Motley Fool Money - Year in Review

Episode Date: December 19, 2014

What was the business story of 2014?  What was the biggest surprise?  Which CEOs deserver some holiday cheer?  Who deserves a lump of coal?  We tackle those questions and revisit our interview with How Not To Be Wrong author Jordan Ellenberg.     Learn more about your ad choices. Visit megaphone.fm/adchoices

This episode is brought to you by Colagard. Do you know what's really scary? Not screening for colon cancer when you turn 45. The Colagard test is non-invasive, requires no special prep or time off work, and ships right to your door. In just three simple steps, Colagard takes the scare out of colon cancer screening.

If you're 45 or older and at average risk, ask your health care provider about the Coligard test. Colagard is available by prescription only. Learn more or request a prescription today at colagard.com slash screen. Everybody needs money. That's why they call it money. From Fool Global Headquarters, this is Motley Fool Money. It's the Motley Fool Money Radio show. I'm Chris Hill, joining me in studio this week for Motley Fool Pro and Options. Jeff Fisher for Motley Fool income investor James Early and for

a million dollar portfolio and MDP deep value. Mr. Ron Gross. Good to see you, gentlemen. Good to you. We are going to put a bow on 2014, the stories, the stocks, the CEOs. And yes, of course, we're going to share a few stocks you can put on your watch list. But Ron Gross, let me start with you. A lot of big stories this year. Recently, we've seen the oil prices falling. We had Alibaba. If you name all of them.

I'm just going to name too. The oil prices and Alibaba, the biggest IPO in history. Well, that happens to be the one I've got right here. Go for it. All right, Alibaba, the largest IPO ever in the history. Actually, the one before that, the largest was Agricultural Bank of China. I know you're all very familiar with that one. Not a household name.

Not a household name. They raised $25 billion, stands at a market cap of $270 billion right now. Jack Moss sold 15 million shares into this. Yahoo took out a big chunk of change. Stock's done pretty well. I would say, you know, we're up 16% year to date. It's off of its high. Where are we?

109 now. It's probably at 120 at its height. But big, big bucks. Is this something you're hoping in 2015 falls down in to value territory so you could take a little nibble? You jazzed. I think it would have to fall quite a bit. James Early, what's your business headline? I'm going predictable, but I like the bizarre angle on this. I'm going with the fall of oil,

which is a predictable part, but what's the bizarre thing is that it's really brought down the prices of many, many companies, even those who would benefit from cheaper oil, which basically indicates that nobody really knows what's going on. And that's my favorite time to invest, actually. We can look back for comparable. I wrote this in my recent income investor newsletter. In 2008, the price of oil in July was $147 a barrel. By December, it was $30 a barrel. So that was an even bigger drop, and we've had now from 110 to, what are we, 60, something like that. And two years later, oil had tripled to $100 after 2008. So are you a buyer of oil stocks right now? Only an idiot can be confident in this kind of situation.

So I ask again. But largely, I would be inclined to be a longer-term buyer. Jeff Fisher? Business investing story of the year I like is that S&P 500 companies have spent or are about to spend more than $900 billion this year, nearly a trillion dollars on buybacks and dividends. So it's a record high. They're spending about 95% of earnings on buybacks and dividends this year.

And some quarters, they're spending more than their actual earnings. So they're using cash or in some cases debt to issue, to make buybacks or issue dividends. That clearly is not sustainable. And this record high level of buybacks and dividends, I think, is partly to credit for the stock markets rise. Is this necessarily a good thing? I mean, we've talked many a time about a lot of companies just not being that good at stock buybacks. I think it's been academically proven, or at least shown historically, that buybacks tend to occur at the worst possible times, when companies have a lot of cash because of good results in high stock prices.

So, yeah, it's usually a contrary indicator. I was surprised to find, though, that since 2002, S&P companies, 500 companies, have spent 85% of their earnings on buybacks and dividends. So even though it's at a record high, it's still an ongoing thing that they do. James, you have to be cheerleading the dividend by-biting. I like the dividend part. Yeah, the dividend is sort of like the thinking man's buyback, you know, because they're returning the money to the shareholders. I mean, it is not as tax advantaged as a buyback. All else equal, to be honest.

