with the stocks on our radar. David Hanson, what do you got this week? Looking at Campus Crest Communities. This is a smaller company, ticker CCG, and this is a real estate investment trust that specializes in building basically college apartments on and right off college campuses. So if you can picture a campus and across the street, there's some land. They'll build an apartment complex. Students will live there, et cetera. But the more interesting part of their business is they're actually partnering with colleges to build on campus land because colleges don't want to have the expense of building an entirely new apartment complex.

And especially state colleges that have tight budgets right now, they're looking to other companies to come in and build for them. And Campus Crest is one of those. So it's a smaller player. It's a real estate investment trust. So it pays out a pretty hefty dividend, 7% yield. It's on my radar. Plus, if you're building apartment complexes for college students, I have to believe they're just going to get trashed.

That seems like a repeat purchase kind of business there. Maddie, what's on your radar this week? Sure. I'm looking at TILSHP, ticker TTS. They report earnings next week. This company has had quite a past few months. There was a short report that came out back in November that really looked into their sourcing in China and suggested that there was some fraud going on there, which ultimately there actually was.

This is their first quarter after sort of the, you know, that news came out where they're going to report. Just interested to see, you know, what they say about that, how the quarter went out. I mean, more focused on, you know, they're building new stores, how the retail business is going, and if they can get past all that. Jason Moser? Yeah. I'm going to keep an eye here on Amazon, the ticker AMZN. And I think a lot of the noise that's being made today about this potential price increase in their prime offering could certainly provide an opportunity for long-term investors.

get into the stock. I think, you know, we've seen a lot of talk here lately about surveys, about people, you know, at what price point they wouldn't renew. And I think that's all fine and dandy, but you have to take those surveys with a grain of salt. I mean, remember, you know, people told Einhorn, apparently, that they'd eat more Taco Bell instead of Chipotle, and he's just getting hammered on that short. So just, you know, kind of look at those things and take them with a grain of salt. But I think that, you know, I look at this as really an opportunity for Amazon to potentially present more offerings for consumers, potentially more price points. Maybe they have a higher prime price.

price point, maybe a lower one, maybe one in between, differentiate between the offerings, and give customers a chance to really focus in what they value most. And don't forget, I mean, Amazon just, they brought in $5.5 billion in operating cash flow last year alone. It's a company that's still growing by leaps and bounds in the stock price today at $350 I think is an opportunity. All right, Matt Argusinger, Jason Moser, David Hansen. Guys, thanks for being here. Thanks. By the way, check out where the money is. It's our newest daily podcast from The Motley Fool,

hosted it every day by David Hansen and Matt Copenhefer. Up next, Motley Fool CEO, Tom Gardner, sits down with best-selling author Malcolm Gladwell. This is Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. Motley Fool CEO, Tom Gardner, recently sat down with best-selling author Malcolm Gladwell in front of a live audience of our members. They discussed Gladwell's newest book, David and Goliath. Malcolm, what would be great is just to have you just outline the overall premise. of the book?

Well, I was interested in a book in describing in asymmetrical conflicts, or more generally in this notion of is our understanding of what an advantage is accurate? And that's the theme that runs throughout the whole book. So if our understanding of what an advantage is is so accurate, why does the weaker party in a war win as often as it does.

Because the weird thing about, if you look at histories of warfare, is that the quote unquote underdog, the much smaller party in any kind of conflict, wins an astonishing number of times, which suggests that maybe we're fixating on the wrong variables in explaining conflict. And then I run with that idea and talk about schools and education and dyslexia and all kinds of entrepreneurialism and all kinds of things along those same lines,

wondering whether our kind of intuitive accounting of these things is accurate. What I'd like to do is just spot up some of the characters, some of the narrative of the book. So you can just tell maybe a couple, short little tidbit about each one. So why don't we start with Vivek? And since I'm going to mispronounce names,

why don't I have you pronounce the full name? Vivek, Roneadiv. Vivek. Who is the guy who founded Tipco, software company, in Silicon Valley. He's sort of the one who got me rolling on this because I ran into him at a conference once. And I really had no idea who he was. This is a problem that I have that I can't, I have very, very poor facial recognition.

