Motley Fool Money - Motley Fool Money: 08.24.2012

Episode Date: August 24, 2012

Apple, Google, Microsoft and Amazon all have events planned in September to unveil new products.  Our analysts discuss which companies have the most to gain and lose, and delve into earnings from Dell, HP and Best Buy.  Plus New York Times reporter Charles Duhigg discusses his best-selling book The Power of Habit: Why We Do What We Do in Life and Business and Motley Fool retirement expert Robert Brokamp shares financial tips. Learn more about your ad choices. Visit megaphone.fm/adchoices

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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 Full Money. Thanks for being here. I'm your host, Chris Hill, and joining me in studio this week for Motley Full Inside Value, Joe Maker, for Motley Full Income Investor James Early, and for a million-dollar portfolio, Mr. Charlie Travers. Gentlemen, good to see you. Chris. We've got a lot going on. We've got the latest on PC makers, coffee roasters, and one big box retailer. We will give you a preview of the events that Apple, Google, Microsoft, and Amazon all have planned for September. And as always, we've got a few stocks on our radar. But we begin with the big macro. And James, we had new home sales for July up 26 percent. That's

a two-year high. Friday's durable goods report was kind of a mixed bag. But the story that kind of got a lot of buzz this week was the release of the minutes from the Federal Reserves meeting nearly a month ago. And basically, What it laid out was that we had members at the Fed very actively discussing the potential for a third round of quantitative easing. What did you make of it? Well, Chris, quantitative easing is economic intervention, and you know me. I'm jaded about this. I tend to see it as the equivalent of giving a kid in the backseat of the car a plastic steering wheel when you're driving.

So he feels like he's doing something, but it really actually isn't doing anything. For those who don't know, one goal of the Fed would be to pump money into the economy and drive down. interest rates basically to stimulate borrowing. But interest rates are already pretty low. We've learned from Japan that just having lower rates when they're already low to begin with doesn't necessarily help. So I don't know that's what we need right now. Charlie, what do you think? Yeah, and on top of the questionability of whether or not it actually works, there's also a lot of unintended consequences that you have to worry about, the potential for

higher inflation in the future. There's also ripple effects through other economies throughout the world. Brazil in particular has been, especially vocal about not liking the Fed's actions because it causes money to flow in their economy and causes it to overheat. So, yeah, I'm very skeptical, like James, of quantitative easing. Joe, they did say in the minutes that the word that was used was substantial. They're considering a substantial round of bond buying. Well, that sounds substantial. QE's, to me, are kind of like the dream team at this point. The first one was huge, and everybody really cared about it.

The Olympic basketball team? Yeah, yeah. And then the second one, we still cared. about it. Now we're like talking about it as if it's a thing that we're expecting every couple years. This is definitely not something I'd like us to see pull out unless it's a matter of last resort. James, what should investors look for next? Is it the next jobs report that comes out in early September? Actually, yes. Jobs are something that's real. It's tangible stuff. Nobody disputes the power of employment. That's what's going to pull our economy back. The Federal Reserve also announced this week that it has sold the last of its investments related

to the AIG bailout. And Joe, sold at a profit of nearly $18 billion. Yes. They know how to invest over there. Oh, they do. I'm going to talk out both sides of my mouth after criticizing bailouts and say this one was a success. In AIG's case, this is a good example of the government getting involved. And instead of just writing a company a blank check, coming in and being assertive about taking ownership of the business, having control. And what's happened is Bob Ben-Moucher has come in and done an amazing job of streamlining AIG. He's sold off 95% of derivatives book that blew them up. So there are a lot fewer skeletons in the closet

than there used to be. Overall, it's a much simpler, more profitable business. And it's great that the company was able to avoid imploding and the Uncle Sam's actually going to walk away with the profits. So, Joe, how much of a success can we declare, given that this is a probabilistic situation? In other words, we didn't have this guaranteed outcome at the beginning. The government could have made a profit on cocaine smuggling, right? But they didn't do that. Just because they happen to make money doesn't necessarily make it okay. You and your questions. No, I think that's totally valid.

