Motley Fool Money - Motley Fool Money: 05.17.2013

Episode Date: May 17, 2013

Google hits an all-time high.  Cisco hits a two-year high.  And Tesla continues it sudden acceleration.  Our analysts discuss those stories. Plus, we talk with Charlie Wheelan, author of Naked Statistics:  Stripping the Dread from the Data. Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi everyone, I'm Charlie Cox. Join us on Disney Plus as we talk with the cast and crew of Marvel Television's Daredevil Born Again. What haven't you gotten to do as Daredevil? Being the Avengers. Charlie and Vincent came to play. I get emotional when I think about it. One of the great finale of any episode we've ever done. We are going to play Truth or Daredevil.

What? Oh boy. Fantastic. You guys go hard, man. Daredevil Born Again, official podcast Tuesdays, and stream season two of Marvel Television's Daredevil Born Again on Disney Plus. Everybody needs money. That's why they call it money.

From Fool Global Headquarters, this is Motley Fool Money. Welcome to Motley Fool Money. Thanks for being here. I'm your host Chris Hill. Joining me in studio this week from Motley Fool Income Investor James Early and from Million Dollar portfolio, Charlie Travers and Ron Gross. Good to see you as always, gentlemen. How you're doing, Chris?

We've got the latest on retail, restaurants, automotive, and more. We've got best-selling author Charlie Wheelan with advice for investors and college graduates. And as always, we've got a few stocks on our radar. But we begin this week with Google. A lot going on this week, guys. The stock in an all-time high, topping $900 a share. Google unveiled a new music streaming service for $10 a month. But I think both of those paled in comparison to the news that CEO Larry Page revealed he has been diagnosed with vocal cord paralysis. It has weakened his voice, but does not affect his day-to-day management of the company. And Ron, he joked that Sergey Brin, his co-founder at Google, made the comment,

like, well, you're a better CEO because now you have to choose your words more carefully. But all kidding aside, this is a pretty stunning announcement from a guy who's just 40 years old. Yes, but I like the way he's handling it. And we can contrast it with the criticism that Steve Jobs came under when he kind of was really very secretive about a really much more serious disease. I appreciate the way Page is handling this. There was some concern. He had missed a shareholder meeting. I think, you know, it's almost a sigh of relief that it's really not that serious. It's certainly not that life-threatening. He can continue his duties as CEO. He's going to be fine. He'll just be speaking a little bit more quietly. But it does raise, again, this is a guy

who's 40 years old, and I don't think anyone necessarily looked at him before now, Charlie, and thought, oh, well, we need to think in terms of succession planning. And if nothing else, I think this at least puts that in people's mind, doesn't it? Not in my mind because it's not life-threatening or anything like that. And, you know, besides that, Google has a very deep bench of talent up at the top. So it's not that big a concern with me. I think this is one of the most innovative companies in America. Now we know why they were pending Larry quote a few quarters ago.

Oh, that's right, in the press release. There was also a developer conference this week, and I mentioned the music streaming service. Charlie, I'll just go to you first. When you think about things like music streaming, Google glasses, all these potential gadgets, is there anything that you think is likely to be a significant revenue stream for Google? I'm the last person you should ask on this, Chris. I'm the guy who thought the iPad would be a complete flop. Google Glass is very interesting. I don't know if it'll be a hit or more equivalent to people wearing those Bluetooth headsets walking around in their ear and everyone makes

fun of them, but maybe I'll do better than that. Ron? I think more so than anyone product being a revenue hit, it's continuing to make things more attractive for search. 41 new features to Google Plus, a rebuilt Google Maps, which is some really cool stuff. They have something called Conversation Search, which is kind of their answer to Siri, things that are improving the mobile experience, getting people onto mobile, which is, you know, that's the name of the game for all these guys.

When you think about shares being in the neighborhood of $900,000. Is it too pricey? Should people wait for a pullback? Or is there just never a bad time to jump in? We just moved the stock to hold this week. We were in at 450. It's been a great investment for us. It's getting a little bit pricey. But having said that, we are going to revisit it to make sure we're not being a little too short-sighted because they have so many things in their future. Hard to predict them, but there are so many good things that even at $900, perhaps, it's an okay-long-term investment. Are you're the weirdest thing you'll admit to Googling? No. Not here on radio.

