Motley Fool Money - Motley Fool Money: 10.31.2014

Episode Date: October 31, 2014

On this week's show, our analysts discuss earnings news from Facebook, GoPro, LinkedIn, MasterCard, and Starbucks. And Lawrence Cunningham talks about his new book, Berkshire Beyond Buffett: The Enduring Value of Values. Learn more about your ad choices. Visit megaphone.fm/adchoices

If you're a small business owner, you already know what it takes to keep everything moving. You're juggling customers, invoices, and about 100 decisions every day. Thankfully, taxes don't have to be one more thing on that list. With Intuit TurboTax, you can get your business taxes done for you with a full service expert. TurboTax matches you with your dedicated tax expert. Who knows your industry understands your business write-offs and gives you the personalized advice your business deserves. upload your documents right in the app, hand everything off, and still feel like you're in the loop the whole way through. You can even get real-time updates on your expert's progress right in the

app, 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 Radio Show. It's the Motley Fool Money Radio Show. I'm Chris Hilton joining me in studio this week.

From Motley Fool 1, Jason Moser, from Motley Fool Pro and Options, Jeff Fisher, and from Motley Fool Hidden Gems, Chief Investment Officer, Andy Cross. Good to see you, gentlemen. We've got the latest earnings from the restaurant industry, the financial service industry, and more. We will dip into the full mailbag. always, we'll give you an inside look at the stocks on our radar. But we begin this week with the social network, shares of Facebook down 6% on a combination of slower revenue growth and higher costs. And Jason, on the conference call, CEO Mark Zuckerberg talked about the opportunities,

particularly for WhatsApp, the mobile messaging company that Facebook bought. Analyst seemed a little bit more focused on the fact that WhatsApp costs $22 billion and has yet to produce a dime. I think we're all focused on that, Chris. I mean, that is definitely the low-hanging fruit, I think, where Facebook is concerned. But let's look at the quarter. By all metrics, it was a very strong quarter. Facebook continues to bring in just phenomenal numbers on every count. And I think that really the reaction we saw after hours, and it was very specific to something that was mentioned in the call, once they started talking about expenses ratcheting up next year, 45 to 50 percent, they're investing more in the business.

I think that we're seeing the short-term versus long-term sort of conundrum play out there because the short-term thinking is what, you know, dump the stock and tried to move to greener pastures. But, you know, Facebook is also an interesting situation because it's running into this sort of big numbers problem. And just to put some context around that, a better understanding, if you look at their mobile monthly active user growth, mobile monthly active users is a big metric and it's an important metric to judge the health of that business. look at the growth there, in the third quarter of 2012, that actually grew 61 percent, okay? In 2013, it grew only 45 percent. And this year, this quarter, it grew only 29 percent. So there is deceleration in that growth there. It's not necessarily that they're doing anything wrong, though. It's just because they're already so big. So I think that if you are a long-term investor, as we are here, obviously, the story is very much intact. The thesis is still very much intact. And I think there's still a lot of value yet to be created.

talk about that the too big to succeed or too big to fail kind of argument when we look at Facebook and other companies for the monthly full one. We think of that criteria. It's an important one for these large companies like Google, like Facebook, like Berkshire Hathaway, that have to invest this capital and get higher and higher returns at higher rates. When you're so large, that's difficult to do. And I'd say in the call, one thing I really appreciated seeing was Zuckerberg was very clear in calling out his three-year plan, his five-year plan, and his 10-year plan. So that's one of the benefits here of having sort of a young, tech-oriented founder leader here is he really is looking at this business, you know, through the lens of decades. And I think that investors

have to be encouraged by that. Yeah, he's great at that. He's very long-term thinking. And when they talk about expenses going up, like Jason mentioned, 50 percent possibly next year or more, it reminds me of Google in its first few years. And a lot of this expense is in headcount. Facebook is hiring a lot more people. So if you're looking for a gig, you know, head to Facebook. The good thing is at your you can be on Facebook all day. It's just part of the job. That's right. I think it's good that they're spending to grow.