I mean, you look at GM as the other example where they took a somewhat similar tact, although I would say a less capitalist approach with GM, and it hasn't worked out very well. So it's definitely, you know, maybe a little unfair to say that AIG, you know, validates bailouts. But I do think at least it is a good example of how when done right and thoughtfully in terms of a capitalist framework instead of just a welfare blank check, that it's at least a better process. So, when the government makes money on something like this, should we all expect rebate checks next spring? Well, cut me some slack.

I didn't implode AIG. I just think it's a step in the right direction for bailouts. Better than not in making a profit, right? Yeah, right. Yeah, let's celebrate that. All right, Joe, let's just wrap up on the stock itself. AIG is a stock that you've recommended. I have.

What do you think of the valuation? I love it. It's selling it a 40% discount to book value, and the company is aggressively buying back shares that the government's selling. It's a very good deal when you can buy a dollar or a dollar of equity for 60 cents. And I think they're going to keep that up, and shares should do nicely. We haven't wrapped up August, but Wall Street is already looking ahead to September, and particularly the events that some of the tech giants have lined up to unveil new products. Both Google and

Microsoft have events planned on September 5th. Amazon has one on September 6th, and Apple reportedly is planning an event for September 12th. And, Charlie, there's a lot here. Let's start chronologically, you've got Google and Microsoft, and presumably we're expecting new phones, right? We're expecting a new phone from Google and Microsoft. This is going to be maybe the new Windows 8 phone? That's correct, Chris. Yeah, so first up, Microsoft and Nokia are going to have a joint practice conference on September 5th. They are going to be discussing the Windows 8 Lumia phones. The rumor is there's going to be two of these phones on AT&T domestically, and we'll see how well that works. I would say the first Lumia phone that came out in Nokia earlier this year was well-reviewed but

sold poorly. So this time around, we'll see if they can do a little bit better on the marketing side, but they do have their work cut out for them. Also, on the same day, you know, Motorola wasn't going to let them steal the spotlight, and so they have a joint press conference with Verizon later that afternoon. The expectation there is that there will be a new droid phone coming out, and they're talking about putting a high-definition screen on it. It's so petty, though, isn't it? A little bit.

Yeah, totally. And Motorola, which was acquired by Google, this is an interesting situation. Samsung is far and away the best Android's handset manufacturer, and we'll see what Motorola does in-house. I don't know. I mean, you use the word petty. I kind of like the gamesmanship. I love it. I kind of like that Google's saying, nope, we're not going to let you have the day to your

yourself and we're going to have our own event. We're going to have a high school reunion in here, so I don't know what it is. But ultimately, they're both trying to get a head start on Apple, because that is certainly the big announcement next month. The iPhone 4S was released in October of last year. They sold a whopping 37 million of them that quarter. I would say the expectations for the iPhone 5 are sky high, and Google and Microsoft want to try and get ahead of that a little bit.

And Joe, we've also got Amazon and the expectation. in anyway is that we're going to see new versions of the Kindle, the new versions of the Kindle fire. But, I mean, what about that? When you look at, you sort of step back and you look at these four companies, they've all got something riding on this. Who do you think has the most pressure on them? Because it seems like we've been hearing about the iPhone 5 for a very long time. And I certainly wouldn't bet against Apple, but it almost seems like they kind of need to crush this one. Yeah, definitely Apple. I mean, the iPhone is a much bigger makeup of sales. you know, any of the other stories that we're talking about. It's a huge deal for them. It's their main driver of profits. And I think investors will probably be happy with the results. They're going to sell, you know, countless millions of them. But, you know, consumers might be a little disappointed because I think what you're going to see is just incrementalism with phones going forward where it's going to be a little bit thinner, a little bit faster. And that's great. But it's going to be similar to PCs where they just keep getting only incrementally better instead of these massive step changes that we saw earlier.

So, Joe, I'm a Luddite, and I only have a cell phone because my wife gives me her hand-me-down. So I've missed the iPhone, one, two, three, four, and four S. You're saying I should not run out and buy the five? Well, I think if you don't have a smartphone yet, you should go ahead and make that upgrade now. It will change your life. I'm sure it'll be a wonderful phone. I'm just saying that, you know, the buzz, just like the dream teams, as you keep going along, each one gets a little more.