Maybe during the break. Moving to another tech giant, Cisco Systems. First quarter profits came in higher than expected. They also had a good outlook for the second quarter. I can't believe I'm saying this, James. Shares up more than 12% this week. I don't remember the last time the stock moved like this. It was amazing.

You know, Chris, I once had an iguana. And the first night I brought the iguana home. It doesn't surprise me at all. Put him in the cage and had all the heat lights on, the electrically heated rock. And the next morning, he wasn't moving at all. I was like, I poked him, poked him. My friend's like, oh, you roasted him, you killed him. I'm like, no, shut up, I didn't kill him.

And finally he moved. So Cisco is, Cisco's a guana moved this quarter. People had low expectations. And switching in router revenue basically flat. These are kind of their mainstays. But the oddball stuff was great. I can't believe this show is free. With analogies like that, it's unbelievable.

The data equipment revenue was up 77%, the wireless revenue, I think 27 or more percent. Teleconferencing revenue, 30%. And these are the smaller things, but these are the things Cisco has been moving into to diversify themselves away in a time where their peers are not doing so great. So good for Cisco. Well, and in terms of expectations, part of that was fueled by the fact that you had companies like IBM and Juniper in their most recent results really showing a decent amount of weakness. And I think that that was sort of baked into the expectations for Cisco. Is Cisco, in that regard, a better bellwether for overall tech spending, particularly on the enterprise side, than a Juniper? or an IBM. I don't know if you have a bellwether, to be honest. I think it's a more consistent stock, more representative, probably. Tesla Motors is raising $830 million through a stock

and debt offering, and usually, Charlie, that kind of shareholder dilution would lead to a stock falling. And ever since they reported their first profitable quarter over a week ago, Tesla shares seem to do nothing but go up. What is going on with his company? Really bizarre, Chris. You have a hot stock like Tesla that is just now turning a profit, and they decide to do a secondary offering, so they're selling 2.7 million shares to the public to raise money. That tends to be an indicator that the top is in. However, CEO Alon Musk is a sharp dude, and he's putting another $100 million into the stock, which is making the market think it's actually a good buy at this price. Musk already owns 24% of the company. It's a stake worth $2.5 billion, so what's another $100 million to him? But, you know, Tesla is an interesting story. They're raising $800 million through this capital raise. They're going to repay the Department of Energy loan they've had outstanding. That's going to cost them over $400 million.

And the rest of it, they're going to put into R&D and CAPX. So they spend $250 million on R&D. These are very sophisticated cars they're making. And then they've got to build out their store and supercharger network as well. It costs a lot of money to run this business. Just to make the wonky capital budgeting point, if they have better or good uses for this money they're raising from the secondary, it's actually not dilutive to the owners, too. Absolutely.

What do you think of the stock, though? This is a stock that in January was trading in the mid-30s. Now it's in the neighborhood of $90 a share, and you have some people out there using Tesla as a specific example of the overall market being inflated. I mean, certainly if you're a Tesla shareholder, it's been a great 2013 so far. But is this a stock that you think is maybe getting out ahead of itself? I'm a believer in Tesla as a 10-year story. If you're going to buy shares, just tuck it away and forget about it, but you should expect some bumpiness along the way. Yahoo is reportedly in advance talks with Tumblr, the popular blogging service.

Yahoo would either take a significant stake in or outright acquire Tumblr. And, Ron, the price tag that's being floated could top $1 billion. Is this a really good use of a billion dollars? billion dollars nowadays. You know, Yahoo has been on kind of an acquisition spree in its attempt to be relevant and cool. Once again, I personally would rather, I think they only have $3 billion in cash right now. If they're going to spend a third of that on Tumblr, I think maybe a joint venture would be a better way to go, test this out and see how it goes. You can always make an acquisition down the road if you think it makes sense.

Listen, Mercer Mayer has done a great job. The stock is up significantly since she took the rains, but it's still an uphill battle for Yahoo. It's a competitive world out there, and they're trying to acquire their way out of this, but it's going to be tough. And how does it mix? I mean, Yahoo is kind of the old man of tech now? Is this the old man going after the much younger wife? I mean, is that going to work? Well, Mr. Aguana. Yes, it is kind of like that. I mean, they are saying, we are trying to be cool. And I read a funny article that says, if you go out there and you say you're trying to be cool, that you're pretty much negating it right there. Yeah.

