Motley Fool Money - The Signal and The Noise

Episode Date: November 2, 2016

On this week's show, we share two of our favorite interviews. Motley Fool CEO Tom Gardner talks Facebook, Amazon, Google, and Tesla with best-selling author David Kirkpatrick. And we revisit our interview with writer and statistician Nate Silver, author of The Signal and the Noise: Why So Many Predictions Fail - but Some Don't.  Learn more about your ad choices. Visit megaphone.fm/adchoices

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It's the Motley Fool Money Radio show. I'm Chris Hill. This week, we're at the Motley Fool's annual meeting. So later in the show, we're going to revisit our interview with statistician Nate Silver. But first, at a recent member event in Boston, Motley Fool's CEO, Tom Gardner, sat down with David Kirkpatrick, author of the Facebook effect. So let's just start with this. Just a little historical trip back. What happened with the IPO? Facebook?

Why was there so much doubt? Why did the stock get more than cut in half? And what were you thinking and saying back then? Well, I've been a believer in Facebook since fall of 2006, and I still am as a force that's going to continue on an upward trajectory in many dimensions. So to me, that was relatively insignificant in the larger picture. It was at the time because they were perceived not to get mobile, at least after the IPO. And there were some, I think, references in the prospectus that made people think. there were some things that they hadn't gotten together regarding mobile, and it's highly ironic in retrospect, since they ended up being the company probably that figured out mobile better than anyone.

And it actually is indicative of one thing about the company in Zuckerberg, that, you know, they don't mess around when they think they need to make a change. You know, they're not like complacent people. You know, Andy Grove said only the paranoid survive. And some of the companies that we know and love the most are the the ones that most internalized that notion, and Facebook is definitely one of them. So, you know, they weren't ever worried that they couldn't get it, but they were worried that they hadn't gotten it yet, and they got very, very serious, and then they killed it. Last time we talked on camera in 2014, we both were agreeing that we believe Facebook will ultimately be a company with a larger market capitalization than Google. At the time we had that conversation in 2014,

Facebook was it about $77 a share? It's now about 128, so it's up about 65%. Google was about 580, and now it's about 780, so it's up about 30%. So Facebook has doubled the performance over those two years, but I'm curious if you still think, with its market cap around $370 billion, and Google, around $570 billion, if you believe that Facebook will be a larger market capitalization than Google still and will be one of, if not the first trillion-dollar market cap. Well, I probably would say yes, but it's not because I don't find myself odd and impressed by Google, which I do. I think Google is another company that is spectacular, spectacularly conceived and run, and they have a lot of upsides still. But the thing about Facebook that's different is that if you do believe that advertising as a concept still matters in business, which I think is hard to dispute, Facebook is the best advertising vehicle that's ever existed because they have the most targetable information about individuals,

and that's better than Google. And so ultimately, you know, since Google is an ad-based business also, you'd have to believe over time that Facebook's going to surpass Google because Facebook has a better ability to deliver effective advertising in the long term than Google does, pure and simple. Now, I think Google may go into, you know, cars and whatever other things that they, you know, got all kinds of pharmaceutical projects and life extension and all that, much of which I'm impressed by. And Facebook isn't really quite as scattered. That could be to their advantage also, possibly. But, yeah, I think Facebook has more secure long-term runway than Google.

I think we should just roll through a couple of companies that I know in the room a lot of a share. Yes, please. Because we were just at Starbucks together and we were talking about a bunch of things. one thing I would say about Facebook is you know you're not going to get a 10x return by buying the stock because it's not going to be a $3 trillion company you know so you know I think if I I still believe Facebook is a buy and hold stock I would hold it at this price if it was at 175 I would say the same thing and it will go to $175 probably within the next year for all that I mean I'm not like you know you guys I'm not looking at every nuance of the financials but the point I made before is the guiding point I'm principle that they just are so beautifully positioned, they're brilliantly managed. And, you know, the combination of Mark Zuckerberg and Cheryl Sandberg is kind of a spectacular combination. What motivated you to write the Facebook effect?

What year was that published again? It was published in 2010. I started writing it in the spring of 2008. And the company came public in 2012. Yeah. So what caused you to be looking at Facebook and does that cause you to be interested in writing about and studying Snap? No.