Yeah, okay, we got it. Charlie, what do you think? Who has the most pressure of these four companies? I mean, we just talked about Apple, but on the other. hand, you know, anytime you mention Nokia, you know, it's almost like we all sort of wince in this room because that's a company that has struggled for a long time. Yeah, their old symbion operating system was massively obsolete and they hitched their wagon to Windows, which was not a successful platform in mobile. So you have two companies struggling in

mobile trying to make a go of it. And this is really their last ditch effort. And we'll see what happens. But Apple, you know, when you're in a situation where the bar is just miles off the floor. They really got to hit that. And because of what Joe is mentioned about how much of their profits are tied to its success, I do agree. I think they'll sell a ton of them, but they've got very, very good competitors trying to catch up. In terms of these four stocks, is any one of these events likely to move the needle significantly for any one of these stocks? What do you think? I would say Nokia stock has been absolutely destroyed. If they come up with a phone that people are like, Wow, this is really strong.

That's the one that could rebound. The other ones are just too big and diversified. Joe, you agree with that? I think a Kindle Fire, too, that gets great reviews and comes out an aggressive price point would move the needle for Amazon. James? I'm with Charlie. Everything's been – Nokia has just been a disaster, so it has nowhere to go but up, but I still wouldn't hold it long term. Nowhere to go, but up.

Or to zero. Dangerous words. You're right. Yeah. If anything happens, good. Coming up, Best Buy's got 99 problems, but a new CEO ain't one. More after this, you're listening to 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're here. Welcome back to the show. Chris Hill here in the studio with Joe Maker, James Early, and Charlie Travers. And, guys, it was a rough week for a couple of PC makers. Dell and Hewlett-Packard both reporting weak earnings and shares of both down about 8 to 10 percent as a result. Joe Maker, what is this story here? Well, both Dell and HP are trying to refashion themselves and do little IBMs.

The reason they're doing that, though, is because they're getting killed on the consumer PC side. People aren't buying PCs as regularly as they used to, so the refresh cycle is lengthening. There's a lot more competition coming online from foreign manufacturers and iPads. A lot of people are just, maybe you've heard of them, but a lot of people are realizing, you know, I don't need a clunky PC that takes a long time to boot up and breaks down on me regularly when I could just get an iPad, check the internet, watch movies, and do that really easily. And so they're losing a lot of share there. And I think you're going to see the PC market stagnant for a long time. And, you know, those two guys are going to keep losing share and just keep scrambling to develop a model that works for them. In 10 years, does anybody even know what a PC is, Joe?

I would say yes, but I do think there's going to be a continuing market for PCs on the enterprise side, but they're definitely become much less relevant. When you look at these two companies, is one of them in better shape than the other, or are they both sort of struggling at the same rate? Well, if I had to choose, I would go with Dell, which I think is further along the continuum of death on the consumer PC side and has made good progress on services and also does not have Meg Whitman running at that. Eventful week for Best Buy on Monday.

retailer announced the hiring of a new CEO, Hubert Jolie, previously the CEO of Carlson, which is the hospitality conglomerate that owns Radisson and TGI Fridays, among others. Later in the week, shares at Best Buy hit a nine-year low after quarterly earnings came in way below expectations. Charlie Travers, what do you think? It's an ugly situation, Chris. I'm bearish on big box retail in general. Best Buy is really the poster child for that. I think the stores are too big. They have too much square footage. It's an anchor around their neck. And they're just getting their lunch eaten by companies like Amazon, where it's cheaper and more convenient for consumers. And you see that in Best Buy's

results. Their revenue is down 3%. Their same store sales is falling. And their earnings were cut in half. Yeah, it's just bad across the board. They pulled their guidance for the year. They stopped buying back their shares because they want to let Hubert come in and come up with his own plan. They did say they're going to do free cash flow. of at least 1.2 billion this year. That is a significant number, especially against a market cap of only $6 billion. So if you don't think Best Buy is going to die and you think there's a place for them in consumer electronics retailing, the stock could be worth a look, but personally, I'm not coming in.