When Facebook most recently reported its earnings, there was one analyst saying, look, they spent a billion dollars on Instagram, again, to go after younger people. And from what I can tell, they're not making a dime off of that. I use that just as a way to pivot over to Facebook because this week is the one-year anniversary of the Facebook IPO. What do we think of this company right now, one year in, when it is trading somewhere in the neighborhood of 30 percent below what it IPOed at? Looking out over the next one, two, three years, is this now a value stock or is this a company

that's still trying to find its footing? I don't think I would ever say value stock. But 38. Not at a market cap of $65 billion. At a 38 IPO price, I kind of think it was silly. And the way they handled the IPO was a debacle. We actually are in the stock at $27. We have a nice position.

I don't know about the one to three year. But as Charlie was saying with Tesla, for the five to 10 year, we think they can continue to monetize those 1 billion people in many different ways, not just through advertising. And most importantly, they're doing a great job moving to mobile, which was essential for their business model. So we're believers in the long-term story of Facebook. What's the thing that you're watching most closely over the next year or so? Keeping in mind there are a lot of opportunities and a lot of moving parts. But is it just that continued mobile space and their attempts to make even more money off it? Or is it something

else? I think for the most part, it's that. And it's to see how things like Facebook Home will work, where they're kind of taking over the Android homepage to really try to drive that Facebook experience. We'll see if bets like that really drive their mobile business, which they've gone to a nice 30 percent of the business, but they need to continue to increase that pretty significantly to support that $60 billion valuation you're talking about. All right. We'll go to break, and then you can tell James the weirdest thing you've ever Googled. Coming up from the people who brought you, the Doritos Lococo Taco, comes to next great innovation in food. This is Motley Fool Money.

Welcome back to Motley Full Money. Chris Hill here in studio with James Early, Charlie Travers, and Ron Gross. Walmart's first quarter earnings were in line with expectations, but same store sales fell almost one and a half percent. They also lowered guidance for the second quarter, and no surprise, James, shares down for the week. What do you think? Chris, in the short term, you know, to deliver weenie-like results, you get we need like stock performance. The stock just trickled down.

Walmart's excuse was basically a delay in income tax, refund checks, challenging weather conditions, this is according to the Wall Street Journal, and a payroll tax increase, which sounds lame, but it might have some truth to it. But big picture, this stock is still up about 35 percent, Chris, in the past year. It proceeded to climb right after I sold it an income investor, which is sometimes how it works. We do. We did that. That's life, yeah.

Well played. Yeah, I was going to say, you look at this not just over the last year, but the last two, five years. This is a stock that's really done well, despite the fact that it hasn't been, to use Ron's term, it hasn't been firing on all cylinders. That alone gets me interested. I realize it's an enormous company, but I sort of look at this company and go, wow, if they can ever figure out how to really manage their business well, the stock will do even better. It's a winning format. It crushes everybody else for a reason. And if you believed in them and could take advantage of the misstep they made in the U.S.,

and you thought they would figure it out, that was the right time to buy this stock. In a surprise to absolutely no one, J.C. Penny's first quarter revenue fell 16%. CEO Myron Ullman said it will take time to turn the company around, but that J.C. Penny is, quote, emerging from the abyss. Really, Ron, abyss? They're using the word abyss. There's certain words you don't use. To describe where their business is. So they're doing, I think, the best they can do. Okay, they've secured a nice $1.75 billion loan. They've brought some brands back like the St. John's Bay.

They're bringing back the pricing strategy of old. They're bringing back sales. But the abyss is a very deep and dark place. And it's hard to get out of that. And I've said many times, I'm just not sure the world needs JCPenney any longer. The retail space is just too competitive. So even for a value guy like you, you're not interested in this stock. I am not.

This is the weekend at Bernie's of retail companies. Everyone's just trying to prop this thing up or pretend it's alive, but this concept should have died out. It hasn't started to smell yet. Long time ago. Correct. It's starting to smell now. Taco Bell has found huge success with the Doritos Locos Taco, and I'm happy to say that the innovation continues. Taco Bell is now testing out a new concept, the waffle taco. It's a sausage patty, scrambled eggs, folded into a waffle, all for the wonderful price of 80. What a country.