Starbucks' fourth quarter profits rose more than 17%. It was a record quarter for revenue, Jeff. 19th straight quarter, sales have risen. And yet, despite all that, Wall Street seemed a little unimpressed. Just a little bit. They were a little shy of estimates, but I think it's still a good stock, still a good company to own for the long term. Starbucks is nearly as old as I am.

It was founded in 1971, and they grew sales 11% this year that's just wrapping up, and they're expected to grow 16 to 18% next year, including their Starbucks Japan acquisition, which they're buying back. And earnings should go up even more than that, 20%,ish. So this company is still growing sharply. Same store sales in the U.S. were up 5%, which was one percentage point shy of hopes, but still good. And two points of that was from food. So food is starting to get some traction. And Starbucks has a lot of fun things down the pipeline if you want to talk about that.

I was just going to say, what caught my eye as someone who can barely make it through the day without coffee, Howard Schultz talked about the second half of 2015, certain markets will be able to use the Starbucks mobile app to have food and coffee delivered. That's right. I'm in. Chris, you're never leaving the Motley Fool. I'm never leaving. You're never leaving your house. Yeah, delivery is starting next year in Key.

markets. They're also launching about a 100-store concept called Starbucks Reserve and the rotisserie, which is high-end coffee, very fine small batch coffee. Chicken, rotissory chicken? Roastery. Did I say rotisserie? Roastery, yes. Our shields with a spigot just turning the chicken. We're going to see the craft coffee movement, I think, here. I think for coffee snobs like us, that'll probably be very well received. They did do a little bit of this with one of their products that I just don't think really ever took off. I mean, they have some of those really high-end machines.

Oh, yeah. Yeah, that's true. And then they have T-Vanah going and more T-locations. So they have a lot of irons in the fire, and they added about 500 new stores this quarter. There's still have a lot of room to grow. Internationally, they're doing well, too. GoPro is the video camera popular with extreme sports fans. GoPro, the stock seems to be popular with investors, shares up more than 10% on Friday.

After third quarter profits came in higher than expected, and Andy, looking at head, they expect the holiday to be a pretty strong one for them too. Yeah, I think we need a GoPro camera here for the radio show just to catch us all in the action. I mean, like, Chris, really the most impressive thing is they, for the first time, for the very first quarter, outside of the fourth quarter, they sold more than a million units. And that's just impressive. It's up more than 25%. Growth margins are up from 33% to 44% up from 42% to 44% quarter over quarter.

sales growth up 45% up 15% quarter over quarter sequentially. So it's just this is really firing, I think, fast. I mean, the stock came out in the mid-20s and now it's just skyrocketed over a few months. The media ecosystem that GoPro is building is really starting to develop. They have all these uploads and all these viewership to Google, and that's growing. They have sponsorships and they have more and more products that seem to be doing really well and resonating with the customer. So certainly things are going very well for GoPro.

It also seems like this is the first year in a while where when people start talking about this time of year of the must-have holiday gadget, this is the first year in a while that I can remember that we're not talking about a gadget made by Apple. Yeah, last fourth quarter last year, they did almost 1.5 million units. And I think the whisper numbers will go up to 2 million units. And if they get past 2 million, which is a lot. I mean, that's significant growth. That will be substantial. And there certainly will be some whispers out there. there that they can do that. It is the hot new thing. It does sound like it's going to be the holiday gift to get. And if someone would have told me a couple years ago that a standalone video camera would be the hot new thing, I would have politely mocked them. I mean, who would have imagined? Politely. Twitter's third quarter revenue more than doubled from a year ago. That is where the good news appears to end, Jason, because shares down more than 15% this week. I guess we can't

have the World Cup every single quarter, can we? No, I guess not. But I think if you look through the release and the call and you weren't paying attention at all to what the stock was doing, either aftermarket or the next day, I think that you would have looked at this and said, hey, that's a pretty good quarter. I mean, they met on the numbers there, guided to within range that was within the expected range to begin with. And so I think that really, you know, Twitter is facing a number of question marks. And I think that's probably the biggest problem with this, with this, the perception of the stock today in the market is, you know, there is just a lot of uncertainty out there as to what Twitter actually is how it's being measured, you know, what kind of opportunity is still out there. But, you know, I have to kind of laugh at these people with the concern of slowing growth. I mean, perhaps growth is slowing down somewhat. I don't think there's any kind of a trend really there that you can establish.