I don't dislike Snap, which I still keep wanting to stick the chat onto. Which basic the news this week is that they're targeting an IPO in the next, let's say, four to six months with a market cap of $25 billion. You know, it may be that just some, you can only get it right so many times, but I have always had trouble understanding Snapchat, and that may be a function of my age or whatever. I also always was suspicious of Evan Spiegel. as a manager, but the more I learn about him now, the more I think I was wrong. I just didn't really like his personality, and I was judgmental about that. I happened to like Zuckerberg's

personality a little more. He's more of a pure and simple idealist, and I happen to have a soft spot for idealism. But I do think Snapchat's a well-snap is a well-run company, but no, I don't think it has anywhere near the opportunity that Facebook had. That doesn't mean it wouldn't be a good buy at a $15 billion market cap IPO, I would possibly think that's a good thing to buy. But why did I start writing about Facebook? Because I met Zuckerberg in the fall of 06. And I sat with him at lunch, and I said, oh, my God, this guy's like Gates. This is the thing.

I want to make sure I say this, if we're talking about Facebook before we go to other topics. I was just talking to somebody yesterday who works with him. And she was saying, he has the most unbelievable combination of long-term view and urgency now. And that is a very hard thing to maintain. And he has a long-term view like Masayoshi-Song or somebody like that, you know, who's got the 100-year plan for SoftBank.

And Zuckerberg may not have a 100-year plan, but he has in his head a plan until he retires at age 75. And what is he 32 now? You know, and he ain't going anywhere. but he's absolutely urgent now to solve mobile or whatever, you know, do virtual reality now and get it right. And, you know, and people love him.

He's got the most loyal employees of any company I've ever seen. A last Facebook question. Who do you think is more responsible for the commercial success of the company? Mark Zuckerberg or Cheryl Sandberg? Well, there's no question. It's Cheryl. I mean, Mark was not a commercially minded person. He was a product-minded person,

but he always was smart enough to know that he needed a commercially-minded person at his side and he wanted the company to reward its investors and he wanted it to fulfill its potential, which he knew required financial success. But he also knew that it wasn't his thing. He always was very dubious about advertising, especially in the early days. He didn't really care about advertising, frankly. And there's a whole bunch of stuff in my book about when Cheryl arrived. They literally had these sessions at the company where they would put on the whiteboard, what business are we in? They didn't know. It wasn't like what kind of advertising business are we in?

What business are we in? Should we charge a fee? Should we, you know, they'd sold a few ads here and there up to that point, but it wasn't, they didn't have a ton of revenue. And they spent months wrestling with the, but she had done, built an ad business at Google, and she understood advertising. And they very slowly, methodically built the most powerful ad business, I think, that will turn out to have ever existed. Is Amazon the greatest company in American history? Why or why not? Well, I don't think it's a greater company than Facebook. I don't know if I would call either one of them a greatest company in American history exactly.

Amazon is a continually surprising, impressive machine. I mean, I don't think any of us would have guessed. I mean, I was just talking to Amazon, to somebody on my phone walking down the street about Amazon, you know, we were talking about movies or something, and an Amazon fresh truck drove around the corner. I mean, they're at you from every direction. You know, they're starting to compete with UPS. You know, the secret weapon is AWS,

and they finally are making money because of that. And I actually do think that AWS, which is a business to say kind of stumbled into, probably will be by far the most important business in the long term for them. And in the disruption session, which I attended part of, the cloud was the first disruption listed on the chart there at the end of the major disruptions happening now. And Amazon owns the cloud as a concept. I mean, actually, Salesforce.com is sort of the company that did it first, really, at scale and talked about it, but they didn't use that terminology.

And they didn't do it in the same way. But it's amazing in so many industries right now that have a quote-and- quote, cloud strategy. If you actually dig down and see what they're doing, they actually have an Amazon strategy because the default choice for cloud is Amazon. I mean, even though Microsoft has a good business, Google has a good business, IBM has got a lot of ambitions in that area, and they are growing and they have a pretty good size business. Amazon's customer service mentality that they developed selling books and all the other stuff that they then added onto it is so brilliantly applied to this B2B concept. It's really an interesting case of what

happens in business right now that's so different than in the past that really Amazon, and I never thought about this till this very moment myself, but Amazon took what they learned as a consumer company in terms of ease of use and applied it to a B to B product. So that anybody in this room could open an AWS account right now for $2 a month and just do some little tiny thing with AWS if you wanted to. And it's probably, I haven't done it. I should probably. But everybody says it's as easy to do as practically buying a book, you know. But if you're Netflix, you could give them $100 million a month also to do just a larger version of the same thing because Netflix is also hosted on AWS, which is a highly ironic thing, of course.