But generally speaking, the tax penalty is still significantly better than the overvalued buyback, you know, overpayment, whatever you want to term it. But I don't disagree with these AA. You don't disagree. I don't disagree with these companies that have great credit ratings that are borrowing billions of dollars at extremely low interest rates. Sure, sure. They're putting that money to work in the business or buying back stock.

That is very opportunistic, and I don't disagree with that. I would borrow billions of dollars if I could, too. So moving on to stories that didn't get enough attention or maybe just surprised you, Ron, when you think about all the stories from 2014, from that category, what stands out? I think it's the tale of the two stock markets. The S&P 500, another strong year, up 15 percent about, while the Russell 2000, not so much, the small cap index, up about 4 percent. Now, it actually was negative up until very recently.

We've had some strong days. And there's not a lot of talk about the disparity there. I think a lot of hedge funds are struggling for multiple years in a row, but this year specifically because of that disparity. A lot of them were benchmark to the S&P, but they're not necessarily participating in the S&P rally. A lot of folks that are focused on small caps are saying, well, where are my returns? Everyone's saying this is such a great year, but I'm not seeing it.

I'm not seeing that talked about as much as I would have expected. James? Well, I will go east and say that there is a, in November, there's a Hong Kong-Shanghai Stock Connect opening, which basically allows people in Hong Kong to buy A shares, which nobody could before on the Chinese market. Everybody thought this was going to be this big thing, and Chinese people could also buy Hong Kong stocks.

Now, it's kind of, it hasn't flopped, but it showed a lot less demand. And that's interesting to me that the demand wasn't there, meaning there's just not enough trust still in the Chinese market, but long term, I think it's actually a very meaningful story because it's going to bring sort of Western-level scrutiny to China, which is now the world's largest economy and purchasing power, on a purchasing power parity basis, and is obviously very fast-growing separate from that, too. Jeff?

I think one of the biggest surprises here in the U.S. is that treasury rates, bond rates, declined. The 10-year Treasury started the year around 3%, paying 3%. It's all the way down to 2% now. And going into this year, really the consensus was that rates would go up as the Fed eased on its stimulus. Many were even predicting 4% rates on the 10-year Treasury. Well, 2% is a long way from 4%. They got that absolutely wrong. And again, I think these lower rates have certainly helped the stock market go up.

Have you seen Switzerland has negative interest rates now? They're actually charging people to put money into the banks. Switzerland? How's that working out for them? Just brand new. We'll have to wait and see it. For me, it is the airline stocks, which historically have been underperformers. Two of the top 10 performing stocks in the S&P 500 this year, Delta Airlines and Southwest Airlines.

And just as an industry, I mean, in early January, if you just decided, I'm just going to go out and buy shares of every airline, you have done so well this year. And I can't help but wonder if this is going to be sustained in the 2015 or if this is just going to be seen as an aberration. Well, that's a good question, Chris. I would say it's largely dependent on oil prices, on energy prices in general. My stock of the year, actually, if we want to get into that, would have been... That was my second. Nobody asked for your stock in the year, right? Well, I was told before the show that that might come up.

I'll talk about what I have for breakfast today, if we want to talk about that. Southwest, up 114% this year on an approving U.S. economy, industry consolidation, and lower energy prices. I don't think these low energy prices are sustainable. They might be for some time, but probably not in the longer term. So they won't continue to benefit from that. But the company has had an amazing year, definitely. I love Southwest. I just have to point out the other weekend I was flying to Chicago.

And for the first time in my life, I went to the wrong airport. Wow. I went to Baltimore instead of Washington. And Southwest just changed my ticket for me. No fee. Very kind. That's pretty good. They've also benefited from removal of legislation that dictated how many destinations they

could fly out of from their hub. And that has actually helped the company quite a bit. So Southwest used to only go out of Baltimore. That's what threw me. That's why you were. And my ticket was from Washington. I didn't know that. Interesting.

I'm surprised they didn't dock it with some sort of like idiot tax or something like that. I think, no, she didn't even give me an idiot look. She was very kind. Kind employees over there at Southwest Airlines. James Erler, your stock of the year? You know, utilities have had a good year, but I'm going to go with a pharmaceutical company, Malincra. This is an Irish company. It makes a lot of pain management.