In fact, parenthetically, I once was at a dinner at some conference, sat next to a guy who, for the whole dinner, and I thought he was a graduate student, and I made him discuss Michigan State basketball with me the entire time. the entire time. And it discovered at the end of the conversation that it was Larry Page. And it never, you know, someone was like, do you realize you talk to Larry Page? I was like, that was Larry Page?

I thought he was a graduate student. So I'm bad at this. Anyway, I run into this guy Vivek. And I start talking to him, not realizing that he's the head of Tipco, about his daughter's basketball team. And he had coached, just finished coaching his daughter, 12-year-old daughter's basketball team.

And Vivek being from Mumbai doesn't know the slightest thing about basketball. And so he went to watch basketball to educate himself on this and concluded that the way Americans played basketball was utterly insane. He didn't understand why you retreated after you scored. Why do you run back to your own end and wait for the other team to come up to bring the ball up? I mean, sometimes people play the full court press, But his whole point was, why wouldn't you press all the time? Particularly if you're the weaker party, if you're a weaker party, why would you allow the other team,

which is better at shooting and passing and scoring than you, to shoot, pass, and score more quickly than they would otherwise? Why wouldn't you try and stop them from doing the thing that makes them good, right? And particularly when you're talking about 12-year-old girls, who's, you know, he realized if you play the Folklore Press with 12-year-old. girls, they won't even get the ball inbounds. So he, his team, and furthermore, he realized that his team that his daughter was playing on was a team of girls from Silicon Valley. They were the daughters of people like him. In other words, these were not girls who went home every night and shot baskets.

They were girls who went home and night had like dreamt about becoming marine biologists. They had no talent whatsoever, basically. So he gets these girls together. And he says, look, I don't know anything about basketball. You have no talent whatsoever. It's pointless for us to shoot, dribble, do anything. What we're going to do is get an insane shape. And I'm going to teach you how to play the most aggressive

form of the full-core press. And so they win, start winning games by scores like 6-0. And they go all the way to the national championship. Now, the fascinating thing about that story is that, A, it's the rational strategy if your team sucks. In fact, any team that is a decided underdog in any basketball contest ought to play the full court press. Even though there is a chance, if the other team can break the press, you're going to get

blown out. But his point is, so what? You're going to lose anyway, right? Your only chance of actually winning is to do something radical. So interesting number one is why then do so few underdog teams play the full court press? Why is there an unwillingness to follow a strategy that is in your best interest? And the answer is because it's hard and because it gets people don't like it. And Vivek, people didn't like Vivek when he was coaching this team.

Let's close in the narrative section here with your version or your interpretation of the real showdown between David and Goliath. Oh yeah. David, first of all, the sling is one of the most feared weapons in ancient times. It's not a child's toy. The rock that goes from David's sling has a stopping power that's equivalent to a bullet from a 38-caliber handgun. These are some of the most. So when David decides to bring a sling to a sword fight, he's got superior technology.

He's not messing around here. He knows exactly what he's doing. Second, Goliath probably has something called acromegaly, which is a condition where it's a tumor on your pituitary gland. And so your pituitary overproduces human growth hormone. And many of the great giants in history have acromegaly. Andre the giant, the great wrestler, acromegaly, right? Tallest man in history, kind of Robert Woodley had acromegaly. He was 7 foot 11, I think.

Acromedly makes you really, really big and tall. It also comes with a side effect that the tumor starts to compress the optic nerves and radically diminish your vision. And if you read the biblical story of Galath very closely, it's clear the guy can't see. He's led onto the valley floor much more than this by an attendant.