And they're paying this guy $20 million signing bonus. And then if you can't get a work visa, he still gets 6.7. 6.7. Yeah, I was going to say, our colleague, Alice Lomax wrote a great article on Fool.com. This guy's got a three-year, $32 million package if he hits all his incentives and only 10% of his package is tied to performance. This is insane. Well, that tells you how little confidence he has in the ability to turn this around. I'll run best buy into the ground for a lot cheaper than that. Right. Shares of Green Mountain coffee roasters have fallen more than 70% over the past year. This week, the company announced a new product. Lemonade. Yes, guys,

just in time for the end of summer, you can now have lemonade in your cake cup packs. I don't No, is this an act of desperation? Is this? I think it's a logical extension of the brand for them. You know, I think the next step is using your curig as a paperweight. Well, your lemonade might actually taste better with coffee residue. It may be true. I don't know. Well, in all seriousness, I mean, is this the path forward for this company to diversify into, is to basically say, hey, look, you can make any kind of drink you want in a corig machine, not just coffee? It's a hell, Mary. They don't have much to lose, you know, by doing this. Might as well try something. At least they could be doing something worse. They're not doing a dumb acquisition. They're just doing a dumb product.

I would love them, and I would give them anything if they bring in Robert Plant as the pitchman for the lemonade on the currig. Speaking of Hail Mary's, just in time for college football season, Kellogg's has unveiled college-themed Pop-Tarts to roll out early next month. The universities of North Carolina, Florida, Georgia, Michigan, and Arkansas are the participating schools. and the logos of those schools will be embossed on the frosting of the Pop-Tarts. And James Verley, I'm just going to say right now, the word I'm going to use here is genius. I think this is a genius move. Well, Chris, my son is three, but you know he's going to be a bariatric surgeon already. I mean, he's going to like it, too.

Before I let this one slide by, the press release was full of the healthy treat, healthy. I don't know what is remotely healthy about Pop-Tart. It's a sugary gloop in case with bleached refined flour. I believe they have to be. a plastic-like sugary coating again, right? I believe they have eight essential vitamins. Probably added in some unabsorable form by the human body. But, I mean, it's obviously disgusting, but I think it is a brilliant marketing idea. I do. Joe, you're a... I like Pop-Tarts. And you're a proud graduate of the University of Georgia. Go dogs. Go dogs. So you're...

Can we expect to see these on your desk? No, I'm not, I'm not supportive of this. The bulldog... Support of. That sounds so emotional. I know. Well, the bulldog berry doesn't make any sense. Berries aren't popular in Georgia. That's the flavor of the university? The flavor of the Georgia one, I think bourbon would have been a lot more reasonable or Coca-Cola, something along those lines. All right, let us wrap up with the stocks that are on our radar. And Charlie Travers, we'll start with you. What do you got? Shares of coach are down 30% from this spring. This is a luxury brand maker. They sell handbags for women, for example. And, you know, they're expanding into China in a very big way. And just now getting their toes into Europe. They have no presence in that market. at all. So I view this company as a brand story with a long growth runway, and now that

the shares have dropped, it's trading at just 15 times earning. So it looks pretty interesting to me. We had talked recently about the luxury stocks, Coach Tiffany and Burberry, et cetera. And it seems like after a pretty good ride for a couple of years, some of them are struggling. You mentioned coaches' shares being down. When you look at the management of this company, which is something we like to look at the Motley Fool, is that part of what gives you confidence, or is this purely about the valuation? No, you do need good management and retail.

It is a brutally competitive industry, and you need people like the leaders at coach who are smart about how they grow overseas, and they've done a great job. And the ticker symbol? COH. James Early, your stock this week? Chris, I've looking at Safeway.

The ticker is SWY. This is the supermarket with Middle Child Syndrome. The stock has dropped like a brick over the past 10 years. Pay is 5% yield, but it's in between. It's in between Whole Foods and the gourmet markets on the upper end, and you've got like the super value type shopper, warehouse in the lower end. So who wants Safeway? Well, nobody, unfortunately. So this is one that I would avoid. It might be a great short-term value play, but it's not a stock, I believe, in long term.