It's up 54%. And I have spout. it. Poo-poo. I can't if I look at it. It's the last three letters that we throw you. Yeah, M-A-L-N-I-N-C-K-R-O-D-T. That's good radio. They are. You don't get that.

It gets better than those other channels. And they're the only company. Like when Coca-Cola takes the cocoa leaf, they have to separate the cocaine from, you know, the rest of the... So Malincrot is the only company that actually gets the cocaine to make... They use it in like a topical analgesic kind of a thing. What are we talking about? It's the top of the year. 50-something percent this year.

Nice. Ticker? What's the ticker? MNK. Yeah, I got to look at that one later. My stock of the year, I'm giving it to Apple. AAPL, it's up 40% year to date. Well, Google is down 10%, Samsung is down much more.

Apple added more than 200 billion in value this year, more incremental value than most companies are worth in total. And the iPhone 6 is a big hit. Apple Pay is off to a great start, and we get to see what the watch does next year. So, Tim Cook, finally, you know, getting some props. Google is down a little bit this year, and yet given the recent troubles in Russia, Google by itself, is still bigger than the entire Russian stock market. So they got that going for them, which is nice. Coming up, we're heading to the corner office to find the best and worst CEOs of 2014. Stay right here. 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 against so don't buy or sell stocks based solely on what you hear. Welcome back to Motley Fool Money, Chris Hill here in studio with Jeff Fisher, James Early, and Ron Gross. Your CEO of the year, Ron, who are you going with? So many good ones. I was going to go with Tim Cook that Jeff mentioned earlier, but I decided to go with Bob Iger of Disney, who, as I'm prone to say, is really knocking the cover off the ball, firing on all cylinders and all things to that nature. You haven't used firing all cylinders in a long time.

I brought it back a couple of weeks ago. Oh, you did? Okay, maybe I didn't miss that one. Stocks up 21%. A hundred fifty-seven billion-dollar market cap company continuing to grow, and all of its segments are really doing quite well. So many good things on the horizon, whether it's Star Wars or Shanghai Disneyland. And he's just done a wonderful job.

Recently extended his contract through the mid-2018. So I hope shareholders are happy to see that. This shareholder is very happy about that. James? Jack Maugh made more money than any other person on Earth in 2014. Alibaba. Yeah, about $30 billion. Now, he has a reputation for really knowing how to hose people. And maybe that's okay for, I mean, in terms of how he's taken Ali Pay out of Alibaba, and he's done a bunch of shady things. But he's also been pretty philanthropical. So I like him in that respect.

Jeff? I have two quick ones. Lifetime Achievement Award to Larry Ellison, long-time CEO of Oracle, who stepped down this year. But he's still chairman. That stock is up 20% year-to-date, more than 200% the last 10 years. And it's the largest enterprise software company in the world. world, he built Oracle from nothing, and that was his life's work. I'd give a close second place, though, to David Aldrich at SkyWorks Solutions, tickers SWKS. This analog semiconductor designer has been planning for Internet of Things or connected devices for years, and now it's paying off. The stock was up 150% this year, 600% the past 10 years. And not exactly the household name that Oracle is. How big is that company?

Skyworks market value is about 13 billion, so it's a small mid-cap. It sounds like 2015 might be the year someone makes them some sort of godfather offer to just bring them in the house. I think they'll stay independent. They're doing so well in so many ways. I'm not suggesting we give out a lifetime achievement award for our next category. But let's face it, there are a lot of great CEOs out there, a lot of great business leaders. There are also a lot of bad ones. Or leaders who had bad years.

And that's what this is, Ron. What if we all pick the same guy? That'd be interesting. We may have. I'm going to go with Mr. Dove Charnie. Is that how you pronounce it from his American apparel? Stocks off 85% over the last 10 years. Shares are trading at 1.

