Motley Fool Money - Motley Fool Money: 05.09.2014

Episode Date: May 7, 2014

Disney reports big earnings. Whole Foods tumbles.  And Activision Blizzard raises expectations.  Our analysts discuss those stories and share three stocks on their radar.  Plus, Motley Fool CEO Tom Gardner talks 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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which makes it so much easier to stay on track. And you can get unlimited expert help at no extra cost, even on nights and weekends during tax season. Visit turbotax.com to get matched with an expert today, only available with TurboTax full service experts. Everybody needs money. 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 Selling me in studio this week from Motley Fool 1, Jason Moser, from Motley Fool Supernova.

Matt Argusinger and from Fool.com, Matt Copenhefer. Thanks for being here, guys. Good to see you. Hey, Chris. Happy to be here. Last week was the Berkshire Hathaway annual meeting. This week is the Motley Fool's annual meeting, so we're taping a little early this week, But we've got earnings news, a job opening a target. We will dip into the fool mailbag.

And as always, we'll give you an inside look at the stocks on our radar. But we begin this week with The Mouse That Roared, the Walt Disney Company reporting strong second quarter results. Thanks in no small part to the movie Frozen, the number one animated film of all time. Maddie shares close to an all-time high. What stood out to you in the quarter besides the Frozen? Well, besides the Frozen, I mean, their operating income in the studio segment, quadrupled from a year ago. And, you know, I haven't even seen the movie Frozen, but I feel like I've watched it 12 times because every friend I visit who has kids, it's constantly on. The kids are canceling dancing and singing to it.

So, yeah, like you said, that's a huge franchise. I mean, not only does that do a lot for them, of course, in the theaters, but I mean, or in the films and the DVDs, but it's just beyond that in terms of the characters and the brand, sequels, all that kind of stuff. But really a strong quarter for Disney across the board. Mention the studio, but operating profits, you know, of 15% in the TV segment. I can't even name a show on ABC these days, but there's obviously. obviously doing well there. Jason was talking about dancing with the stars during the break.

Yeah, that's right. It kind of got roped into that one, didn't I? You know, the cable business was also up 15 percent in terms of offering profits. ESPN still doing well. Theme parks, operating profits up 19 percent. I mean, across the board, Disney's business is looking great. I mean, overall revenue was up 10 percent. They crushed on that.

They crushed on the earnings per share. I think, again, this is one of the best all-time businesses. It stands out among all the Dow Jones companies right now. The only caution I have is they've got a lot of things coming down the pipe, but it is trading at 22 times earnings. This isn't a company that is going to grow much faster than 10% on the top and bottom line. So a little expensive, the dividend yield is not that high, but hey, it's one of those great companies. I think when you see a company this size growing its top line at double-digit rates,

I mean, that's phenomenal, but Mattie Keaton, I think, a really important part for this company right now is the parks are performing very well. And there's a generous amount of operating leverage that comes into play there because they have to keep those parks open and keep them operational. So the more people they can pack into them, it just becomes more and more profitable as the season goes on. So you're seeing it benefit from a little bit of a sluggish, slow, but still a recovery. For the third quarter in a row, Whole Foods market missed on earnings. On top of the actual second quarter results, executives lowered guidance for 2014 profits. Jason, one of those

executives, John Mackey, co-founder at Whole Foods. He is also a member of our board of directors. On Wednesday, Whole Food stock had its single worst day since late 2006. How bad was this? Well, I think the financial media wants to paint this at least as a company that may be broken or that is in trouble. That's not the case at all. I mean, this is just a company that's in the middle of a market where the dynamics are changing considerably. I mean, Whole Foods for the longest time essentially owned this natural and organics market, and they kind of called the shots and they grew at their own pace. There's a lot more competition out there now. And the call on, on Tuesday was pretty tough on management. I mean, they were not really letting up on management,

you know, speaking of value and investments in pricing. And that's all code for Whole Foods is going to be cutting prices more and more and more. They're going to be cutting prices that's going to play out on the margin side. It's going to play out on profitability side. It's not like it was a bad quarter. They still grew sales by 10%. Coms, excluding the Easter shift, were up 5%. That's not bad, but it's not what they're used to throwing up there. And so eventually, companies like this, they become a little bit of a victim of their own success. I was looking at this before we came in here. This is eerily reminiscent of late 2012 when Chipotle really hit the depths of that share price level there. There was talk