And just to give you an idea of their numbers versus something like Facebook. And Facebook is obviously bigger, so their growth should be slower. But Twitter monthly active users are up 23% year over year. Facebook was 14%. Quarterly revenue was up 114% year over year. Facebook was 59%. So to sit there and say that Twitter's not growing is, I think, a silly statement, honestly. But, I mean, there are questions as far as how they're going to continue to grow.

And I think the bigger questions that the market is concerned with today is, how are we going to measure that? How do we understand how this company is succeeding? And when you see the shakeup in the board room and with management, leadership there like we've seen, I think those questions are certainly very valid. By the same token, I think, you know, we've seen something that sort of flew under the radar. This alliance with IBM, I think is going to be very interesting. I think it validates the power of these social platforms and the data that something like Twitter can generate. So, again, I mean, as a shareholder in Twitter, I felt very good about the quarter. I think that when you see dips like this,

if you're interested in owning the shares, these are the times to buy when the pessimism is really high. Do you think Dick Costello did a good enough job managing expectations? And he seems like someone who is very smart in a lot of ways. But I just feel like when they surprised people the last quarter with something that was really fueled by the World Cup and all the activity around that, I think if I were Dick Costello, I would have spent the last three months just reminding analysts, hey, look, we don't have the World Cup this quarter. This quarter is just not going to be as impressive as you might think. Yeah, I think maybe he downplayed the importance of the World Cup. little bit last quarter, and you could see him do that this quarter as well. And so for me, I think I would have rather seen him acknowledge the significance of the event and the significance of future

events, because I think that Twitter certainly benefits tremendously from these events. You're going to see them play a big part of these coming election cycles as well. They just introduced this new election dashboard. So wherever you live, you can find all this information in the tweets that are going on with the candidates. And so I think, again, it's a very relevant, powerful communication platform, certainly management is getting its footing, learning sort of how to behave as a public company. I'm still very encouraged with the future. Coming up, the battle for your wallet is escalating quickly. Stay right here. You're listening to Motley Full Money.

Welcome back to Motley Full Money. Chris Hill here in studio with Jason Moser, Jeff Fisher, and Andy Cross. Visa and MasterCard delivered blowout earnings reports this week. Quarterly profits for both came in higher than expected and shares of both companies up more than 10% this week. And, Jeff, I know we pay a lot of attention to startup companies like Square when it comes to the payment industry, but Visa and MasterCard are just monsters. They're monsters, and they are still good investments today, I think. They have a long way to grow. Cash is still about 85% of the world's transactions. These companies are both growing sales around 10 to 13, 14% a year, even in a tepid environment. and their earnings are growing in the high teens year over year.

What's funny about the stocks going up so much this week is management at both companies is conservative and cautious about the world economy. They're saying we still haven't seen a resurgence in spending or consumers. There was a slight uptick in cross-border spending, which is important for these companies. They make more money when you go to a different country and spend because they make money on currency translations too. But overall, things are still tepid, and yet they're doing so well. two businesses. So when the economy picks up and spending picks up, the leverage returns these companies will make will be very strong. They could easily be growing above 20% a year again in a couple of years if the economy is stronger. So yeah, I like both stocks still. Well, and both stocks

had really trailed the market so far this year. So they had trailed the market. They've been flat for about a year. Yeah, I think the investors saw that performance and said, hey, good things are still happening at these two companies. It's not just startup companies like Square that are getting involved. Apple came out recently with Apple Pay. And, And just over the last few days, we've seen a little bit of a showdown where CVS and Rite Aid disabled the Apple Pay systems within their own locations across America because they're teaming up with the likes of Walmart and Target and Lowe's to build their own mobile payment system. I like the competition. You know me, Andy. I love to watch a good battle playing out in the business world.