He was finally let go after being fired and then brought back and now fired again. Misconduct allegations all over the place of all different kinds, and we won't need to harp on them. But the company has done quite poorly, and him at the head has not helped matters. James? I'm going to go with Petrobras CEO. She's only been there since 2012. Maria Disgrossus Silva Foster, kind of a long name. But Petrobras is now getting all these

allegations of corruption. And it was once, and I'm not a little bit bitter, but it was once the best-performing income investor stock by a big margin, and we sold it recently. It's one of the worst, it's now one of the worst now. It's no malancrodot. No malancrodot. An example, they had a $20 billion cost overrun on a project. For perspective, the project was supposed to cost $2.5 billion. I mean, that's like answering a personal ad for someone who says they weigh 100 pounds and finding out their weight a thousand pounds. Okay, off by a factor of 10. I mean, that's a huge cost overrun.

And this money is like getting funneled to, you know, who knows what. So long term, it might interesting to be a value play, but for this year, we're CEO. Jeff? All right. I think Santa Claus should bring Sears Holdings a new CEO. Eddie Lampert at Sears has driven it into the ground. He's driven the brand into the ground. He's really an investor, and when he bought out Sears, he became CEO of this retailer.

I just don't think that's where his expertise resides. And this year, he gave one of his own investment funds, what looks to be a very sweetheart deal, possibly at the expense of Sears' shareholders. Only 400 million now. You know. So I think he needs to give up on this poor, beleaguered retailer and move on. All right. Let's get the stocks on our radar this week.

We'll bring in our man, Steve Rotto, from the other side of the glass. Steve, one news story this week, Darden Restaurants, parent company of Longhorn Steakhouse, Capitol Grill and your beloved Olive Garden. Put up some good numbers. Same store sales up at Olive Garden for the first time in a long time. Thanks to Steve. I feel like you and your family should get a little bit of credit for that. I'm happy to take some responsibility for that. Absolutely. When was the last time you were there? We had a to-go order somewhat recently, and I will say they do a terrific job packaging everything up. They give the salad dressing its own little bin. It's really, really nice. Curbside? Do you have to go in? Yeah, you have to go, you do have to walk into the store.

That's the one thing. Steve, was the food okay when you got home, or was it kind of soggy? It was quite warm? No, it was delicious. Wow. I feel like they should be paying us, or at least Steve. All right, Ron Gross, what's on your radar? I spent the last 20 years not analyzing the stock, and it's time to put it on my radar. It's Nike, N-K-E.

They reported this week, shares are down. They actually beat expectations, but future orders look a bit weak, and that's because they're coming off some really strong comps from last year. but I think it's time to dig in. Steve, question about Nike? The Just Do It campaign is what real value did that add? Can you put a number to that campaign? I probably could put a number in a very analytical way by trying to figure out how much it cost to create it

and slapping a multiple on that to derive some kind of brand asset value, but it's guesswork at its best. We talked about that. Those are the last words of some serial killer. Remember that? No. Yeah.

He was saying it was getting electrocuted. There was some show comes to a home. No, there was someone on death row. Yeah, in 1979. And that's where Nike got the, so it didn't cost much to make. Is that true? That sounds a little urban legend. That does sound like that.

All right. We'll hit the Google machine after the show. James Early, what's on your radar? I'm on with One Oak Oakee. This is an Oklahoma general partner of One Oak Partners, which is an MLP, Master Limited Partnership's natural gas. So it's kind of boring, but they pay a 5% yield. They've gotten beaten down because of this. oil price stuff, but they don't really ship oil. It's a natural gas company. They pay 5%. I think they're

going to have a double-digit dividend increase in the next year. And this is an income investor recommendation. Steve, question about one-out partners? What is your outlook for MLPs in general? They've gotten crushed this year. I think they've gotten crushed largely without good cause. I mean, certainly if the higher cost shales get taken out because of cheap oil, we just don't produce, then yes, some of those MLPs are going to be exposed. But a lot of MLPs have just been away that have sort of mainstream pipeline. So I'm generally bullish in MLPs of these prices. Jeff Fisher, what's on your radar? In Montleyfool Pro, we are short shares of Caesar's entertainment. Ticker is CZR. It's the most

indebted casino operator in the country with nearly $30 billion in debt. This year they chose, or this week, they chose not to pay $250 million in interest payments. They just chose not to. So when you say you're short, you're betting the stock is going down. Exactly, Ron. And so there's a lot. They're now in a 30-day grace window period, where they have to make that payment, otherwise they'll be involuntary bankruptcy, January 15th. So what the company is trying to do is reach a voluntary restructuring agreement with bondholders. But meanwhile, some bondholders are suing Caesars because they've moved valuable assets under

different operating companies. It looks like a mess, and we are short shares in pro. Steve, question about Cesar's? What does Atlantic City look like five years from now? A wasteland. No, it's actually moving away from casino entertainment to more shopping malls and family sort of entertainment is the hope. All right, Cesar's Nike, One Oak. You got one you like there, Steve?