So this is the rare reversal. It's on your radar to avoidance. For the wrong reasons, yes. And the ticker symbol one more time? S-W-Y. S-W-Y. I'm glad I'm not a middle child. Joe, you get to wrap it up. Yeah, automatic data processing. It's a nation's biggest payroll processor. They process about one and six payroll checks in the U.S. Pail processing is a really boring business, but incredibly profitable. They take a rip on each check they process. It's not the cheapest stock in

the world, but it's a great defensive holding with a nice dividend and incredible balance sheet. And the ticker symbol? ADP. ADP. All right. Joe Maeger, James Early, Charlie Travers. Guys, thanks very much. Thank you, Chris. Coming up, we are going to dip into the audio archives for a conversation with Charles Duhigg. He's the award-winning writer for the New York Times and also the author of the bestselling book, The Power of Habit. Stay right here. You're listening to Motley Full Money. Welcome back to Motley Fool Money. I'm Chris Hill. Now, everybody has habits, but how much are companies trying to profit off of our habits?

Charles Duhigg is an award-winning investigative reporter for the New York Times, and he's the author of the new book, The Power of Habit, Why We Do, What We Do in Life and Business. Charles, thanks for being here. Thank you so much for having me. This is your first book. Why did you choose this topic? for your first book? Well, I got interested in this about eight years ago when I was a reporter in Iraq. And I met this army major down in a city named Kufa, who his assignment had been to stop riots in the

city. And so what he did is he took out all the kebab sellers from the plazas. And the riots ceased immediately because people would get hungry and go home. And I asked him, how did you know him to do this? And he said, oh, the military is like this giant habit machine. And this just got me fascinated in it. And once I came back, I realized how much habits have to do with businesses and companies and organizations, and it just totally captivated me. So, obviously, as a show that focuses on business and investing, I'm particularly interested in the habits that you point to in your book as they relate to business. So let's touch on a couple of the examples in your book, and the one that is getting all the headlines is

this story that Target knew that an 18-year-old girl was pregnant before her own father did. Right. How does something like that even happen? So Target has this very, very sophisticated division that looks at shopping habits. And it's not just Target. It's almost every major company at this point, although Target's among the best at this. And they can actually figure out from your shopping habits if you're pregnant, if you're going through a divorce, if you're buying a new house.

They are looking for these moments in your life when all of a sudden everything is kind of changing because they know at those moments your habits are particularly flexible and they can get you to buy new stuff. and one of the comments you make is that pregnant women are the holy grail. I'm assuming that's for any business, not just Target, but why is that? It's because when you're when you have a new baby or you're pregnant, you're exhausted, right? Like most people go to five or six different stores to buy all the stuff they need, but Target sells everything. And so they know that if they can get a pregnant woman in there to buy her diapers and formula,

they can get her to start buying her cleaning supplies and her clothes. and her clothes and her lawn furniture, everything, because if you have a new infant, you are exhausted. All that you want is to go home and fall asleep. So Target wants to get at you before everyone else when they know that a baby is on the way. Well, I think sort of the average consumer is used to the basic proposition of going to a store, that stores are collecting information on you, and that certainly in the case of grocery stores, you're getting discounts, you're getting coupons of the things that you buy. But how does a company like Target walk the fine line between offering discounts, sending coupons out to entice pregnant women into the store without, for lack of a better word, creeping them out?

This is the biggest problem Target has, right? They actually, when they sent out these ads at first to women that they knew were pregnant, They would send them all the baby stuff, and the women would just get completely freaked out. They wouldn't come into the store because it was obvious Target knew they were pregnant, and they had never told them. So one of the executives said, let's try an experiment. And he sent out a small number of ads flyers that had like coupons for diapers right next to a lawnmower, and then coupons for formula right next to wine glasses.

So that to the average of viewer, it looked like the baby ads were all random. And it worked with the women who, got those ads in the mail, looked at them and said, oh, everyone else on the same block must have gotten the same ad. And I need these coupons for diapers and formula, and they came in and used them. So Target had to camouflage what it knew. And if your kid, let's be honest, if your kid is drinking baby formula out of a wine glass, then there are other issues going on. Then that's an interesting household.