But I'm wondering, how smart is it to go up against the biggest public company in the world? Well, that's a great question, Chris. We've seen this Home Depot paired together with PayPal, and they offered their system inside the Home Depot stores. So I think retailers are saying, listen, there's so much innovation going on in this kind of space that maybe we don't have to be beholden to such large players anymore, and we can go and partner with somebody else and build a better solution. Now, the question is, is that a good return on investment for shareholders and that has yet to be determined? Yeah, Walmart is so tired of giving one or two percent to Visa and MasterCard. I think anytime you take away choice from your customer, it's not a good thing. And I think the long run, they'll have to offer all sorts of payments. And it's interesting that Costco

partners with American Express for using American Express as in Costco. So you do see these unique partnerships with other players to help with the payment world. But on balance, I have to believe this is a win for the merchants themselves, just having the ability to have more choices and maybe not dictate terms to the payment companies, but at least have a little bit of a an option whereas a few years ago they didn't. Right. They had nothing. I mean, especially on the global scale. I mean, MasterCard and Visa are so such large players. True. And that's still true because they had, no one has the bank relationships, the networks that they have, the number of cards in circulation.

Credit cards are going to become credit codes, and I should trademark that right now. You're not going to have a card anymore. It's just a code. And they're going to win, I think. From the perspective of smaller businesses as well, I mean, having these options that can potentially bypass the card companies like Visa and MasterCard is attractive. It certainly brings the cost of business down for them. And I think, you know, you go into these small business today, I mean, just little, little mom-and-pop operations, and they'll have, you know, minimums where you have to buy that you can use your card. And, you know, if there are ways to get around that, whether it's currency or something else, you know, again, I think, yeah, more choices, obviously

better. Some social media stocks had a rough week, but LinkedIn was not one of them. Third quarter revenue grew 45%. They're growing in China, Jason, shares up more than 10% on Friday. Yeah, and everything that LinkedIn does, everything that they build, it's geared towards creating value for the professional and the professional network. And I think investors in LinkedIn should feel really, really good about what they're doing and the management team behind it all. I know I do. Unique visiting members grew 16%. Member page views grew 28%. So that's a great sign that engagement is still high, and I think that's always been a concern with LinkedIn is, you know, the engagement factor. How often do I really need to go there? Well, they're figuring out other ways to be

relevant in our lives. They've certainly opened up their publishing platform to more participants, providing more content. Typically, that's going to be, you know, pretty high value content because it's coming from professionals and experts in their respective fields. Very impressive the talent solution side of this business. I mean, this is really the moneymaker, and it's becoming a more significant part of the business as time goes on. A 60% of sales today, it was 57% in 2013 and 55% in 2012. This is a very, very sticky sort of offering. Once you get people in there buying those licenses,

and obviously our HR department uses LinkedIn as well, they find the value in that, and they can start incrementally raising prices as time goes on, which is extremely powerful. And then this new tool they've built Sales Navigator is going to be something that really, I think, empowers sales professionals. Sales is obviously a significant,

part of the U.S. economy. So, yeah, all signs point towards LinkedIn, really on message, and the stock continues to do well. Yeah, the sales navigators are a really interesting tool, potentially very disruptive for LinkedIn and for its members to really tap into a new marketplace that they haven't tapped into before. Absolutely. Third quarter results for Buffalo Wild Wings sure look good. Stock up 10% this week. And, Andy, we've talked before.

The whole concept of beer, wing wings and sports is a simple one. but boy, they do a great job of executing it. Yeah, they do, especially with so much, they're in-house experience, which now they've really improved that and they will continue to improve that. And Chris, they're also expanding. They partnered with a concept called Rusty Taco,

which is in Texas, Minnesota, and California. I wish we had some rusty tacos here to share tonight. And also Pizza Rev. So they really are starting to broaden out just beyond the wings, but so much of that quarter was great and they fought off rising chicken prices too. So they've really demonstrated the results for the consumer.