I may have to go with One Oak in support of my MLP friend over there. Anytime, Steve. All right, guys, thanks for being here. Up next, we'll revisit our conversation with Jordan Ellenberg, author of The New York Times Best Seller, How Not to Be Wrong. Stay right here. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. For many people, the subject of math was not particularly enjoyable back in our school days, but our guest this week says that knowledge of math is like a pair of x-ray specs that reveal hidden structures underneath the messy and chaotic surface of the world. Jordan Ellenberg is a professor of mathematics at the University of Wisconsin, and he is the author of the brand new book, How Not to Be Wrong, the Power of Mathematical Thinking. Jordan, thanks for being here.

on. First, what is it about math that fills so many people with dread? Because it really does seem like, apart from any other topic that we learned when we were kids, math is the one that some people almost have a physical reaction to where they just say, well, I'm not a math person. Right. And it is very different from other areas, right? Like some people are really into reading books and some are not, but people wouldn't say, I'm not a reading person as if there was a kind of person to whom books made sense. And I think people do have that reaction to math. I think one reason is that the way we teach math is as if it was this kind of completely

separate alien construct from everything else that we do with our minds and do with our lives, like as if it was something invented, like just to make eighth graders' lives more unpleasant. And that's not why math was invented, right? That's not why we have algebra and why we have geometry. Those things were invented to solve real problems. And I think sometimes in the classroom we can lose sight of what's actually going on. Let me work backwards in your title. I'll start with a subtitle, The Power of Mathematical Thinking.

What does that mean to think mathematically? Well, it can mean all kinds of things. One thing I would say is that, I mean, many things in the book don't have formulas, don't have equations, don't have calculus or trigonometry or something like that. I think a reader may say, well, it looks like it means things. thinking reasonably, thinking with common sense. And in many ways, that actually is what mathematical thinking is. It starts from our common sense, but it builds on it,

and it extends it to apply to situations where maybe our common sense is not as helpful. How not to be wrong. First, was there any debate with your publisher about the wording of that title? Well, you know, when I was first pitching the book and talking to different publishers, There was one guy asked me what was actually a very deep question. He's like, why is the book not called How to Be Right? Since that's what people want, right? They want to be right about stuff.

Which is actually something I had never considered, which I thought was a rather profound question to be asked. And maybe one way to put it is that to not be wrong is a more modest goal. I'm not a math supremacist. I don't hold a position that you can figure everything out by computing. and calculating and reasoning logically, right? That's one of the tools that we bring to bear on our world, but only one, and it doesn't give us the final answers.

So I don't think you can be right about everything by doing math, but I hope that it's a way to inoculate yourself against certain kinds of mistakes that you might otherwise make. That is kind of a refreshing take in our current environment, because it certainly seems like more and more, whether it's politics or even especially sports, where numbers come into play, almost to the point where no one is willing to be surprised. I think a couple of years ago when Jeremy Lynn, the basketball player, who just appeared seemingly out of nowhere as a star for the New York Knicks, I think part of what people liked about that story was just the surprise aspect

that in a world where so many people are measured by various statistics, here's a guy who sort of fell through the cracks and surprised everyone. Right. And people love that. and they're right to love that, right? The emotion of surprise, it's like the joy of a good joke or like a great line of poetry or for that matter a great mathematical proof, right? I mean, one of the things I want to do in the book is to show you that to think mathematically

is not to be a robot. In some sense, it's the exact opposite, right? It's not to kind of just like look out at the world and constantly say that does not compute about everything that's like slightly surprising or weird or irrational. I mean, in math, we're very alive to those things. And you're absolutely right that I think part of what's difficult is that there's a discourse around numbers when numbers are thrown around in the public sphere, very often they're not thrown around in the correct spirit of uncertainty and approximation and estimation and

stuff we really don't know about. They're thrown around as if this is the final answer, like this is the way it must be. I mean, I wish, I think that people who like write about the economy and write about sports and stuff like that, I would like them to know that every time they say, like, we proved something, all the mathematicians who are watching are kind of laughing at them because that's not what proof is. So are you in some ways a small nightmare to watch the news with? If I were to get your wife on the phone, would she say that you're just constantly dissecting the numbers that are coming out in the news?