This is an amazing country. Charlie, we were talking earlier, you were saying, hey, all cutting aside, we're really seeing a shift in the business at Young Brands. Right. Young Brands is the parent company of Taco Bell. They made some inroads last year into breakfast with egg burritos and hash browns trying to compete with McDonald's and Dunkin' Donuts. Few companies in the fast food space can pull off breakfast, but I'm a big fan of Taco Bell right now with the Waffle Taco. It's time to go out and try one. Well, you would eat a Waffle Taco yourself?

Absolutely. Probably like one in each hand. Wow. You know, unfortunately, they're only being offered in three locations in Southern California, so we're going to have to make a road trip. But also part of the Young Brands Empire is KFC. And for a long time, KFC, and particularly its success in China, was what was really driving this stock.

And how much longer are they going to come out month after month and say, oh, the problem with the chicken producers in China, that's just a temporary thing? I mean, how many more months can they take of same-store sales just dropping double digits? Yeah, China contributes half of Young Brands' profit. It's a very big deal. This is driving the stock for a long time. They've been reporting negative 30 percent comps for KFC in China. It's absolutely horrible.

The market things are going to turn around. I'm not so sure. Their next quarterly calls will be quite interesting. Do you think the Waffle Taco gets rolled out by the end of this year nationwide? Absolutely. One can only hope. It's time for the stocks on our radar. Before we do that, let's just bring in our man, Steve, from the other side of the glass.

Not to participate in stocks on our radar. But just so we can say, happy birthday to Steve. Woohoo! Happy birthday! Good night. Thank you very much. 29? Yes.

28, actually. Drop us an email, Radio at Fool.com. We will pass along your birthday wishes to our man, Steve. Many companies, including ours, have Bring Your Kids to Work Day. But unlike many companies, we also have bring an attention. adult family member to workday, and I'm happy to say that joining us in studio now, it's Charlie's lovely wife, Brandy. Brandy.

Wonderful to see you. You're going to help us out with stocks on our radar, and I think you know how this goes. We'll just kick it over to Ron first. Ron, go ahead and pitch your stock to Brandy. Not to Steve, to Brandy. Brandy, you obviously have a lovely fashion sense. Look at Ron's body language. No pandering here.

You can see this people. Perry Ellis, ticker symbol P-E-R-Y, a great selection of brands for some people. They are shedding the underperforming brands. They are firming up the ones that have been struggling a little bit. It's a small-cap company. It's only $19 a share. We think it's worth $27 a share. So a lot of room to run for this company once they kind of get their act together.

Okay. Perry Ellis, we'll file that away. James, what about you? I'm going to go back to my little iguana on this one. Brandi, you seem like you like dominant companies that can just crush the competition. Cisco has around 80% market share in its businesses, and I think about half the world still doesn't have Internet. So they've got a lot of room to run. I see about 15% upside near term, but it pays a 2.8% yield while you wait.

And the ticker? CSCO. C-S-C-O. Charlie, when Joe Mager was sitting in that chair, he had to pitch a stock to his father. I think this might actually be a little tougher for you. So go ahead and pitch a stock to your wife. I'm playing dirty and I'm playing to win here. LVMH. The ticker is LVMUY. It's Moe-Hennessey Louis Vuitton. It's a French luxury brand conglomerate with 37 billion in annual sales. They just acquire and sell around the world the biggest fashion brands, including Mark Jacobs. They own Sephora, something I think you're well acquainted with.

You know, just 20 times earnings, 2% yield. So Brandy, I don't have a chance. Brandy, we have about a minute left. Perry Ellis, Cisco Systems, and LVMH. Well, I personally am a VIB member of Sephora where every 500 points you get, you get free stuff. What is VIB? Beauty Insider, maybe. I'm not exactly sure. I thought it stood for a very important buyer.

Could be. It's probably really what it is. But Perry Ellis, I'm going to say no, I'm Perry Ellis. No offense. And as far as Cisco, that sounds great, but I don't really understand what they do. So, gosh, you know, I'm a little torn. I love Mark Jacobs. I love Sephora. But Kanye West carries those Louis Vuitton bags a little too much.