about weak comps and margin troubles there. Strong management team figures out a way to deal with these things. And I really believe that Whole Foods will figure out a way to deal with these things. But they're just entering a new stage in their life. And I don't know that they're going to command that same premium multiple that they've commanded up to date. So, when you look at the stock getting hit like this, on the flip side of Maddie talking about Disney being kind of an expensive stock, obviously Whole Foods a much cheaper stock. It is a much cheaper stock. It brings it back down to, I think, a reasonable multiple. It still trades higher than its fellow competitors in the grocery space, but that is because it is a

premium brand out there. And I think that when you see the stock sub-40 per share, it starts to look very interesting. I think it's a market beat from that level. Earlier in the week, Greg Steinhoffel, target. CEO and chairman of the board resigned, effective immediately. He had been with the company for 35 years, his last six years as CEO, Matt Copenuffer, not really what you would call a success. There was obviously the data breach late last year, but also the expansion into Canada really seems to be a mess. If I had my sound machine that I use on where the money is, I'd like to use that right about now for something along the lines of...

I mean, his tenure as CEO has been unremarkable at best. The bottom line has essentially been flat. You had the recent data breach, which was horrible for Target. And you haven't seen any palpable progress in Target continuing to define itself within that retail space, which is brutal. It is a really difficult space over the weekend I was in Omaha for the Berkshire meeting. And Buffett was talking about how difficult it's been for him over the years investing in retail. And I think Target's a great example of this. You were earlier today, we were talking about this,

and you were talking about the potential $50 million severance package that Steinoffel could get on his way out, which sounds like a lot. It is a lot. It's about 2.5% of what Target reported as total profits in 2013, in fiscal 2013. But when we think about where's Target going to go from here, sacrificing that to get somebody out that doesn't look like they're doing the job,

to get somebody in who can get this company, I think is a good company. I think there's a good brand there and customers obviously value it to continue to go back after that data breach. I think to get somebody in there that can reinvigorate it is potentially worth that. Now the question is, who do they get? Where do they go for it? It sounds like they're looking outside the company. I often think that that's a mistake. Really? Yeah. This guy was a 30-year veteran. They put him in his CEO and we just got on talking about how he didn't do that well. That doesn't mean that every 30-year veteran is going to a flop. The problem with bringing in somebody from outside of a company is that they think that they

have to do something big to prove that they were the right choice. Whereas if you bring somebody from inside the company, they can get the company back to what made it so successful. Look at how big, look at how successful Target has been over the bigger picture, over the longer term. It's obviously done something very right. There's obviously something really great about this business. Get back to that. Don't bring somebody in who feels like they have to change everything. Like Ron Johnson did, Is it, J.C. Penny? I'm not saying yes, but I'm not saying no. Shares of Activision Blizzard up after first quarter profits came in higher than expected.

CEO, Bobby Kotick, is already looking ahead to the September launch of its new game called Destiny, which he says could be their next billion-dollar franchise. Maddie, I like the optimism, but I wonder if he's setting the bar a little high. He is setting it high. He always does, and they better be right, or he better be right, because they poured about 500 million into Destiny. Of course, the game looks great. What Activision is really good at, they spend a lot of time developing, a lot of time testing. They've spent five years on this. They've got great developers and bungee behind it. They've done a lot of testing, and apparently people love this game.

So this is going to be huge. But again, a really strong quarter, especially on the digital side, World Warcraft, Diablo. Harstone, which now has over 10 million registered players. This is one to watch. Activision really hasn't stepped into the free-to-play type of market in the past. They've kind of waited for other companies to do it, King Digital, etc. This is their big step into it. It's massively popular. Our very own David Gardner often sends me emails. He'll say, hey, Matt, can you do this? And P.S. I'm going back to Harsone. So he's a big fan of Harsstone. It's certainly one to watch. But yeah, big, big pipeline coming up. They've got the new Skylanders game, new Call of Duty, in addition to Destiny.

These are already a billion-dollar franchise for Activision. So good times ahead. You can always email us. Radio at Fool.com is our email address. email from one of our listeners, Mike Vaseller, who writes, I'm lucky enough to have come into a large chunk of money and would like to invest it with a long-term horizon. Would you recommend putting it all in now, or should I dollar cost average over some period of time in case of a major near-term market correction? Great question. Matt Copenhefer, what do you think off the top of your head? I think it's going to depend on whether you're primarily a passive investor who's investing in indexes or you get more active. You roll up your sleeves more. If you're

More passive, I think it probably makes sense to dollar-cost average that in over time into a low-cost S&P fund. If you're more active, I think it's all dependent on what the opportunities are right now. I put half of it in right now in your favorite ideas or an index fund, as Matt Kaye was saying, and then the next 50% dollar-cast average over time over the next six months. All right, let's get to the stocks that are on our radar this week. We'll bring in our man, Steve Brodo, from the other side of the glass to hit you with a question. Matt Argusinger, what's on your radar? Yeah, you know, I'm emboldened by Disney's recall.