Well, you know what's good? Like now that there are blogs, we don't have to just sit around and complain to our family when there's something annoying in the newspaper or on TV, right? That's what blogs and Twitter are for. You're listening to Motley Full Money talking with Jordan Ellenberg. His new book is How Not to Be Wrong, the Power of Mathematics, mathematical thinking. Let's get to some of the examples in your book. I got to say, this one surprised me just because at the Motley Fool, when it comes to personal finance, there are

a few topics we are more passionate about than the futility of the state lottery system and how people who are spending their money on lottery tickets really should just get as far away from that as they can. And in your book, you actually illuminate the idea that, you know what, there might actually be a good time to play the lottery. Right, it's kind of a sympathy for the devil moment, right? For the lottery, I try to make the best case that I can. Well, I mean, the example I talk about in the book specifically was a lottery which is not very much like normal lotteries in that it was misdesigned so that there actually was

a reliably profitable investment that could be made by buying lottery tickets at the right time. And I can tell you I have checked whether any lotteries that use that system are going right now in the United States, and they are not. All right, so I shouldn't hop a plane and get to Indiana because that's the one state that's running a profitable lottery for people. Exactly. I mean, you're welcome to keep looking. You never know.

I mean, after all, this lottery in Massachusetts I write about, it was based on a similar game in Michigan that closed down. When the guys had been playing it in Michigan found out that Massachusetts was opening the same game, I can tell you, they got right in their car and drove to Massachusetts to buy tickets as fast as they could. Let's get to the world of investing closer to home for people here at the Motley Fu. at the Motley Fool. You write about the performance of mutual funds. How should people think about that? Because roughly half of the United States is invested, and a lot of those people are

invested in mutual funds through their 401K plans, et cetera. How should we be thinking about our mutual funds? Well, I think one thing I write about in the book is that you have to be very careful about judging the performance of a new fund. Because of this issue of incubation, because if somebody says, hey, we developed this new fund, you can buy into it now, look at these incredible returns, it's been beating the market by 5 to 10% over the last five years.

What you may not know is they may have been trying out 100 different allocation strategies or 1,000. Out of those thousand, maybe one of them beat the market five years in a row, and they're showing you that one and not showing you all the others. And if that's the case, it may very well be that this very appealing-looking investment vehicle

actually was a winner by chance and going forward is not going to be that good. I mean, you know, they always say, what's the watchword? Past performance is no guarantee of future performance. That's like, I think often people see that, and they think it's like the tag on the mattress. You know, like, oh, they have to put that there,

but I'm not really going to pay attention to it. People should pay attention to that because it's really true and it's important. But in the world of math, at least, well, in the world of investing, there are people, whether they are mutual fund managers or people who pick stocks for a living, the longer they do that successfully, should we at least give weight to people who have done it, not necessarily for three years or one year, because anyone can have a good one year. But if someone's able to do that over a 10, 15, 20 year period,

should we maybe give them a little bit more credit, a little bit more weight? Well, I think even there, a vigorous skepticism is warranted, right? Because that somebody would beat the market 10 years in a row. Well, of course somebody's going to, because so many people are playing the market now. There are so many people who are trying. That being said, I mean, this controversy about to what extent there are people who have a skill in consistently beating the market and to what extent it's just luck? I mean, that is a controversy that has been raging in investment circles and in financial