So, oh, gosh, I think I'm going to go with James. Cisco system. Because of the iguana statement. Out of left field. It all gets back to the iguana. Ron Gross, James Early, Charlie Travers. And Brandy, Travers, thank you so much for being here. Thank you.

Coming up, bestselling author, Charlie Whelan talks naked statistics. That's right, naked statistics, but don't worry, it's radio. This is Motley Full Money. Welcome back to Motley Full Money. I'm Chris Hill. Charlie Whelan is the best-selling author of Naked Economics and a professor of public policy and economics at Dartmouth College. His latest book is Naked Statistics, Stripping the Dread from the Data.

and he joins me in studio now, the rare in studio guests. Thanks for being here. Oh, it's good to be with you. When it comes to statistics and the broader economy, it just seems like one of those things where now we're inundated with statistics, particularly in pop culture, in the advent of moneyball and all that sort of thing, we have to be getting some pretty big things wrong. What are we getting wrong when it comes to the broader economy?

Well, we're getting something's partially wrong in the sense. People are obsessed to the idea whether statistics lie or not. And they do. People lie with statistics. They lie without statistics. You know, those are people who are pathologically lying. The more subtle point is that statistics in anybody's hands have a point of view. So the way I like to think about it is it's a little like an American courtroom where the prosecution and the defense get all the same raw data, all the interviews, all the depositions, all the evidence and so on. But if you were to show up in that courtroom and watch the trial, they would each present the data in their own way. They would selectively pick which data they wanted to present. would emphasize some things more than others. We all do that implicitly or explicitly. So statistics are just the tools that we use to make sense of all these raw data, but there's a lot of picking and choosing going on. What do you think of the GDP, which seems to be everyone's, if not favorite data point for the health of the economy? Certainly the data point that is at the ready. Well, it's a bit like, remember Winston Churchill said democracy was the worst form of

government except for everything else we've tried. It's a bit like that. And that most people look at economic well-being, which is really what we care about. So actually, we even care more about happiness. Are we better off than we used to be? Would prefer to have something better than the GDP. The problems of GDP are legions. So first of all, it takes no account of what you're spending money on, right? So after the Boston bombing, if you spend extra money to clean it up, that goes into the GDP.

If instead you'd been lounging the park, it wouldn't. There's environmental degradation counts as a positive. There's no sense of the distribution of income, rich or poor, those kinds of things. The problem is nobody can agree on what to do instead. And way back in naked economics, I proposed a couple of alternatives that came, not surprisingly, from different political points of view. Bill Bennett at the time was pushing his well-being index. You say, all right, well, that sounds sensible.

And it had things like the divorce rate and the number of single children born, and it was heavily weighted towards conservative indicators. And then there are people on the left who were, we're looking at income inequality and how the poorest of the poor we're doing. So we're stuck in a place where GDP is elegant. It's a single number encapsulates how well the economy has grown. It misses a lot, but we can't come up with any better. We had Michael Lewis visiting The Motley Fool.

We found him on a couple of occasions, and one time he was talking about Moneyball. And he's a guy who's worked on Wall Street in his past. And one of the things he talked about was the whole notion of measuring. and the danger in being able to measure more and more things is that sometimes you end up measuring the wrong things or placing a greater amount of importance on the wrong things. The way he put it was, you can fetishize the wrong things. What's number one on Charlie Wheelen's list of things that we are measuring incorrectly that we need to change? Well, the one I use in the book is the value at risk models that essentially blew up Wall Street. And that's part of the larger point, which I think you were hinting at, which is the difference between accuracy and precision.

I think it's probably what Michael Lewis was getting at as well. We can be more precise about lots of things. We can build fancy models. We can load them up with data. Computer power is cheaper than ever before. But just because something is precise, I can say 3.27 percent chance that we will earn $101 million. It doesn't mean it's right. Accuracy is about its relationship with the reality.

So, you know, one outside of the finance world example will be. when people get in the car and they start looking at their GPS devices, which are very precise. But if you've got data that are loaded for Washington, D.C., instead of Washington State, you're going to drive off a bridge. So there's always room for common sense, and I think the data can dwarf our ability to make sense of the signposts that we used to use in the absence of that precision. You're listening to Motley Full Money talking with Charlie Whelan. His new book is Naked Statistics, stripping the dread from the data.