Let's bring in our man Steve Brodo from the other side of the glass. Steve, you go to Buffalo Wild Wings, they've got 21 different sauces ranging from sweet barbecue to blazon. And I'm quoting from the menu here. If you're ordering the blazon sauce, it says keep away from your eyes, pets, and children. Scale of 1 to 21. How hot do you like your wings? One, one, solid one. Not 21, just one.

Let's keep it melted. You're that risk averse when it comes to the spice. I don't like spicy. It's just too much to think about. So I'll volunteer that I've gone as high as the mango habanero, which is, I think, one or two away from the spiciest. And those things are dangerous. Drop us an email, Radio at Fool.com. How hot do you like your wings?

Up next, how will Berkshire Hathaway thrive when Warren Buffett is no longer there? Author Lawrence Cunningham talks about Berkshire Beyond Buffett. Stay right here. This is Motley Fool. There's a better way to borrow money. It's called prosper.com and it's turning the lending industry on its head. Barrow up to $35,000 at a low fixed rate without setting foot in a bank. To check your rate instantly, go to prosper.com slash fool and get a $50 visa gift card when you get a loan.

Prosper.com slash fool. Other restrictions apply. I see site for program visa prepaid card details. All personal loans are made by Web Bank, a Utah Chartered Industrial Bank member FDIC, Equal Opportunity Lender. Welcome back to Motley Full Money. I'm Chris Hill. Warren Buffett has said one of the things he likes to see in a company is a wide moat, a competitive advantage. And Buffett has built Berkshire Hathaway into a collection of more than 70 businesses protected by moats, which begs to question, what is Berkshire Hathaway's moat? And if Berkshire's biggest competitive advantage is Warren Buffett himself, what happens after he's gone? Lawrence Cunningham is a professor of law at George Washington University, and he tells him. He tells me. He's tackles these questions in his latest book, Berkshire Beyond Buffett, the enduring value of values. Lawrence, thanks so much for being here. It's a pleasure. Thank you.

What do you think is going to be the hardest part of Warren Buffett to replace at Berkshire Hathaway because he really is so much more than an investor for Berkshire Hathaway? Yeah, he's an investor and a manager and a cheerleader, and he has a bundle of qualities that are unique in a single individual and that complexity is why the succession plan calls for his job to be split three or four ways really uh someone to take charge of investments somebody in charge of acquisitions somebody chairing the board and then uh sort of a different group as as a shareholder um and yeah that i mean the part that's the hardest i mean they're all they're all tricky in in different ways and i hasten to add that it will be manageable people who there are people capable and to succeed and fill some very big shoes.

But probably that attitude, the attitude of value investor that he epitomizes, you know, that sort of dispassionate, very non-emotional, analytical capability, with the kind of the strongest suit that he has and the one that few of us, mortals have. So I think that's probably the trickiest thing. But as I say, not insurmountable. And there's a very deep bench ready to fill all of those various roles. And as you mentioned, there's various roles, investor, manager, cheerleader. The communications part is obviously very important. But let's not get ourselves. Warren Buffett, certainly in recent years, has been a successful investor, in part because he's been able to get terms from businesses that he's investing in that maybe the average investor couldn't.

And so I'm curious because, Lawrence, there's not a CEO in the world who, when they hear that Warren Buffett is on the phone waiting to talk to you, they're taking his call immediately. But I'm just curious if the next person is going to be able to get everybody to pick up the phone when it's time to make a deal. Yeah, probably there's a unique quality there. But the reasons Warren or Berkshire have been able to get those spectacular, one-off investments are only partly to do with Warren as a personality and a charismatic character. It's really the values that he stands for, that he's baked into Berkshire, which I chronicle in the book, which I think will survive him. Just to take two examples, one is the sense of permanence.