mathematical circles for decades. Let me put it this way. I think there's, from what I've seen, and I don't think this matter is at all settled, I think there is reasonable evidence that there's some amount of skill, but I think it's completely clear that there's much less skill than people think that there is. I think people tend to vastly overestimate how good people are at picking stocks. So knowing what you know about math and numbers, and having done the research you've done, how do you invest your own money? I stick it in a big, big fat index fund and like never think about it again. I know that's incredibly boring advice. It's like, eat a lot of vegetables and take the stairs at the office. So it's boring, but I have to admit that

that's what I do. Well, eating a lot of vegetables and taking the stairs at the office, that tends to work out as a general rule of thumb. Yeah, there's a reason that that's the standard advice, because it is actually correct. And everybody wants that to be a magic bullet. You know what I mean? Oh, if I eat a kai berries instead, I don't have to do any of that. But you're listening to Motley Full Money, talking with Jordan Ellenberg, professor of mathematics at the University of Wisconsin. He's also the author of the new book, How Not to Be Wrong, the Power of Mathematical Thinking. We touched on this a little bit earlier in our conversation, but when you think about how math is taught, not at your level. We'll get to the college level in a minute, but at the grade school level.

How should we be teaching kids about math when it's grade school, middle school, that sort of thing? Well, that's the million dollar question, and it's incredibly hard question, right? So I should say, do you have kids? My of a son is in second grader. I don't know if you have kids in school. I do. So I will say this. When I see the stuff that's going on in second grade, I feel like somebody out there in

curriculum is really thinking hard about what should be in there. Because I think this is pretty different from when we were in elementary school. I mean, kids in kindergarten, first grade, second grades are making histograms. and learning about distributions, right? They're making bar graphs. They're doing little toy markets where they make little art projects and then sell them to their fellow classmates and raise and lower the price and see what happens.

Did you know this stuff is going on in school? I did not. So I think that what I... So I think that people really are thinking about what should we be doing in math going forward in the 21st century. There's a huge amount of probability in statistics in the curriculum now, not in second grade, but in junior high school and high school. that wasn't there before.

I think all that is great, but that is not to say that the situation is perfect. And I think in some sense, teachers in K-12 are under tremendous constraints, right? Because their students, by and large are subject to high-stakes tests, and the future of the students and of the teachers and of their principals and of their schools, all depends on the results of those tests. So I think we talk a lot about what teachers should be doing, but I think we ought to be talking more about what the people who write the tests should be doing. because those tests control a lot.

They're not going away. And if we want things to happen that we care about in the math classroom in K-12, we have to make sure the tests, to the greatest extent possible, are testing for those things. And I think that's something that's not talked about enough. Do I have this correct that both of your parents were statisticians? We're an R. So they're statisticians.

You're a math professor. How much pressure is there on your second-grade son to go into the family business? I try not to pressure him. He likes a lot of different stuff. He is pretty sure he's going to be a major league baseball player. That's his plan right now. And I actually suggested to him, just so he had options, I was like, you know, you like math and like all the baseball teams now hire people

who are interested in math, like study the statistics of the players. And he said, well, Daddy, that's great because most major league players retire when they're 40. And then I can go study statistics for the baseball team. Right. After he walks into the Hall of Fame, then he can get a job crunching numbers for his team. Exactly. So he likes math, but I want to make sure that he knows that he doesn't have to do that. Take me out to the ball game. Take me out with the crowd. Buy me some peanuts and crackerjack. I don't care if I never get back. Let me root root for the home team.

If they don't win, it's a shame. Because it's one. They're out at the old ball game. Coming up more with Jordan Ellenberg. This is Motley Full Money. Welcome back to Motley Full Money. Chris Hill here talking with Jordan Ellenberg, author of the new book, How Not to Be Wrong, the Power of Mathematical Thinking. How did the research process for this book affect the way you teach your students at the University of Wisconsin?

You know, it affected it a lot, and it really, I feel like it really re-energized me in the classroom. to kind of constantly be building this storehouse of stories related to the concepts that I teach every day in the classroom. And not just that, but also I think, you know, math is taught in a very historical way, right? It's taught as if it's just been there forever. And when you really, I mean, in the book, I write about a lot of the history, because one way to really understand an idea is to try to put yourself in the world where that idea was not there and see it be created, right?