He's the most mightiest warrior in Palestine, and he has to have a boy, lead him by the hand, to the battlefield. And then there's the whole thing about it takes him forever to figure out where David. David is and what David is doing. Because David comes down from the mountain and doesn't have a sword, doesn't have a shield, isn't wearing armor. Duh. He does not intend to fight you in a sword fight. Why does Goliath take forever to respond to this? Because he can't

see him, right? So here you have a kid who is really fast-moving, nimble, has superior technology, is up against, has changed the rules of a conflict without telling his opponent, and his opponent is largely blind. That is not the story of an underdog. David holds all the cards, right? Properly understood. And that's a beautiful example of how the stories we tell about advantages

are just so screwy. Why do we worship size, for example, in all forms, not just in warriors, but also in come. We have this obsession. If something is big, it must also then be ferocious and a terrifying opponent. Wrong, wrong, wrong, wrong, wrong, wrong, right?

And that's the lesson of the original story. Is it true that every Goliath was once a David? Not everyone. In New York City, there are lots of Goliaths who were born Goliaths. And we'll no doubt die Goliaths. No, but the most interesting trajectory is when people or companies go from one state to the NAM. next. And the question is, how long can they, how long can they, can you continue to embody

the David values even as you become Goliath? So I was on my book tour, I went to Microsoft and I hadn't been to the Microsoft campus in Seattle for maybe seven or eight years. And I don't know how it's possible, but it's gotten even bigger. And I don't, this is not a good thing, right? I mean, it's become, it's like a huge city now. And I don't know, are there any vestiges that remain of that really humble, a really hungry, nimble, innovative company of 20 years ago?

Or when you, yeah. So it is a constant problem. The act of becoming successful undermines the very reasons. why you became successful. I wonder, what do you think the principles of a great Goliath are? I mean, I can guess one of them has something to do with empathy in the context of the story you tell about Belfast in 1972 and the use of police and power and the assumptions of what

would work and what instead worked. So maybe through that story or any other examples, what makes for a smart Goliath? Well, many things, but one of the things I've been thinking a lot about recently is that I think that one of the things that... that when companies become large, one of the things they need to do is to use their size and strength to become more tolerant of dissent, confusion, arguments, to back off in a certain sense. I mean, I always remember this, I used to work for many years at the Washington Post in its hey day when it truly was Goliath.

And there was a reporter there named Michael Isikoff, still around, one of the greatest, single greatest investigative reporters of my generation. I mean, a legend. And also, a deeply, I like Michael, a deeply obnoxious guy. But the point was he was a great investigative reporter because he's obnoxious.

He's a pit bull. Doesn't take no for an answer, right? And I remember that at a certain point, that editors at the Washington Post got fed up with him and got rid of them. That is absurd. The whole point of being the Washington Post and having tons and tons of resources in a vast newsroom

is that you ought to be able to find room for that kind of character. And if you can, that requires more work from management, dealing with someone who's difficult and who yells at you when you mess with their stories, and who goes off and quixotic things and disappears for a while. It's more headaches, right? Makes your life more complicated. But you have to understand that is the price you pay for

remaining on the cutting edge, is you have to deal with that. Now it's easy if you're a small company to deal with that because everything's chaotic. And you realize we've got no choice. We have to be this way. When you're large, you fall into the trap of thinking, I can make everything run smoothly now. I can have layers of comfortable management.

We can all do things by the book, as opposed to saying, no, no, no, no, you have to continue to find ways to shake it up, to have a kind of disputatious culture. A Goliath that's open to dissent. Is, I think, a Goliath that can stave off the worst parts of bigness. And a Goliath that has a smooth tempo, total convention, marches in a line, everyone has a job description, EVP of this, everyone's got a role. You would prefer to bet on the seemingly weaker, smaller, chaotic. disruptive niche dominating opponent in their marketplace. I've become more and more convinced,

particularly from writing this book, but also just from my experience in this, that company culture is the hardest thing to quantify, but the most important predictor of where a company is headed. And you can, you know, spending a lot of time in a large room

of people from an organization gives you, I think, really valuable insights into how that company works and how it innovates and how it views its company. If you have that feeling that people have turned down the volume in their brain, then you know that there's trouble. Coming up more with Malcolm Gladwell, this is Motley Fool Money. Welcome back to Motley Full Money. I'm Chris Hill. Let's rejoin Motley Fool CEO Tom Gardner's conversation