I'm going with IMAX. This is a company, of course. We all know. We love going to the movies and seeing them in IMAX. Stock's been flat for several years now. But if you look at the summer, we've got Amazing Spider-Man 2. We've got Godzilla, Brian Cranston. We've got X-Men Days of Future Past. These are all really big blockbuster potential movies that feed right into IMAX. I still think IMAX is the future of movie going. Excited about the stock. Steve? Does IMAX have any footing or play in the home theater space? They have technology. Well, they have a platform now that you can actually.

actually buy a component sub to build yourself, kind of like an IMAX-like experience at home. Again, though, I don't think that's going to be a big part of their business. I think the big part of their business is the fact that people, when they go to movies, aren't going to go to traditional theaters anymore. They're going to see the IMAX experiences. That's what they need to double down on. Matt Coppeneff? Mark Hell is on my radar.

I was in Omaha for the Berkshire annual meeting, but one of my favorite parts of that weekend is the Markle Brunch on Sunday, where Steve Markell and Tom Gainer, the CEO of the company, sit down and answer Q&A from the audience. There's a specialty insurer, kind of modeled after Berkshire, phenomenal company. And the ticker symbol? MKL. Steve, question about Markell? I think I own Markell.

My question is... Your question is, do you? In one sentence, can you explain what Markele does for people who don't know? Markelle is a specialty insurer, so they insure things other than standard auto insurance. So, for instance, they insure summer camps against any sort of lawsuits that would come up there, any big things that you would insure against. Just like any insurer, they take the money that they collect for the insurance premiums and they invest it. Tom Gainer is the CIO of Markell.

A phenomenal investor. He takes that. He puts that back in the market, earns great returns for Markelle shareholders. Jason Moser, what's on your radar this week? A company has been critical of here lately. Panera is ticker PNRA. They have been witnessing, I think, a lot of trouble just with the in-store experience. And recently, Ron Shake, the founder and CEO of the company, acknowledges.

that. They have launched an initiative called Panera 2.0, and it sounds really cool. I know, but this is ultimately their effort to really sort of make that in-store experience a better, more seamless experience, and to bring technology into the fray there. And, you know, you don't get to 1,800 restaurants by accident, so they're doing something right. But this is something that they really need to fix. If they're successful with this Panera 2.0, I think the company has a long way to go. So it's got the stock on my radar. Steve? My wife and I go to Panera on the weekends with our son.

They seem to have a giant loitering problem. People just sitting around not buying anything, either napping or being on the internet. Can you help solve that problem? No, I can't. I mean, as long as they're going to keep free internet in those nice big stores, I think that's always going to be a problem. They've got a fireplace. People are just snoozing away. They need to figure out a way to monetize that better, Steve.

And I think that's what Panera 2.0 aims to do. It sounds like they need to make it less cozy. I agree. Yeah, harder chair. There's softer materials. Get them out. All right, we'll wrap up and give Steve a chance to check his portfolio. See if he owns Markell. Guys, thanks for being here. Thanks.

Thank you. Coming up, Motley Fool CEO, Tom Gardner, talks with Malcolm Gladwell, best-selling author of David and Goliath, Underdog's Misfits, and The Art of Battling Giants. A few months ago, we aired part of this interview, but this is a special director's cut, never before aired questions and answers. So stay right here. This is Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. Motley Fool's CEO, Tom Gardner, recently sat down with Best. bestselling author Malcolm Gladwell to discuss his new book, David and Goliath. Malcolm, what would be great is just to have you start by, first of all, thank you so much for coming and spending time with us.