That's one way to really get a handle on it. And going back to those worlds and really seeing just how much the early thinkers in mathematics did not see it as this separate sphere that had nothing to do with the world, but was very tied in with their thinking about philosophy, they're thinking about politics, even they're thinking about religion in many cases. That was inspiring to me as a teacher, and it made me feel like I want every class I teach to have that and not be as if we sort of go through an airlock into math world when we walk into the classroom. So when do you think we got away from that? Because as we talked about earlier,

there really is this separation, you know, the airlock of math like you just referred to. When do you think, did you discover a point in history where we just started to think differently about math and the way it's treated? That's an interesting question. And it's really in a way it's like a question about the history of math education, which I don't write about so much in the book. One thing I will say we just got an amazing collection in the library at the University of Wisconsin of math textbooks going back to about the 1880s and 1890s. So you can really see, you know, firsthand how math was being taught. And one of the amazing things about looking through these, but one thing is that these are like actually used textbooks from Wisconsin. So you can see that

kids in like 1910 wrote the exact same stuff in pencil and their math books as kids do now. So that's kind of amazing. Various like obscene slogans and all this stuff. Really, the obscenities haven't improved in 100 years? Yeah, I mean, the obscenities we have, that's a perfected system, man. But the other thing is just that the arguments that we're having now about math teaching, like, oh, how much should it be about following precise algorithms and getting correct answers versus how much should it be about discovery and estimation and conceptual understanding is back and forth and people talk about it as if this is an issue about the common core,

this thing that's being being introduced over the last five years. These arguments are the same arguments that have been being, played out in the pages of math textbooks for decades since before you or I was born and since before our parents were born. And it's quite startling to like really see that and see that in the 1930s people were wrestling with the same thing of like, are the questions going to be kind of socially relevant or are they going to be more algorithmic and formulaic and things like that? These things are not new and they have nothing to do with the Common Core. For those of us who are parents and are looking to get our kids a little bit more interested

in math than they may be at the moment, what advice do you have? Well, I think, so one thing is that there's just a vast array of resources, both old and new, that are great for kids. And obviously, it really depends on the kid and what their interests are. So a kid, like my son or like I was at that age who's, like, super obsessed with baseball. Like baseball statistics are a great way in. You know what I mean? Like there's still, like, a huge amount of obsessive writing about baseball and statistics and how we judge players and stuff like that. And, of course, that can be translated into whatever sport your kids are interested.

I don't know maybe your kids are super interested in investing, for all I know. Is that how it works when you work for a Motley Fool? That is absolutely not the case. But there probably are some kids, right? The Alpsby-Keetons of the world who are into that. I would say, you know, the Martin Gardner books, which are now 50 years old, this guy who wrote a weekly column for many years for Scientific American about math, those books are old, but they remain classics.

And I think a lot of kids I knew who were into math, certainly me among them, obsessively read those books. But of course, there are also, like, vastly more online resources that just are of a kind that didn't exist before. Like, all kinds of, like, YouTube channels and online courses and just stuff from where you can really see. Some of them are made by kids, actually, just people who are, like, super enthusiastic about math. I think the challenge, though, is if it's kind of, like, eat your vegetables, like, people are not going to be into it, right? if you're sort of saying, do this because it's good for you. Most kids don't respond that well to that.

So sometimes, you know, there's a game called Dragon Box. Have you ever seen this? I have not. It's a, my kid plays it on iPad. I think it's probably on every platform. It's a very interesting game, which to some extent teaches part of algebraic thinking and algebraic manipulation. But it really looks like a game.

Like you would never know. It's kind of the math equivalent of when you've, like, like feed your kid like kale and lettuce by like grinding it up into a meatball so they don't even know they're getting their vegetables. You know, it's a bit like that. Well, you already had me at dragons. So, you know, I'm already interested if there are dragons involved. Great. Yeah. For kids who love dragons, absolutely.

The follow-up book is going to have the word dragon in the title. But this book is how not to be wrong, the power of mathematical thinking. And a lot of people are buying it. It's already made the New York Times bestseller list. Jordan Ellenberg. Thank you so much for being here. Oh, thank you for having me. It was great.

That's going to do it for this week's show. Our engineer is Steve Broido, our producer is Matt Greer. I'm Chris Hill. Thanks for listening. We'll see you next week.