Coming up, David Kirkpatrick talks Tesla Motors. This is Motley Fuller. Welcome back to Motley Full Money. I'm Chris Hill. Let's get back to Tom Gardner's interview with best-selling author, David Kirkpatrick. Is the appropriate way to think about this, that Amazon, I mean, maybe this is just completely obvious, all businesses that are out there in the physical space now, particularly pre-virtual reality in a way, all businesses that are out there that have commercial real estate deals and are selling physical products and people are driving or walking to get those products, that Amazon is the new landlord of all the digital space to do that. with her cloud business and that essentially do you anticipate

do you see any retail business today that you would invest in that's in a physical space versus what's happening online and with Amazon and companies like it? I'm not sure I could point to one but I'm absolutely positive that some will exist that will do fine. It's just you have to redefine the nature of in-person experience.

I think a lot of companies are working hard to do that. I mean even Best Buy has made a little bit of a resurgence, you know, after being written off not too long ago, as I understand it, I'm not a close student to that company, but that's my understanding. And, you know, I think younger people, everybody, people still want physical experiences. They still want to go in stores and do stuff. It's just, it's going to be different stuff. And it's, you know, I happen personally, and I'm an old guy, old baby boomer, but I love stores.

where they have, and they're actually, I'm going to Germany this week, and there's a lot of these in Europe right now, more than in the United States, these stores that have like a coffee bar, they sell books, they have a sporting goods, but it's really cool sporting goods, and then they have like these really interesting furniture things. And, you know, you go in there and you just sort of want to wander around, and by the way, you'll buy a coffee, and maybe you'll buy a magazine, and maybe you'll buy a chair. I think that is something we have seen surprisingly little of in our economy, because we have this old mentality in retail of like,

we are a home office supply company, you know, we are a, we are a, you know, a lawn chair company or whatever. I don't think people want to shop in those kind of stores that much anymore. If you want a lawn chair, you're going to buy that on Amazon. Right. If you just know that's what you want. But if the retail that's going to win, in my opinion in the future is discovery.

They're going to do in-person discovery in a way that Amazon can't do it as well online. And then you could argue, well, with virtual reality, what are you going to be able to do in person? You can't do online? I don't know. But there will be something. I mean, in a way, maybe the best thing that retailers could do now is open a Starbucks inside of every single retail business that exists. So it's like, if you are going to launch share, Inc.

I mean, I don't know what that. If you're going to Best Buy, there needs to be a Starbucks inside of Best Buy. There needs to be a Starbucks inside of Target. There needs to be a Starbucks. There's a lot of Starbucks inside of Targets already, as you know. They're inside of banks. yeah I'm not sure Starbucks is the only thing I think there's plenty of similar similar cases but yeah I think it's somehow focusing on the experience

and I do think that you know the the risk that so many industries fall into now is misunderstanding the category they're in you know and I do think it's a sort of an obvious example but Ford which is a company that I happen to know very well you know, they really are talking about themselves as a mobility company. And nobody even really knows what that means, but it's really good for their head to talk about it that way because it means they're not going to just measure themselves by how much metal they, you know, knock off.

And just could I make another related point? I was talking to Mac about this. You know, if you talk to Elon Musk about what he thinks Tesla is, it's a climate change remediation company, right? That's not a joke. That's what he thinks it is. He happens to be manifesting that by building luxury vehicles at the moment. But he thinks that we need to move to an all-electric economy.

He's trying to make his play for that. He's making a lot of money in the process. But he doesn't think he's just competing with Ford and GM. We're going to jump right to Tesla right now. Before we leave Amazon, you mentioned that you would continue to buy Facebook or if you were an investor. You're not looking at the financials, but the trends. Do you feel the same way about Amazon?