at Berkshire. It has never sold a subsidiary that it acquired in the past 40 years. So this is a signal of very patient capital, a commitment to buy and to be around until the end. And Warren has made that commitment, but now it's a part of Berkshire itself. And so that kind of commitment will probably survive him. And the second example is autonomy, that is Berkshire reposes trust and confidence in the managers of its subsidiaries, and of its investees for that matter, and lets them call their own shots and sing their own tunes. And so, take the 2008 crisis, for instance, when very many companies had a great need for urgent capital, they turned to Berkshire because they appreciated that they would provide permanent deferential capital. acquisitions in Bank of America, General Electric, Goldman Sachs, USG, and others, those very attractive terms were in large part due, these characteristic. Charlie Warren developed and nurtured them, but has now baked them in to the cold, even if he were not around, whichever one of the current operating managers had his job, so long as they understand those values and live by them.

You're listening to Motley Full Money talking with Lawrence Cunningham. his new book is Berkshire Beyond Buffett, the enduring value of values. Warren Buffett has mentioned that structurally, it's very difficult for most companies to become large, but at the same time, he believes Berkshire doesn't really have these problems. With that in mind, can Berkshire Hathaway become the first trillion-dollar company? That's a neat forecast. Yeah, one of the thoughts about Berkshire's ability to grow without being too cumbersome is its decentralized structure. That concept of autonomy I was referring to so that there is not a heavy bureaucracy at the top or at the center,

but instead a very horizontal structure. So a company with that degree of decentralization and that level of autonomous responsibility in the managers could be twice the size of Berkshire. It doesn't have that kind of built-in limitation that if one person in charge of everything is just impossible for one person to know all that's required. And so that's an important part of the Berkshire longevity. And could it become a trillion? I mean, there's no, I don't see any particular reason why. Why not? But I haven't really predicted how it would get there or how long it would take.

From a cultural standpoint, are there lessons that other businesses can borrow from Berkshire? or is the fact that it is this unique, decentralized collection of so many businesses? Does it make it maybe something to admire from a business standpoint, but there aren't really applicable lessons? Yeah, it's a really nice point. And I kind of bookend my book with those thoughts. Like the first sentence of my book is Berkshire Hathaway is an accident. So I was suggesting that it never had a strategic plan. It doesn't have a business plan.

And it has simply been accretive over a long creative time, and now it is this very substantial entity that I then explain is united by specific cultural traits. So at the end of the book, I'm able to step back and say, you know, I don't think that an entrepreneur getting going today would necessarily benefit from saying, I'm going to plan out to create a Berkshire Hathaway. My strategic plan is going to be to follow this. never but that said there are lessons from the specific companies within the firm the business challenges that people have faced um the entrepreneurial spirit that so many of the business founders and and leaders have demonstrated so it's not so much a you know let's replicate this this organization but let's be inspired and learn from the the cultural traits the corporate cultures that you see at all the individual subsidiaries that, you know, I explain amount to a conglomerate culture.

So it's not like a textbook or a blueprint, but rather a kind of a toolkit or a group of values that can be useful to different people in different settings. One of the biggest deals Berkshire Hathaway has been involved in over the last few years was the acquisition of Heinz, but that was done in conjunction with 3G. and given the result and given how well that has gone since the acquisition, I'm curious, what are the odds that the next CEO of Berkshire Hathaway is not one of the operators of the internal business? What are the odds that it comes from someone at 3G or any other external company? Well, it's certainly theoretically possible and operationally, strategically, and so on.

But what the board has said publicly is that they have identified a potential successor and that that person is currently working at Berkshire Hathaway. If I could take your question as a slightly different direction, I think the 3G in acquiring Hines can be a model for Berkshire acquisitions going forward. The nice thing about that transaction is that the businessmen and women at 3G did all of the homework that conducted the experience and figured out, well, this company, if redone in certain ways could be worth so much more. And then teed it up to Berkshire, no decision, on a 50-50 venture,

and one in which basically the option to buy the other half in about seven years if it likes what has happened and otherwise just to sit. So you have another firm doing a lot of the work, teeing it up and giving Berkshire an option. That's the kind of shy of other people teeing it up that way, but it would be very valuable and very beneficial for a successor to him as a new vehicle, a new pipeline through which attractive transactions are pitched to Berkshire. Last question, and then I'll let you go.