Like Michael Lewis, once upon a time, you worked in the world of finance. you were working at Morgan Stanley when the Dow hit 2000. Now that it's at 15,000, what do you think? Is it exciting? Is it much ado about nothing? It's at best a curiosity. I mean, I do remember vividly of being an intern sitting at the end of the trading desk at Morgan Stanley. I wasn't that excited.

The traders were. Popping champagne? I think we were trading. It was very late at night because we were looking at the American market, so mostly they were just tired. You were in London at the time. We were in London, right. But the Dow is not a great representation, even of American stocks, let alone what most people's portfolios look like.

The S&P is a broader index. Nowadays, most people's portfolios are weighted with international stocks. We like the Dow because that number of 15,000 actually means something. And there are very few other financial indicators that are so etched in our mind. But I would say, you know, not only is an imperfect indicator, but there's so much going on in the economy that we're so concerned. about it, whether it's income inequality, whether it's about the fragility of the recovery, that I would say it's one potentially happy sign, but it's also fraught with signs that it might be a bubble because interest rates are so low.

So I wouldn't, you know, maybe get the champagne out, but let's not go crazy. Don't pop it just, yeah. The whole notion of the stock market being a leading indicator of the economy, do you agree with that? Do you agree with it to an extent? Probably to an extent, you know, it certainly signals future profitability. for corporate America, in some cases, better earnings already. And if you look at the rest of the economy, the stock market had better be a leading indicator because the rest of the economy is not doing so hot.

So it's really the only way you can explain it in this capacity. On the other hand, we know there's a certain amount of psychology, and the market is going to become more exuberant when people start to feel better. And that's not just about corporate earnings. That's also about jobs and other things going on. So you probably have to talk to someone more expert than I about whether it's truly a leading indicator or not, but I'm probably most comfortable with your explanation of it being a little bit of both. I want to get back to the book in just a second, but I'm curious as someone who is a

professor of college students, what is the mood of college students these days in terms of going out into the economy, whether they are seniors set to graduate any moment now or they're in their first, second, third year? There's a real disaffection among college students, not just about the job market. That gets the most attention. College debt also gets a fair bit of attention. But if you think about somebody who's now 22 and what they've lived through, it was September 11th, it was the war in Iraq and Afghanistan, it was the Catholic Church debacle, it was the financial crisis. They haven't really seen the country at its best. So it's really broader than just the fiscal situation, broader than just the job outlook. It's that most of our major institutions have taken a

real buffeting during the time that they've been aware as adults. One of the things you touch on in the book is, as we've discussed a little bit here, how data and statistics can be abused. And in the financial world, particularly the mutual fund world, one of the things you write about is survivorship bias. For those who aren't aware, what is it and how does it affect them? Well, bias in general is anytime you've got great-looking data and there for subtle reasons or sometimes more obvious reasons not telling you the right story.

So you do a telephone poll. You're suggesting that someone in the financial industry might not be telling the full story. They're not alone. It might not be 100% transparent. That's outrageous. Outside of the financials, you're doing a telephone poll and you've got a fancy new dialer that can call up 100,000 households and you just take the first 20,000 who answer. That seems cheap and easy.

What you're going to find out is most of America seems to be old, lonely, and unemployed, right? Because those are the people who actually answer the phone. Right. So you always want to say what about our data are not right? And going back to the financial industry, survivorship bias is probably more intentional than what I just described in that it's a known tool to, it's a good business practice, but it's a known tool for making mutual fund performance look better than it really is, which is you start five or six or ten or twenty mutual funds with different focuses, different industry focuses and so on. if probability serves, at the end of a certain period of time, 10 of them are going to trail the S&P, 10 are going to be leading. What you can do is slowly and quietly close the ones that are underperforming. So what you're left with after some period of time is a fund or a handful of funds, all of which have beaten the S&P 500.

And you advertise, boy, for 20 years, this has beat the S&P, that looks great. But that's like starting with 100 people flipping coins, and every time somebody flips tails, you tell them to leave. And at the end of 10 rounds, you say, Look, look at this guy. What are the odds? He is the best coin flipper. We have ten heads in a row.

It's all. It's the elbow. It's the hip movement. So, no, it's just the fact that you haven't seen the people flipping tails. Let's go back to the college students because we have data that shows when it comes to the unemployment rate, it is worse for people who do not have a college education. We also have data that shows the mountains of debt that students can incur while they are in college. when you looked at sort of the cost-benefit analysis of going to college. Is it still a good investment?