One of the other companies you profile Procter & Gamble, which is a company that we talk about frequently on our show, and Fabriz, which is now a billion-dollar product for Procter & Gamble, but early on, that was really a product that P&G was struggling with. In fact, it was such a failure that P&G was thinking of canceling it altogether. But some of the marketers figured out that they could create a Fabriz habit. And we go into exactly how this happens in the book. They piggybacked on existing cleaning habits. And by doing so, they suddenly got mainly housewives who buy Fabriz to start using this stuff

by adding more perfume into the formula. So that at the end of a cleaning ritual, someone would look at a clean carpet or a freshly made bed and spray Fabriz to make things smell as good as they looked. And all of a sudden, Fabriz went from a huge flop into selling $200 million worth of product in its first year and it's now billion dollars a year. It's one of the biggest products in Fabriz in Procter & Gamble's arsenal. One of the other products, which frankly, I wasn't even aware, was still being made, is Pepsident. And the reason I thought that is because it's no longer sold here in the United States.

How did Pepsident revolutionize the world of toothpaste? So, 100 years ago, almost no one in the United States brushed their teeth. It was basically something that, like, rich people did once a week. And it was such a big deal. It was kind of a status thing, right? And it was such a big deal that in World War I, when they were recruiting troops, The military actually said that dental hygiene was a national security risk because so many soldiers had rotting teeth. And nobody could solve this problem until this marketer named Claude C. Hopkins, who's totally forgotten today, but was kind of famous 100 years ago,

until he decided that he was going to take on Pepsident in exchange for a bunch of stock in the company. And what he did was he created a habit around it. He created every habit has three parts. There's a cue, a routine, and a reward. He found this cue, the film on people's teeth, right? If you run your tongue over your teeth, you feel that film. Nobody had ever minded it before, but Hopkins taught people, that's bad. If you feel that, you've got to brush your teeth.

But most importantly, he delivered a reward. In Pepsident, were these chemicals that made people's gums tingle. And it's probably still true today, right? When you brush your teeth, I'm sure your gums and tongue tingle afterwards. Oh, sure. Once a week when I brush my teeth. Right, exactly, whether your teeth need it or not, once a week. that reward revolutionized toothpaste and it revolutionized toothbrushing because suddenly people started

feeling like their mouth wasn't clean if they didn't have tingling gums when they walked out the door or went to bed and that made it a habit that was enough of a reward to spur this daily pattern of behavior and in fact right even today toothpaste companies add a chemical to make your gums tingle that have nothing to do with cleaning your teeth it's just to create a daily habit you're listening to Motley Full Money talking with Charles Duhigg, author of the new book, The Power of Habit, why we do, what we do in life and business. There are other companies that are trying to sort of tap into that tingly feeling that Pepsident did. And one of the things you write about is sunscreen, how we aren't using, I'm certainly, a pale Irish guy like me is certainly not

using enough sunscreen on a daily basis as I should be. Am I just missing the tingle? That's exactly it. There's no reward for sunscreen. So when you think about it, it's crazy that everyone brushes their teeth. No one dies from having unclean teeth, but lots of people die from skin cancer every year. So why does everyone brush their teeth every day? But people will put on sunscreen every day. Because we know doctors tell us we could eradicate skin cancer if we all put on sunscreen.

The reason why is because they haven't figured out some reward that sunscreen delivers so that when you put it on, It feels like you've done something good. And if you forget to put it on, there's something that reminds you. They've tried to make it tingle, but some people's skin is too sensitive. So they keep on looking for some reward that will trigger a daily sunscreen habit. They say they're close. What are some of the other products that companies are tweaking in the hope that we're going to change our habits? Well, one of the most interesting is actually cigarettes, right?

So most people think about cigarettes as being addictive, something you don't even have to sell as a habit. But it turns out that a lot of people who start smoking can put down cigarettes on their own by sort of diagnosing their own habits and trying to cure themselves. So some cigarette companies actually vary the level of nicotine in cigarettes so that it delivers more of a reward and less of a reward because we know that intermittent rewards are the most powerful kind. We actually know this primarily because of slot machines and video games. The video game industry has been overhauled by the science of habit formation.

Now, when you play a video game, every reward you get is specifically designed to make that game habit forming. And it works. That's why you have this urge. As soon as you get one badge, you want to get the next one. Everywhere you look, you can actually see rewards that are trying to create habits in our lives. What surprised you the most when you were working on this book? What surprised me the most is how malleable habits are. I think most people are programmed to think about habits as something that we're kind of powerless over, right?