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 our, is our understanding of what an advantage. 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 are, that, you know, 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, Ronadiv. Vivek. Who is the guy who founded Tipco, software company in Silicon Valley. He said, 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, I was. was at a dinner at some conference, sat next to a guy 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. 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, well, 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 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 retry. treated 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 back. baskets. They were girls who went home and I had like dreamt about becoming marine biologists. They were, 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 court press. And so they win, start winning games by scores like six nothing. 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, right? In fact, any team that is a decided underdog in any basketball contest ought to play the full court press, even though there's 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 thing, number one is, why then do so few underdog teams play the full-corp 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 his team. Coming up, Malcolm Gladwell shares some surprising thoughts on choosing a college. Stay right here. You're listening. to Motley Fool Money. Welcome back to Motley Fool Money.

I'm Chris Hill. Let's rejoin Motley Fool CEO Tom Gardner's conversation with best-selling author Malcolm Gladwell. Let's hear about Caroline Sacks. Caroline Sacks was this pseudonym of... I got really interested in this literature on what's called relative deprivation. And so the question is, if you're choosing a college, do you want to go to the best college you can get into?

Everyone says you should. But there's reams and reams and reams of educational data to suggest, actually, that's not a good strategy at all. With some exceptions, you shouldn't go to the best school you can get into. You should go to the school where your chances of finishing in the top third of your class are greatest. The benefits, psychological benefits, or the psychological costs of being at the bottom of any class, particularly if you're in a competitive field like science, math, or engineering, are so overwhelming that it's too risky. If you really want to get a science degree, you should go somewhere where you can feel smart. So Carolyn Sachs is a girl who was really good at science, got into Brown, went, because everyone said that's the best school you should get into, got to Brown, got to Brown, dropped out of science because she looked around at the other brilliant kids in her class and thought she couldn't do it.

and realized belatedly that she was just in this absurdly elite environment. By any real-world measure, she was good at science. And had she gone to her safety, University of Maryland, she would today have the most valuable commodity in the marketplace, a science degree. So that's a case where, again, our obsession with a certain kind of advantage, in this case, prestige, completely distorts our rationality. David Boyes, the well-known lawyer and his story to his journey to the law. He's dyslexic.

He reads at most one book a year, and he is America's greatest trial lawyer. When I heard that, I was like, whoa. So I went to talk to him. I was like, I don't know. How did you even get through law school? But if you can't read, I mean, he can read, but really, really slowly. And this fitted into this larger theory of, if dyslexia is such a terrible problem,

then why are such an extraordinarily high percentage of successful entrepreneurs dyslexic? And the answer is that some portion of dyslexics compensate for their disability in ways that leave them better off. So boys said, I got through school by doing two things. I developed my memory to the point where if you say something, I'll always remember it.

Secondly, I learned how to listen. So in law school, he would sit, no paper, no pen. He would sit in the front row, focus on the professor, commit everything the professor, listen to everything the professor said, and commit everything the professor said to memory. He gets into a courtroom. All of a sudden, he's a dynamo.

You know, in day four of the cross-examination, he can say to you, wait a minute. On day one, you said, x, y, and z. Now you're contradicting yourself. He's that guy, right? And that's not something he's born with. It's something he developed as a result of being denied the ability to read fluently. And that's, you can make the same argument for entrepreneurs that, deprived of the ability to succeed conventionally in school,

you are forced to delegate, right? It must have interviewed ten very successful dyslexic entrepreneurs. Every single one of them, what do they do in first grade? Identify the smartest kid in the class and make friends with them. Of course. How else are you going to get through school? They also, by the way, all cheated, which I didn't go to do in my book. But I was actually fascinated by this.

Cheating, but it's not cheating. Cheating most of the time is where I don't want to do the work, so I take a shortcut. I don't really care about school. I have a contempt for it. Whatever. These guys care passionately about school, but they can't do it constitutionally. And they care so much that they say, you know what? I have to stay in school.

I am going to come up with strategies that allow me, someone who is constitutionally capable of reading easily, to continue to flourish. And so they cheat. And at one point, I had a whole chapter on the cheating techniques of successful dyslexic entrepreneurs. I left it out. Let's hear about Wyatt Walker.

My favorite character in the book. So the question is, White Walker is Martin Luther King's shadowy, less known deputy. He's the fixer. He's brilliant. So King is like the saint, running the show. Walker's behind the scenes. And the question in the chapter on Birmingham.

What happens when King goes to Birmingham to take on Bull Connor? The climactic event of the civil rights movement in 1963. And the question is, if you have been. been oppressed for 200 years. What do you learn through that process? What are the lessons that you, if you're smart and adaptive and resilient? What do you take home from being kicked around for 200 years?