Amazon's multiple. so weird because, I mean, Facebook is a hugely profitable company right now. Amazon is a slightly profitable company right now, which is, it's always amazed me the trust that people like you have in Amazon, and yet I can't argue that it's been misplaced. I would like to see Amazon show more consistent, large-scale profitability given its market cap before I made any big predictions about it. But I do think that Jeff Bezos is one of the true business genius and I suspect it will happen. Let's talk a little bit about Tesla

and any experiences you've had either in the vehicles or talking to Elon Musk or just assessing that business from the outside as you do at Techonomy. What do you think of Tesla? What do you make of it? There's a lot of debate about their acquisition of Solar City, the underlying financials of the business,

what would happen if the capital markets dried up and they couldn't get secondary offerings? So what's your view right now of what Elon Musk is doing in Tesla? Well, I'm basically a believer in Elon Musk and not as certain about Tesla. So that's, again, he has taken a very challenging approach towards remediating climate change. If, you know, I think last quarter, which they just announced,

they sold more cars than most people expected. They built more cars than most people expected. And they pretty much sell everything they build. It's kind of cool. And I was talking, another thing I was talking to Mac about, what car company has ever had 400,000 orders in advance for a vehicle before? How many people in this room have already put down $1,000 on the next Tesla? I know I have.

We'll hope that if I decide I want my money back, they'll actually give it to me. But that is a pretty positive sign if, and it's a gigantic if, they can actually build 400,000 of those things in any kind of reasonable time frame. and certainly they're not going to be able to build 400,000 in the next year or two, and they're supposed to launch the vehicle, I think, in next year, right? I mean, which I doubt will happen. But, you know, they used to talk about Steve Jobs' reality distortion field. I think Elon Musk has one of those too.

So I am so glad he exists. And would I buy this, you know, a company like that, again, with that kind of, what is the market cap of Tesla now? 30 billion, a little bit, 25 to 30 billion. never shown a penny of profit, right? Have they ever had a penny of profit? No, and they're different than Amazon in that Amazon is really so aggressively reinvesting their cash flow each year that it doesn't show up on the income statement, whereas Tesla's not in that zone. Yeah, and Amazon's also a 350 billion market cap, but Amazon's been around for 20-some years. So I guess my inclination

would be to bet on Tesla long term. David Kirkpatrick is also the founder and CEO of Teconomy. Up next, my conversation with Nate Silver. You're listening. to Motley Fool Money. This episode of Motley Fool Money is brought to you by Rocket Mortgage by Quicken Loans. If you've ever bought a home, you already know how frustrating and time-consuming getting a mortgage can be. Rocket mortgage brings the whole process into the 21st century by taking all of the complicated, time-consuming parts of applying for a mortgage out of the equation. You can easily share your bank statements and pay stubs at the touch of a button, helping you get approved in minutes for a custom mortgage solution that's been tailored to your

own financial situation. And best of all, you can do it all on your phone or tablet. So if you're one of those people who's looking to buy a home or refinance your mortgage, and do yourself a favor. Check out rocket mortgage today at quickenloans.com slash fool. Equal housing lender, licensed in all 50 states, NMLS Consumer Access.org, number 3030. Welcome back to Motley Fool Money. I'm Chris Hill. Nate Silver is a statistician and best-selling author who analyzes sports and politics for for ESPN's website, 538. In the 2012 election, he correctly predicted all 50 states. Back in 2012, I had the chance to interview Silver about his book, The Signal and the Noise,

why so many predictions fail, but some don't. Nate, thanks for being here. Yeah, thank you, Chris. The rare in-studio guest on Motley Fool Money. I love it. Early in your book, you write, we have a problem, we love to make predictions, and we're not very good at it. Why is that? Why are we bad at making predictions?

Well, I think maybe the first question is why do we enjoy making predictions so much? And I think it has to do with we have all these things that are uncertain in our lives. And we feel that if only we could predict them, then we exert more control over our lives. Right, yeah. Of course, you could predict which stocks are going to increase by 50% over the next five years. And you'd have a very nice life eventually. But the problem is that we aren't as good at using all this information that's out there as we think we are. So what happens in prediction is you have data, information, juxtapose against human judgment, right?

And often things go wrong when you have kind of hard facts and kind of our human intuitions collide together. And so the book considers cases where there have been people who have achieved success-making prediction, but also cases where you see widespread failures, like the failures that led to the financial crisis, for example, the failures of political pundits on TV, where if you go back and look at the McLaughlin Group, for example, which they'll have their authors come on at the end of the show. It's the end of every hour.