It is still a good investment. I think it's an important message to send in that high school grads, let alone high school dropouts, are really not going to do well in the labor market. That isn't to say that the debt load is acceptable or that higher education isn't going to need to change. If you're offering career advice, I'd say health care and higher education because both of those are industries that are going to have to be completely overhauled.

They're both extremely expensive. They take up a high proportion of GDP and they're very inefficient. So I would never tell anybody except for maybe the handful of folks who are truly superior entrepreneurs or something like that. But for most people, you're going to need a college degree because it's an easy screen.

I'm not even convinced that it adds that much value and that's a shame to say in some cases. But what it does... Does your employer Dartmouth College know that you say things like this? Well, actually, I mean, there's a famous study by my former statistics professor, Alan Kruger. And what he wanted to measure was whether going to a highly selective school matters or not. And it's a hard thing to measure because people get into highly selective schools are quite talented to begin with. So you can't simply

compare Harvard grads to community college grads. They're different people. Nor can you randomly assign them to Harvard or community colleges. So what Kruger did is he looked at a large pool of students who had been accepted at a highly selective school and at a school that was less selective. Some opted to go to the more selective school. Some didn't, but they were all good enough to get into the best available school. And he looked at their earnings, you know, a decade on. And it turns out it made no significant difference in their future income. Now, that's not whether they went to college or not college, but highly selective versus less selective. I know that there's a fair bit of screening going on. People get into Harvard are quite talented. People would get in college and

finish college are hardworking and talented. So, but that is beside the point, which is your employer is going to go through a stack of CVs and they're going to say, you know, doesn't have a college degree, doesn't have a college degree, and you're going to get sorted out of the pile. Coming up, Charlie's got some advice for graduates, and we've got some stocks on our radar. Stay right here. This is Motley Full Money. Welcome back to Motley Full Money, talking with Charlie Wheelan, author of Naked Economics and Naked Statistics, both bestsellers. But I want to touch on a book that you wrote last year with the awesome title, 10 and a half things no commencement speaker has ever said. What do you say to a student

who's graduating this year? Because this is a book with chapters entitled things like your time in fraternity basements was well spent. That was probably the best research part of the speech, because that was actually drawing on the happiness research, which is now very interesting ongoing, showing when you look at longitudinal data, the one thing that determines your kind of sense of well-being over the long term is your connection with other people. So that was, like I said, that was data-driven. There are other points in the speech, and it was a speech first, then became a book, things like don't make the world worse. I think one of the takeaways was that if you try and make the students feel better, you're going to fail abysmally. So I lowered the bar and said,

look, you know, there's going to be some rough patches. It told them a lot of stories about failure, and that seemed to make them happier than stories about success. I got to touch on one other title, some of your worst days lie ahead. Boy, that must have gone over like a lead balloon. Oh, this is the most popular part of the whole speech, because I told two stories. One was about my college roommate who wanted to be a Wall Street Titan, could not get a job in the fall, couldn't get one in the winter or spring.

By fall after graduation, he's living with his mother in San Francisco. And hopeless with regard to Wall Street, one job comes along, which is assistant food and beverage manager on the island of Saipan. Sure. It's like four miles by eight miles in the middle of the Pacific. You fly to Guam if you want to have a good time, and that's a thousand miles away. But it was all he had. So he goes to Saipan. He meets his wife, who was a Kiwi from New Zealand, who happened to be there, gets into the hospitality in the industry, and eventually rises to become CEO of Rosewood hotels. So, you know, it's a story that starts out rough, which resonates with the students sitting there thinking like,

I empathize with that. I don't have a job either. But it ends well. And, and, you know, And I think that went over reasonably well. But it does get to the theme that, look, there's some bad days before you get to that sunny ending. All right. Before we wrap up with a round of buy, seller hold, give me one statistical insight that I can use this weekend at a barbecue, at a cocktail party, something to impress my friends. So sports fans are probably familiar with the Sports Illustrated curse. Sure, the cover jinks. Right.