Like, when you pass that box of donuts, it feels so compelling. And you say to yourself, I'm a successful person. Why can't I just ignore the donuts? It turns out in the last decade, what we've learned in neurology laboratories has completely transformed our understanding of habits. And we now know how to change them. We know how to create new habits. We know how to break old habits.

In labs, they can actually do this, almost like flicking a switch. There's people who give up cigarettes and lose 30 pounds and companies that completely transform themselves. And it's because they target their habits. We're not prisoner to them. We know how to change them now. So what's the key to changing your habits? The key to changing your habits is understanding this habit loop, that every habit has a cue, a routine, and a reward. And most people, when they think about habits, they focus on the behavior, the routine. But that cue and that reward is really, really important because that's how you influence the behavior. I kind of have like a personal example if it's interesting to you.

That was going to be my next question. What if any habits of your own change? So there's a lot of half. I've actually lost 21 pounds in writing this book, which is great for it. I had 21 to lose. So it was a big, it's nice to do. And I had this bad habit when I started working on the book that every afternoon I would go up and I would get a cookie from the cafeteria and I would chat with my colleagues.

And this would drive me crazy. So every time I was talking to a psychologist, I would ask them at the end of the interview. So how can I change my habit? And what they said was, you have to diagnose the cue and the reward and then shoehorn in a new behavior. So I started paying attention, and I realized that every time I had a cookie urge, it was usually between 315 and 3.45 in the afternoon. And then I did some experiments.

Rather than getting a cookie one day, I got a candy bar. Then the next day, I just got some hot tea. And one day, instead of going to the cafeteria, took a walk around the block. And what I figured out is that the reason why, I got a little bit of the coffee, why I craved that cookie was because it gave me an opportunity to socialize with my colleagues. The cookie was just a convenient excuse. Once I had diagnosed the cue and the reward, I could change the habit. And now at about 3.30 every day, I look around the newsroom because I work at the New York Times. I find someone to go gossip with. I gossip with them for 10 minutes, and then I go back to

my desk. And the cookie urge is gone. But I would have only known how to change that habit by figuring out the cue and the reward. And that's kind of the, it gets a little bit more complicated. In my book, I go into all the details of how to diagnose the cue and reward and how to change them. But that's kind of the lesson here is that you can change any of them once you figure out how the habit works. The book is the power of habit, why we do, what we do in life and business. It is on sale now, in bookstores, on Amazon, on Barnes & Noble.com. Charles Duhigg of the New York Times. Thanks so much for being here. Thank you for having me. Coming up, financial tips from retirement expert Robert Brokamp. Don't go anywhere. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. For many investors, one of the big financial goals is having enough money to retire on. And here to talk us through a few of the key topics is the Motley Fool's resident retirement expert, Robert Brokamp. Robert, good to see you. Thank you, Chris. Great to be here.

back on the studio. Let's talk 401 plans, because that is a key for a lot of people. And there are some new regulations requiring better disclosure about the fees with the 401K plans. First, what is that going to mean for the average person? Well, most people don't know that they're actually paying fees. There was a survey from AARP that found that 71 percent of people thought they weren't paying anything for their 401K. But that's not true. In fact, there are expenses associated with it. And the vast majority of those expenses are usually covered by important. employees. How are they covered? Well, it's basically just taken out of your account directly

or by higher expense ratios within the mutual funds that you have in your account. But most people don't know that. So, thanks to new regulations that are coming out, later this year, your account statement will show exactly how much you are paying for your 401K. And I think for at least some people, they're going to realize that their 401k plan kind of stinks, which is something you captured in an article brilliantly entitled, Your 401k plan stinks. Here's what to do about it. It's true. And it stinks for a couple of reasons. First of all, those expenses. And you might say, well, my expenses aren't that high. Maybe you're paying $300,500 a year. But compounded over your lifetime, depending on how you calculate that,

it can cost you up to a third of the value of your account that you've handed over to Wall Street. The other reason that they stink is the funds within the 401Ks tend to be not very good. Why? Because they're higher expense. And frankly, they're often chosen by the human resources people. Wonderful people, love HR people. They're not necessarily investing experts. So they will defer to the plan provider who then choose funds based on how much money they can get or how much they, you know, the expenses they can save themselves by putting these funds within the plan. So you wake up, you find out your 401K plan stinks. What are one or two things that the average person can do about it once they realize that? Well, the first thing is, fortunately, about a third of 401K plans