Go around, give me a prediction. So actually, I went and looked, and I took a while, right, but I went through the transcripts and wrote down all their predictions and then went back and evaluated how they had done. done, right? And they got exactly half right. So they were as good as flipping a coin and know better. But, you know, part of it is, you know, there's a demand for expertise, I think. There's a man for someone to come on TV or radio and play the role of the expert. But it doesn't have very much to do with the actual accuracy of their information sometimes. It's more like, you know,

how do they sound on TV or how crisply presented is their idea? And whether it's factual or not is maybe less important, especially. It shouldn't be less important, but often is less emphasized, I think. One of the things that you also write about is that there's no such thing as true objectivity, that these predictions are always going to have some level of bias or subjectivity. Is that something you can solve for in polling? Can you solve for bias? Is that where sort of the margin of error comes in when we're looking at polls?

Well, so there are some polls that can poll 100,000 people, but they're still kind of aiming at the wrong target, where they have bad algorithms that they're using. So, for example, there are polls that don't call people who have cell phones, which is now about a third of the American population and people who rely on their cell, excuse me, people who only have cell phones and don't have landlines, right? And those people tend to be younger, more urban, more democratic-leaning, more minorities.

They have different characteristics that make them vote differently. And if you exclude that one-third of the population, then you could survey the other couple hundred million Americans, right, who do have landlines, and you still would have a biased sample in that respect. So people think, oh, you just kind of collect more and more and more information, and you'll get better and better. But you reach a limit that is far, far short of perfection if you're doing the wrong process. And that's often what you see, not just in polling, but in a lot of types of prediction where people keep collecting more and more information. But if you have a bad model, if you give a computer program, bad instructions, you wind up with garbage in, garbage out. and computers can't spin straw into gold. You say that weather forecasters and gamblers are success stories when it comes to predictions.

Yes. How so? So, well, the difference with weather forecasters and gamblers is that they're both used to thinking in terms of probabilities. So you see on the weather channel that there's a 20% chance of rain, for example. Some people get very frustrated with that because they're like, why can't these guys tell me exactly what's, going to happen. And the reason is that, well, they can't, but neither can anyone else, and they know they can't, and that helps to make them better. Weather forecasts, they're considered a joke by some people, and that used to be kind of true, that really they would miss the high temperature by an

average of seven degrees, right, a couple days in advance, but now that error's been cut in half, and for something like hurricanes, where if you have a hurricane sitting right now in the Gulf of Mexico, three days before landfill, they can pinpoint, on average, the landfall location, 72 hours in advance by about 100 miles, which means you can evacuate, say, the southern tip of Alabama or Mississippi or a certain part of Florida, not with guaranteed success, but where it's prudent and saves lives to evacuate. 20 or 25 years ago, you couldn't do that at all, where literally if you had a hurricane in the Gulf of Mexico, it was equally likely as far as they knew to hit Tallahassee, Florida, and Houston, Texas. So the whole kind of crescent of the Gulf Coast was in play. So that's a

a case where there have been very tangible practical improvements, and it's because the weather forecasters knew that if we can think probabilistically and say, here's what we know and here's what we don't, despite having more and more powerful computers, then you can start to make progress. We're trying to close that gap between what we think we know and what we really know. If you can work on both ends of that, and the book tries that. It says, well, first of all, let's admit that some things are going to be very hard to predict. Predicting the direction of the American economy more than a couple months advance is intrinsically a very hard problem. On the other hand, we can do some things to be more dad-driven and make us

better and smarter. And so we up our skill level at the same time. We're a little bit more humble and modest about what we're likely to accomplish realistically. You're listening to Motley Full Money talking with Nate Silver. His new book is The Signal and the Noise, why so many predictions fail, but some don't. Let's stick with the economy because the conventional wisdom is that the stock market is a leading indicator. And right now we're at about a four-year high for the stock market. Does that, in your mind, predict a faster recovery for the economy overall? So what's interesting is that I think investors and kind of economists have different biases.