And the answer is you get really, really, really, really clever. And you learn how to play tricks. King in Birmingham has nothing. He's got no money. He's at the lowest step of his, he's just gotten schooled. in Albany, Georgia.

He's being denounced by everyone, including the black press. He starts to hold marches in Birmingham at the beginning, and 12 people show up. Bull Connor is looking at him and laughing. He doesn't even bother to send his cops out after King, because King's so pathetic. And Walker proceeds to play a series of tricks on Bull Connor that have the effect of defeating him.

And I won't go through all of them, but my favorite is the, actually, the best one is the one. I'm not going to ruin the chapter for you, but I'll tell you the first one. So they have 12 people marching against every day in Birmingham, which is ridiculous. It's nothing. One day they're arguing in the church before they go out on the march and they get delayed. And what happened is that after work all of the African Americans who worked in downtown

Birmingham would come to 16th Street Baptist Church and just hang out to see what was going on. So they're delayed until after work has got out. So they send their march out with 12 people. And the next day, Walker reads in the press that a thousand people marched in Birmingham, Alabama. And he was like, 1,000. We only had 12.

And he realizes, oh, wait a minute. To the reporters, they can't tell a difference. A black person's a black person. They can't tell a difference between someone who's just a bystander and a marcher. So he's like, oh, duh, we're always going to march after work now. And so in the press from then on, it's like 1,200 people marched yesterday in Birmingham. He's like, we had a dozen. Right? And everyone is fooled. Even Bull Connor is like, whoa, all these. And a lot of the,

this hilarious kind of the story builds from there, but a lot of what people assumed were protesters in Birmingham were always bystanders. Some of the famous photos of the hope, of the firemen turning the water hoses on protesters. We're not protesters. Wyatt Walker figured this out. They were bystanders who were really hot. It's Birmingham. Who went to the police, to the firemen, and said, turn on your hoses.

We're really hot. So then Wyatt Walker had all the photographers line up, take these photos, and then he said, oh, look what they're doing. This man totally outsmarts Bull Connor. I mean, it's just a textbook case of how, just because you've got nothing, doesn't mean, it's the same lesson as Vivek.

Just because you got nothing doesn't mean you have to roll over and die. There's all kinds of means available to you. Use what you got. You got to use what you got. So we're outside the status quo and we turn for expert advice. And I want just a little riff on that in the form of Roger Craig, San Francisco 49ers running back, and his sister. So in other words, Vivek is outside the status quo, but he probably couldn't have pulled that all off by himself without turning to one of his employees.

Yeah. So it turns out, yeah, going back to the story Vivek and his girls' basketball team, turns out that Roger Craig works for Vivek. And Roger Craig's daughter was an all-American basketball player at Duke. So he did, you know, he was not completely, he recognized the fact that he only really knew cricket

and basketball was a little bit of a foreign thing. So he knew. But he also brought in. Craig's very interesting. actually, as an advisor, because the whole theme of Vivek's basketball experiment was to substitute effort for skill. And his argument, I think it's a very accurate argument. And in many domains, effort properly expressed is an adequate substitute for skill, more than an adequate substitute for skill. And that's what, if you know about Roger Craig's career, about him, that's his whole MO.

He's an effort guy, much more, he's also a very skilled guy, but the thing that set him apart was an extraordinary work ethic. Roger Craig has run seven marathons since retiring as an NFL running back. Most NFL running backs can't walk after they retire, let alone run seven. I mean, so he knew what he was doing, in other words. He was bringing people who reinforced this really sort of central notion, which is that if you're willing to really work, that can make up for a lot of deficiencies. So, third factor, you don't overplay your greatest strength. I've phrased it that way from your discussion of the inverted U-curve and maybe explain that concept and see if that's a...

Should a David, even though he has a strength, not think about overdoing it, or is it he's still on this side of the U-curve and should be anchoring hard on his strength as far as he can take it? Yeah, the interview to you is a chapter where I talk about how, I think, one of the kind of mental models we use to describe relationships between resources and outputs is really leads us astray. So we have this notion that if a little bit of resources, money, makes the problem better, then a lot of money will make the problem best of all, go away the most. And the answer is no. In most of the things that we, of situations where we look at relationships between what you put in and what you get out, the curve does not look like that. The curve looks like that, or rather, the curve looks like a you. That in the beginning, things get better, and then they flatten out, and then they get worse. So I use the example of class size.