You've been writing about Warren Buffett for a long time. What is something that you appreciate about him now that you may not have appreciated as much when you first started writing about him? Well, that's a great question. And I do learn from him every other year. There's something new and spectacular. But I think one of the best lessons that he taught me was when I first compiled a collection of his letters to shareholders called The Essays of Warren Buffett Lessons for Corporate America.

And I provided an introduction. And it was a novel idea, interesting product. And the publishers in New York were all very eager to have, to publish that as a book. And really dined and wind me and encouraging me. I was very tempted to take it to them, and I asked Warren what he thought would it be okay and so on, and he said, look, you can do it every want.

But I discourage you from doing that. I think you ought to just publish it yourself. Just self-publish it. You don't need that infrastructure. You can do it on your own. And at first, you know, this was in 1997. So this is, Amazon was barely going. There was no PayPal.

Everything was going to be printed and distributed by UPS, you know, from my apartment. There were no e-books. And so I was a daunting proposition to me, but I thought, well, that's what Warren recommended. Really, he was saying, you know, that that's what I really needed to do. So I went that route. It was hard work, you know, sweat equity. I really toiled assiduously for many years doing that. But he was right. It turned out to be spectacularly rewarding for me, professionally, economically, and so on, that his judgment was just so spot on.

And so, I mean, that's the story that resonates best with me. But every year I learn something significant like that from him, but that's probably the most significant one that I've kept with me. The book is Berkshire Beyond Buffett, The Entering Value of Values. It is already an Amazon bestseller. Lawrence Cunningham. Thanks so much for being here. Pleasure, Chris. Thank you. Coming up, we'll give you an inside look at the stocks on our radar.

This is Motley Fool Money. As always, people on the program may have interest in the stocks they talk about, and the Motley Fool may have formal recommendations for or against. So don't buy ourselves stocks based solely on what you hear. Welcome back to Motley Fool Money. Chris Hill here in studio with Jason Moser, Jeff Fisher, and Andy Cross. You can always email us. Radio at Fool.com is our email address. Guys, before we get to the stocks on our radar, let's dip into the Fool mailbag.

An email from Jeff D. who writes, I've been studying the market for about a year. I finally mustered up to courage to invest a month ago, and I put a nice chunk of money into a stock that looked promising, consistently beating Wall Street's estimates and constantly innovating. The company just released earnings, and almost immediately the stock fell 10 percent and then further the next day. My question is, how can I consider any investment to be safe and sound if at any given quarter an earnings report can instantly demolish the stock? How can someone know if a report will be good or bad? On the other hand, I can't imagine hedge fund managers who manage billions of dollars just cross their fingers and hope for the best. So how do I hedge myself against this risk?

Thanks a billion. P.S., the stock I'm talking about is Twitter. I love this email for a lot of reasons, particularly the PS. Jeff, I'll start with you. I think this is a question that a lot of investors have because it's great that Jeff's doing his due diligence and doing some research before just jumping in. But yeah, on a gut level, it's just kind of deflating when you feel like I've made a good choice, particularly your first investment, and then it gets whacked.

So true, but the one thing that stands out is he invested about a month ago. And the first thing Jeff needs to do is really extend his time horizon. He may not have done anything wrong at all buying Twitter. he just needs to wait and let it come to fruition. Three years from now, the stock could be much, much higher. Who knows? But the other thing is, as you're starting out, yeah, you have limited funds, but try to start to build a portfolio, even if it's one stock at a time, get up to seven, eight, ten stocks

over the next couple of years. Because you never know how any single stock is going to do. You need a portfolio, and then you need to let those companies go as long as you still believe in them, because the only way you'll compound wealth is to let things go for years and years. Andy, for someone who is just starting out and they're thinking in terms, not just of their first stock, but maybe four or five, something like that, any advice on how to go back to Jeff's question, sort of to hedge their risk to sort of balance out their portfolio? Is it to think in terms of large caps versus small caps? Is it better to think in terms of industries or a mix? Yeah, I think a mix is the answer, Chris. You really want to build out that diversified portfolio that Jeff talked about. And Stock Advisor, we talk about going to more than at least 15 stocks as you build out your portfolio because that way you diversify yourself across industries and market capitalization. So it's large and small companies. You start to build out a portfolio that can sustain one or two stocks moving dramatically in any given quarter. All right. Let's get to the stocks on our radar. Stocks on our radar sponsored this week by prosper.com. If you've got a home improvement project or you're starting to start.