with bestselling author Malcolm Gladwell. Where do you see yourself in the continuum of David to Goliath to the extent that they can both be put on a continuum? Where do you see yourself professionally? Where do you see your journey? Where do you see elements of the David qualities having shown up in the work you're doing? Well, you know, I was clearly once David,

and what I used to do as a young journalist is what all young journalists do is I used to write long, angry, vicious takedowns of prominent, successful journalists who I consider to be Goliath's, and therefore worthy of my disdain. Now, of course, I'm Goliath. And what happens? Young journalists write long, lengthy, vicious takedowns of me. And I always read them and I just think, I have become everything I once despised. And as that person, are you an investor? And how do you invests? Well, I, you know, I am, I have one great, my father is, who is a very, very smart man,

has one, many great qualities, but the one that I have learned the most from is that my father is intellectually humble and is expressed in the following way. When he meets someone, he makes an immediate assessment of whether in the domain that they're going to be talking about, does this person know more than me or less than me? If the person knows even a little bit more, my father totally defers, which is a lovely trait. So here's a guy with a PhD in applied mathematics, and I have seen him deep in conversation with our Mennonite farmer neighbor who has a fifth grade education.

He has that element of humility. Anyway, he taught me this. So when it comes to investing, my basic position is identify someone who knows more than me and just do whatever they say. So I have someone who manages, but for fun, I have a little Schwab account and I play with it and I try and it has a wonderful effect of enforcing, reinforcing that humility because try as I might, I cannot beat the market, even though I have a series of what I consider to be brilliant ideas.

What is your most recent, brilliant idea in the form of an option trade? Well, I was just telling you this. I had this whimsical notion. So if I would have, to found an investment company, I would call it stopped clock investments. Because I had been right twice in my life. Like the stop clock. Once was, and I'm totally boasting now, I went all cash in 2007. Thank you.

And the second was, very minor way, in the beginning of January, I bought protection for my portfolio. If the stock market, I don't even... Right now, just this month. Right now. From now till January 1st to April, if the market goes down 10% or more, I'm in the money, I guess, is that what the phrase is. So I'm very... But I was saying to you, I only did it because I wanted to feel... I wanted to know what it felt like to short something,

because I've always been fascinated by short sellers. And I had done a big piece on years ago on Nassim Taleb. And as he described the torture of betting on catastrophe, I was just fascinated by that. So I wanted to feel like it. What was it like? So I bought my little option.

And then the market goes for a couple of days. And I had this initial surge of elation, because my option is suddenly sorted value. And then I feel gross. And now I'm not sure to ever want to do it again. I don't know. Psychologically, there's a reason why someone like Warren Buffett is so much more appealing than a short seller.

Not that he's a better person necessarily, but what he's doing seems so much more consistent with how we want to think as human beings, right? I mean, or at least a better way of saying it is, it's so much easier to think his way than to bet that things might fall apart. We have to close to let you get on your way. But could you just close by sharing a little bit about how you think about, how we should think about our disadvantages in life? Anyone in the room that sees, I have this weakness, I have this flaw, I have this thing that's held me back or this shortcoming. Or I see it in my child.

I see them struggling with this. How should we think about disadvantages? Well, as, you know, it is a cliche, but they, as learning opportunities, there are, you know, you can learn by capitalizing on your strengths or you can learn by compensating for your weaknesses. The compensation path is far more difficult. It's far more rare, but it's way more powerful. The things you learn as you are working around or through adversity are lessons that are far more deeply felt than the things you learn because of your strengths.

And so, you know, I chose dyslexia in my book for a reason because there are just so many examples of people who refuse to deal. That is just about the most serious impediment you can throw in the path of a child. And the idea that there are lots and lots and lots and lots of really, really successful people who, when faced with that impediment at the age of six and seven, just were undaunted by it. I just went about there, just found another way to kind of go about the business

of getting through school and then ultimately through life. That to me is such a beautiful example of how we radically underestimate our ability as human beings to deal with adversity. I mean, I think we're much better at it than we think. That's going to do it for this week's edition of Motley Full Money. Our producer is Matt Greer. The show is mixed by Rick Engahl.

I'm Chris Hill. Thanks for listening. we'll see you next week.