It is absolutely the case that if classes are very large and you make them smaller, kids will do better. But then there's a long stretch between probably, you know, the high 20s and the low 20s, where you could make a class smaller and you will see no effect on kids' performance. And if you go too far below 20, kids are worse off. There's really interesting and compelling evidence of this, that it is not a good thing for a child to be in a class with 14 children, 14 other students. One, you cannot get a discussion going with 14, not enough voices in the room. Two, one bad apple can totally ruin a small class because there's nowhere for that person to hide. Right? You can't.

And thirdly, that children who are struggling, what they need most of all is not more attention from the teacher. What they need most of all is another person, a peer, who is learning at the same pace as they are. So they don't feel marginal and isolated. You need to have someone who's asking the same questions, struggling with the same problems. If a class gets too small, the struggling kids are just wiped out. And that's something, you know, a lesson that is so routinely violated. You know, I made fun of private, expensive private schools in my book because I'm sorry, they deserve it.

They take $50,000 of your money and they boast to you that your kid is in a class with 12 out of students. Whoever said that's a good thing, right? all they're doing is justifying the fact that they spent, took 50 grand in your money. And they have 20 Steinway pianos. That was the Hotska school. Where you, I thought, brilliantly pointed out that a school like that is often serving its primary customer, which is the parent. Not actually the outcome for the student. It's to impress the parent that we have the very best of every piece of equipment times 10.

Where is it written? I even find the whole notion that we, that the point of a classroom is to maximize the attention that a student gets from a teacher is insane. A student has to go through extended periods where they are forced to solve the problem in front of them by themselves. That's called life, right? The teacher should be there for when you are truly stuck and also should be there to get you to the point where you can solve it on your own.

It is not a good thing to have a teacher hovering over your shoulder at all times. That's debilitating. So it goes to this idea that too much, we so have to make the mistake where we push our use of resources well past the point where they are useful. Coming up, Malcolm Gladwell talks about the attributes of a great leader. Stay right here. This is Motley Full Money. Welcome back to Motley Full Money. I'm Chris Hill.

Let's get back to Motley Full CEO Tom Gardner's conversation with bestselling author Malcolm Gladwell. I want to talk about the leaders that set up culture. and throw three adjectives at you from the book. Maybe I'm slightly tweaking the wording, but open-minded, persistent, and disagreeable. Why are those three important to find in a great leader? Well, openness, so these are, this is some wonderful work's been done on sort of innovators recently, and they have stressed the kind of, they've looked at what is the kind of prototypical profile of an entrepreneur innovator, leader.

And the argument is they are, the most obvious one is that they are open, meaning they are creative. And that's, goes without saying. You have to be able to be someone who considers all. The second thing is that you must be conscientious in the psychological sense of that word. So there are big five, there are five basic character traits, conscientiousness is one of them. Are you someone who can follow through on your ideas? Now right away, we have an interesting situation here because

There are lots of people who are open. There are lots of people who are conscientious. Those that have both those traits are rare. Right? I can find in any coffee shop in Brooklyn lots and lots and lots and lots of creative people who can't finish their screenplay. I can also find in any law firm in America, tons and tons of conscientious people who we don't want to think outside the box.

We want them inside the box, right? They're not creative. So there's these, but that overlap is rare. And then add to the third most important one, which is disagreeable, which is you cannot be someone who requires the approval of others in order to do what you intend to do. And that's crucial because, and that's the hardest of the three, because we're hardwired as human beings to want the approval of our peers. I always remember when I was writing my book, Blink, I hung out with that guy who studied marriages,

and he was talking about the one emotion that a marriage cannot survive in the face of is contempt, because contempt is the emotion of exclusion. That when you're, if your spouse argues with you, they are including you. They're saying, I care about you enough to want to work this out. When they are contemptuous towards you, they're saying, I'm done with you. And as human beings, we need that kind of approval so much that that can end a marriage. Well, the really great entrepreneurs at some key moment, or innovators or leaders, at some key moment as they are doing, putting forth their vision, need to be disagreeable. They need to not need that kind of approval.

Because the one thing we know is that, you know, there's always a moment in the birth of any great idea when the consensus is it's crazy. Find me a transformative idea that was not denounced and criticized at some key moment during its gestation. 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, the age of six and seven, just were undaunted by it. And 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, to deal with adversity. I mean, I think we're much better at it than we think. Malcolm Gladwell's latest book is David and Goliath.

It is already a bestseller. So go out there and check it out. 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. Our producer is Matt Career. I'm Chris Hill. Thanks for listening. We'll see you next week.