So you get your face on the cover of Sports Illustrated and everything after goes south. You can no longer make a free throw, your ERA balloons, and so on. There's a similar business week curse that when a CEO's mug appears on the cover of Business Week, that's usually time to sell the stock. So some economists looked at that phenomenon to see whether it was actually causal, whether, like, there's something about this that's making a performance bad, or whether it's just what we call reversion to the meme, which is when do you get on the cover of Sports Illustrated, when you've had a great run of it, and all great runs end.

So if I shoot 75 on the golf course, that's the best day. The next one's going to be closer to what I usually shoot. It turns out that as you would expect with Sports Illustrated, it's just reversion to the mean. There's nothing about being on the cover of Sports Illustrated that's going to make your performance worse. But with Business Week, it does appear to be partially causal. Wow. And because after CEOs show up on the cover of Business Week, they become more prominent,

they get more public speaking roles, they start doing more things outside of the company. So they do get a little bit distracted. So the conclusion of the academics on that one was that it might actually affect the management of the company, and it is at least partially causal in terms of – there's probably some reversion to the mean as well, but that that might also be a bad signal for the future of the CEO and the company. Factor that into your investment thinking, people. All right, we'll wrap up with a round of buy-seller hold. This just passed the Senate, and it could hurt the bottom line for companies like Amazon and eBay.

Buy-seller hold, the Internet sales tax. I'm going to buy it. I think it's probably going to stick around. We need revenue, whether it's a perfect tax or not. It is better than running chronic long-term deficits. It's not a terrible way to get it. It does even the playing field between bricks and mortar and online. So I can live with it. This feeds into a popular marketing strategy in the financial world. Buy seller hold buying a mutual fund based on the five-year performance. Sell. I'm an efficient markets guy. We just talked about survivorship bias. I mean, I'd be in index funds anyway. And if not, then I certainly would read the fine print, which is always going to tell you that the past does not necessarily predict the future. As we discussed during the break, you're a father, and incentives are a big part of economics. Buy seller hold, paying your kids to do their chores.

I'm going to sell because I had a bad experience in this regard. I used to pay my son to find my slippers in New Hampshire. And, you know, it was a cold place, not a huge house, but, you know, for a dollar, he'd go screwing around. and we discovered that my other kids found my slippers in the furnace room, which is a place I hadn't been in about two years. Turns out we had created an incentive whereby my youngest son was hiding the slippers. So he would then be paid to find them. So we went through and had a frank confession.

Behavior was changed, but I'm now there and elsewhere a little bit cautious about the perverse incentives. Let me know when that kid goes into business so I can invest him whenever he's running. The American Film Institute named it one of the 10 Best Sports Films of All Time, buy-seller hold, Caddyshack. Oh, bye, bye, bye, bye, bye. And not only for my generation, great movie, I've gone back and seen the Bill Murray movies with my kids, and those movies resonate with the next generation as well.

Good. I think what's cool is that the humor for today's 10-year-old still at top of the game. And finally, you're a big fan of this team, which has many words to describe it. The one I'll go with is, embattled by seller hold the likelihood of the Chicago Cubs winning the World Series in your lifetime. I'm going to sell. For a while, I was optimistic, but I had season. You're a young guy. You're a healthy guy? I know. I had season tickets. I know. I had seasons tickets. I was there. Actually,

I was watching the game when the Bartman ball happened. I had tickets to the game before and game after that. I think there's enough data now to suggest that even though I'm a relatively young man, I'm not sure I should bank on that happening. Well, as a lifelong Red Sox, fan. I'll just say, don't give up help. Yes. Red Sox fans have had it until I moved to Boston and then it fell apart. Naked statistics, stripping the dread from the data is a New York Times bestseller for a reason. Charlie Wheelan, thank you so much for being here. Oh, thank you.

As we wrap up this week, I want to give a shout out to two of our colleagues here at the Motley Fool. This week, the nominations were announced for the Gerald Loeb Awards. These are the highest awards given for business and financial journalists. And our colleagues here at the Motley Fool, Morgan Housel and Alon Moscovitz were both nominated for Loeb Awards in the commentary category. Really proud of those guys, and you can check out what they write each week at Fool.com. 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 them. So, don't buy yourself stocks based solely on what you hear. That's going to do it for this edition

of Motley Fool money. Our engineer is Steve Broido. Our producer is Matt Greer. I'm Chris Hill. Thanks for listening. We'll see you next week.