So I've gone back and looked at cases where you had. So right now, for example, the forecasts of GDP are quite bearish, where people still think it's going to chug along at 1.8% or 2.2.1%. So it's been rare historically when you had a very bullish market and a bearish GDP forecast. And what happens is actually you do tend to beat the GDP forecast when the market's going up as much as it has. Investors seem to be – I think one good thing about investors is that they don't have to worry about being politically correct. Whereas if you're making a prediction where you have reputation on the line more than money, your incentives are different, you might not want to stick out too much, right? It might be easier

to say, well, the economy's been bad for a long time, so I can stay more in consensus by saying it's going to continue to be bad, right? And of course, investors have their own issues with kind of believing maybe too much in the sentiment sometimes. But, you know, there is a lot of power and having a lot of independent information coming together. The kind of 90% of time I say that markets are functioning well, they can be a beautiful. thing. And of course, there are, there's either 10% of time where you have, where you have bubbles and you have panics and you have, you know, kind of collectively very irrational behavior. But taking on the whole, there is macroeconomic information as far as I've found in the S&P 500 in the Dow.

Why do you think more people didn't predict the financial crisis that we saw in 2008? Why didn't more people see that coming? Well, part of it is you had a number of dominoes unfolding, and I think this is almost kind of more of the kind of Taleb Black Swan type argument, right? But where I think people don't realize how the risks in different parts of the economy are correlated with one another. So you think, okay, so this is the whole problem behind, for example, the rating agencies thought, well, we're going to take all these different mortgages and bundle them together and repackage them. and, you know, by the miracle diversification, we'll take a bunch of kind of B-plus, you know, B-rated crab. And they'll be AAA. Yeah, yeah, yeah, right?

Because they assume that what happens to, like, a carpenter in Cleveland and a dentist in Denver are independent from one other, right? But, of course, if you have a housing bubble that bursts and everyone is facing the same conditions, then the risks are hugely correlated. And so the whole structure blows up, and they defaulted at race that were literally hundreds of times what, what was expected. And then you further leverage that with the fact that in addition to just having, you know, the actual effects of people having mortgages underwater itself, I mean, just the sheer volume of betting, side-bending on the housing market was astounding. For every actual dollar that exchanged hands with someone buying or selling a home, there were about $50 worth of side-bets.

And so instead of being a severe but localized problem that became a global problem, Coming up, Nate Silver talks stock market noise. Stay right here. This is Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. This week, we're revisiting my conversation with statistician Nate Silver, author of The Signal and the Noise, why so many predictions fail, but some don't. The title of your book is The Signal and the Noise. When it comes to the stock market, what do you think is the noise that the average investment? would be wise to just tune out? Well, I think a lot of the day-to-day fluctuations, right, where if you look at the stock market over intervals of 10 years or 15 or 20 years, it does display certain types of predictable behavior, right?

Where if the PE ratios get too high, it's been a pretty reliable predictor of a market that will achieve below average growth or even maybe a favorite to decline over the long term. the short run, it's a bit different where I think, you know, when Alan Greenspan described the market as being irrationally exuberant, right, if you had invested your money at that time and had the hindsight or the foresight to sell right at the peak of the NASDAQ bubble, you would still have made three or four times your money back. And so, you know, in the book I quote from the economist Fisher Black, and that's kind of where

my 90% 10% conception comes in. Because normally it's a healthy strategy in life to pay some attention to what your neighbors are doing and to say, well, you know, it's probably not the case that if everyone else thinks this is a good idea, that my theory is better than theirs, right? And if everyone else thinks these CDOs are safe, then, you know, who am I to say differently? But there is that 10% of the time where that herd mentality kind of leads us off a cliff. And I think it's just kind of the price that we pay for having markets where people are reacting to one another, right? You know, the benefits to aggregate information are sometimes compromised to people lose their independence. And one thing you worry about a little bit now, right, is kind of is that people become so efficient, some of the banks that kind of developing their algorithms and so forth, that there's kind of no more, almost species diversity as much, right?

And so everyone's kind of doing the same thing. And if one fund goes down, then a whole bunch might as well. So it's a little bit frightening. It's also a little bit frightening, by the way, just how many trades are being made, right? There's some notion that, well, the market's becoming more efficient. Well, if a market's efficient, then you wouldn't have very much reason to trade. But the volume, just the volume of shares that change hands is increasing very, very quickly. So now the average share of common stock is traded once every six months, and it was once every six years, once every six years back in the 50s and 60s.