a business. You can borrow up to $35,000 at a low fixed rate with Prosper. Their peer-to-peer marketplace connects people looking to borrow money with those who have money to lend to check your rate instantly. Go to prosper.com slash fool and you get a $50 visa gift card when you get a loan. That's prosper.com slash fool. Let's bring in our man, Steve Brodo, from the other side of the glass. He'll hit you with a question. Andy Cross, what's on your radar this week? I got price line. Priceline is going to report earnings, the online travel company and the the parent of name your own price and kayak and priceline.com and we'll report earnings. And I really want to see how a lot of the international travel bookings are going.

We know Europe, which is a big market for priceline. Europe is really struggling right now. So I want to see how consumers are using booking.com's service. And the ticker symbol for priceline? PCLN. Steve, question about price line? Would price line be priceline without William Shatner? That's not a joke.

I'm serious. He's such a big part of that. Well, he used to be. He used to be booking.com. That's really in the U.S. Steve. Booking.com is the big European property. Will Shatner, not quite as big over there.

So you're saying Shatner, big in North America, less so the rest of the planet. The rest of the universe. Captain's. Nice. Jeff Fisher, what's on your radar this week? So for the first time in history, pretty soon the public can own a part of Ferrari. Fiat Chrysler plans to spin off Ferrari. Take it public.

listed on the U.S. Stock Exchange, I think it'll be really fun to watch this company go public to see their financials and to see how they do over the course of history. They made only 7,000 cars last year. And what's interesting to me is their chairman said Ferrari will never make an electric car. Never, ever. I don't know about that. When you have like a Tesla SUV blow a Ferrari off the line, you know, much faster, that's embarrassing for a Ferrari. So it'll be a fun company to watch. Not public yet. Any sense of when the IPO is coming? It's almost November now. I think it's early next year, a number of months. Steve, interested in Ferrari? How many Ferraris have you seen on the road in the last one year, Jeff Fisher? More than one? You know, Washington, D.C. is a little

uppity. The government pays themselves well. I've seen probably three or four. I've seen a lot more Teslas, though. All right, Jason, what's on your radar? Taking a look, again, at Control 4, ticker is CTRL. It's a stock I've talked about here before, but Control 4 plays into the greater long-term trend of the smart home and the Internet of things. So Control 4 makes the products that are connected as well as the connectors or the brains of the operation themselves. And so earnings came out for Control 4 on Thursday after the market closed. Great quarter beat on earnings, beat on sales, guiding to a strong future here. Great strategic relationships with companies like Toll Brothers Home Builders to get those devices in those homes and really playing into that longer-term trend.

Gartner study by the year 2020 says a typical family home will probably contain somewhere in the neighborhood of 100 connected devices. And so Control 4 is playing into that space. And I've done field research into this speaking to dealers, speaking to users, and I have yet to come across a bad review of Control 4 yet. So that's what I'm focused on. Steve? Will customers tolerate failure in this market? I think that's probably the biggest advantage that Control 4 has at this point is a bad user experience because Control 4 is professionally installed stuff. It's not for the do-it-yourselfers.

They see that as a great opportunity to offer up a terrific experience with a successful system that will keep people coming back for more. Steve, what do you like? I may have to go with Ferrari. Sounds like fun. They're very fast cars. All right, guys, thanks for being here. That's going to do it for this week's show. The show is mixed by Rick Engdahl.

Our engineer is Steve Brodo. Our producer's Matt Greer. I'm Chris Hill. We'll see you next week.