have what they call a side brokerage account. So it allows you to open up a little separate account and you can buy individual stocks, exchange-traded funds, probably a choice of thousands of other mutual funds. So if you don't like the funds within your 401K, you can choose these other investments. Also, every company has a group of people that choose the 401k and manage it and choose the investments. They might be called the 401k committee or it might be just the HR department. You can go to them and say, listen, this is your 401k as well. This is your retirement on the line. What can we do to improve this plan? Now, you've also written recently about a stat regarding 401K plans,

which is that on average, women have about 40% less in their 401k plan than men do, which obviously means that it's going to be tougher for women to save for retirement. What are some things that women can do about that? Right. And that in general, retirement planning is a greater challenge for women and for several reasons. First of all, we all know that on average women, earn less than men, about 80% of what a man does. Also, on average, a woman spends 12 years out of the workforce, mostly take care of kids, but it might also be taking care of older relatives.

So you put those together, and you can see why they're going to have a smaller 401K. And on top of that, that when you look at retirement, retirement lasts from the day you quit to the day you die. Women live, on average, longer, yet they also retire earlier. Why are they retiring earlier? Well, on average, a wife is younger than the husband. The husband wants to retire, so the wife retires too. But then she's going to live longer. So she's going to have a longer retirement. So she has to worry about her money lasting longer.

So a couple of things that the average woman out there can do to maybe do a better job of saving for retirement? Well, first of all, don't retire just because the husband is retiring. Do your own analysis and say, okay, if something happens to my husband, if my husband passes away, will I still have enough money to be retired and be safe and secure? Also, many studies show that on average financial literacy is lower for women and that they defer the financial planning to the husband. This is partially generational issue. It's much more of an issue for my mom who's in her 70s than younger women,

but it's still an issue. So take control of your own finances, know what's going on with the financial planning. So if something happens to your husband, then you can take over. And the reverse is true, of course, too. there are plenty of situations where the wife is doing all this, both members of the couple should be aware of what's going on and can handle things. Now, you manage the service we have here at the Motley Fool called Rule Your Retirement, which involves research, you're doing a fair amount of writing.

You're also on the discussion boards online answering questions from sort of running the gamut of retirement issues. What's a common question that you're getting these days about retirement and retirement planning? Well, when people think of retiring, they think of, well, I got to be a little more conservative with my investment. Got to get safe. It's safe. So what's the safe investment? Well, it's bonds, right?

But people are really worried about bonds now, and they should be. Interest rates are at decades-long lows. And when interest rates go up, as they eventually will, the value of existing bonds go down. So people are questioning, are bonds really safe after all? And it's a good point. So the advice is, for money you need in the next one day, to five years, consider cash short-term bonds because they won't drop as much when rates go up, or even old-fashioned CDs. That way, you know the money is safe. For longer-term money,

bonds are not as attractive as they used to be. They sure aren't. They aren't. So that you might consider taking some of your bond portfolio and investing in safe, blue-chip, dividend-paying stocks. Now, I say that with a little trepidation because even dividend-paying stocks can drop 30, 40 percent. Whereas bonds, at least when the market drops, you know that that money is still going to be there. So you've got to, it's a trade-off in risk versus reward. But the other risk of just owning bonds is that your money is not going to keep up with inflation, whereas on average, dividends from stocks keep up with inflation and actually exceed it. So you've got to decide which of those risks are more important to you.

He is a certified financial planner. He runs the Rule Your Retirement Service, and he is our resident expert here at the Motley Fool, Robert Brokamp. Thanks so much for being here. Always a pleasure. That's it for this week. You know, you can follow us on Twitter at Motley Fool Money, all one word. You can also check out our articles, hundreds of articles from our analysts and advisors during the week. Just go to fool.com.

That's fool.com. Steve Brodo and Matt Greer are taking much-deserved vacations this week. So, big thanks to Rick Engdahl for working his production magic on the show. I'm Chris Hill. Thanks for listening. We'll see you next week.