So it really has become an investment now where you buy stocks to trade them and not to hold them, and that changes the climate, I think, quite a bit. I was going to say, it seems like with so much more information available to so many more investors, individual investors, and of course institutional investors, fund managers, etc., it would seem like in some ways it's harder than ever for an investor to have any kind of edge in terms of predicting where a stock price is going to go. Well, maybe that's true, but it makes it easier for people to think they have an edge, right? So in the book, and this is going to come from a different kind of historical era, but I talk about what happened when you had the printing press invented, and all of a sudden, there were books when there weren't really any books before, and people had a lot more information exponentially more than they had a generation earlier. And the first thing that people did is kind of read books that proselytize different religious ideas. And so you had, you know, hundreds of years of holy war in Europe, right? or it's like, well, now there's way more information than I can get a handle on myself.

So I have to pick and choose what I read. And people, I think, forget that, you know, the subset of information that you come across is not the only information in the world, but you become devoted into it and believe deeply into it. And that's kind of why you have people willing to make so many bets, I think, in the market, and the volumes are increasing so much, is that people kind of cherry-pick whether consciously or not what information they look at and they assume that because they're in possession of it, because they read that this information is especially worthwhile, and often it's not. So you're saying the specious and incorrect information that's available,

widely available on the Internet today? That was going on in Gutenberg's time as well? Yeah, you see this precedent where, look, you know, people eventually get better at processing information, right? But the volume of information we have in the world today is astounding, right? where we're generating, I don't know the figure offhand, but it's quintillions of bytes of data each day, right, where it would take, you know, all of humanity, all seven billion people, hundreds of lifetimes to go through it, right? And so there's kind of this, the signal-to-noise ratio, I would say you call it, is becoming, is waning, because you have more information than you

have useful information. A lot of it's just kind of crap and kind of should go in your, in your spam folder, so to speak. But people think that every, you know, you look at CNBC or Bloomberg, or you see all this data and you think, oh, there must be some real insight there. And, you know, maybe there is a little bit, but you have to sort through an awful lot of hay to find that needle that might give you some extra advantage. You're listening to Motley Full Money talking with Nate Silver. His new book is The Signal and the Noise, why so many predictions fail, but some don't. I can't let you leave without asking you. A couple questions about baseball, because once upon a time you developed a system for forecasting baseball performance.

You sold it to Baseball prospectus. First question is, what do you think of Moneyball? The book or the movie? The book or the movie. I mean, I'm just curious because this is, you know, Billy Bean, as much as anyone, sort of is the face, at least the Hollywood face, of sort of this saber-meas. metrics movement, and I'm just curious what your reaction was. So I kind of live, I used to work for a company called Baseball Perspectus, and we were doing the Bill James stuff and the Moneyball stuff.

And so 10 years ago, I remember going to the winter meetings in New Orleans, and it was like a scene just out of Michael Lewis's book, where you had kind of the nerds on the one side of the lobby and the jocks in the other. They were conveniently the jocks occupied the hotel. bar, we're drinking a lot of whiskey, right? And the nerves were kind of circling around, trying to hand them, like, resumes and pronounce of PowerPoints, right? But there was a lot of tension because people thought that they were trying to take one another's, one another's jobs. But now it's, that's just not the case at all, where these teams have figured out, the one thing

about baseball is that, is that you have a scoreboard, right, where you know how well you did at the end of the day. You start to get to the long run fairly quickly. It takes 162 games, but so you can evaluate your decision-making processes, what work and what don't, pretty fast and get better at it. And you've seen teams say, look, why am I going to let my cultural fear of a stathead prevent me from winning more ballgames and making more money as a franchise?

And so you've seen stats and scouts are getting along now. I talk to Billy Bean. I talk to an old scout in the book named John Sanders with the Dodgers, and it's hard to tell a part, what they're saying anymore. What they know is that, look, people who are good at finding information and evaluating information, scouts and stat geeks have a lot more in common than you might realize because they both have that skill to say, here is that signal from all the noise that I perceive, and here's what actually matters. And that skill is quite rare.

In 2009, Time Magazine named Nate Silver, one of the world's 100 most influential people. His new book is The Signal and the Noise, why so many predictions fail, but some don't. Nate, thank you so much for being here. Yeah, thank you. As always, people on the program may have interest in the stocks they talk about, and the Motley Fool may have formal recommendations for or against. So don't buy or sell stocks based solely on what you hear. You can check out past episodes of Motley Fool Money and all of the Motley Fool's podcast simply by going to podcast.fool.com. That's podcast.com.com. You can subscribe on iTunes, on Google,

Play, Stitcher, Spotify. It's free with just one click of a button. Subscribe to any and all of the Motley Fool's podcast. That's going to do it for this week's 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.