'Motley Fool' Offers End-of-Year Investment Tips

Listen

Loading…

In his final visit before the end of 2007, David Gardner, co-founder of the Motley Fool, offers suggestions for ways to tune up your portfolio before 2008 arrives. He'll also weigh in on how President Bush's plan to help homeowners might affect Wall Street, and take a look at Neal Conan's fantasy portfolio.

Copyright © 2007 NPR. For personal, noncommercial use only. See Terms of Use. For other uses, prior permission required.

NEAL CONAN, host:

This is TALK OF THE NATION. I'm Neal Conan in Washington.

Now it's time to talk money with the Motley Fool. And this is our final visit for 2007. So before you break into "Auld Lang Syne," we'll talk about how to tune up your portfolio for the end of the year. Plus, what President Bush has planned to help homeowners might mean for Wall Street. Will those big bank stocks be cold in your stocking this year? And I still have a thousand dollars left to invest in my fantasy portfolio. Maybe retail stocks are the way to go this year. We'll get into that.

If you have questions about year-end investment strategies, what sectors are hot this time of the year, or what to keep in mind as we head into 2008, give us a call, 800-989-8255. You can also reach us by e-mail, talk@npr.org.

David Gardner joins us from Fool headquarters in Alexandria, Virginia.

Hi, David. Have your holiday shopping done yet?

Mr. DAVID GARDNER (Co-Founder, The Motley Fool): Neal, Season's Greetings. You know, it was actually Garrison Keillor who said some luck lies not - in not getting what you wanted this holiday but in what you have, which is what you needed all along if you had only known. Now, Neal, that's what I'm going to tell the people who are expecting stuff from me…

(Soundbite of laughter)

Mr. GARDNER: …this holiday season.

CONAN: And you're going to have a very quiet social year to follow.

(Soundbite of laughter)

CONAN: We can talk more about real estate - retail stocks. But first, nobody mistakes me for any kind of financial expert. Let me just say that neither David nor I will offer advice on whether to buy or sell any particular stock. When we talked about my portfolio, it's a fantasy portfolio with imaginary money. And I'm a beginner at this so keep in mind it's all just for fun. It's not meant to be financial advice and will not be a recommendation for or against any investment. As I mentioned…

Mr. GARDNER: Yeah, a beginner you say. A beginner, Neal, and yet look at you in less than a year, your call on Apple Computer more than a double.

CONAN: More than doubled. Some of my other picks not so great, though.

Mr. GARDNER: Not so great but not every person who calls themselves a beginner can double his money in a very high-profile company, especially when I think I was slightly talking down Apple a year ago, Neal, so keep going though.

CONAN: Well, I finally decided on where to make that last thousand dollar investment. And this is a product - you say pick something you know, pick something you really like. And I've decided to pick the product that I spend more time with than any other product in my life, and that's my mattress. I love my Tempur-Pedic mattress, so I'm going to invest that last thousand dollars in Tempur-Pedic. TPX is my last thousand-dollar investment.

Mr. GARDNER: Well, I think that sounds like a great idea. That has been a very successful company as you know, IPO. That means it was born in the public market not too long ago. So it's one of those companies that was around for a while as a private company and build up a brand name. It didn't, you know, throw together a business plan, go out to Silicon Valley and try to convince them to get money and go public right away. So I like those kinds of companies.

CONAN: All right. Well, we'll see how that does in the New Year. In the meantime, though, looking back on the month of November, there was a big round up right at the end of the month. But without that, boy, that would have been one of the historically lousiest months in history. And I know one of your fundamental pieces of advice is patience, patience, patience. It's hard when the market is that volatile.

Mr. GARDNER: Well, it's hard when the market is that volatile and it's hard when, frankly, so many other media sources and just the whole kind of news industries are so headline driven that we all end up thinking we have to act as frequently as we're hearing things change. But I think while most of us have been thought that human effort is rewarded, so the more effort you put in, the better you'll do. In investing, it's very counterintuitive.

We really do believe at the Motley Fool that often you put a lot of effort in your research, but you don't have to put a lot of trading and make that a big part of your effort. The more you trade, the harder you might think you're working. But we actually think the - often the worst your returns will be. So there are so many forces out there - our own human nature right through to financial television today that's trying to convince us that we need to think about it on a daily basis. And I'm just glad you and I get together just once a month. I think that's about the right rhythm for most of us to check in to our 401(k) statements.

CONAN: Well, let's talk a little bit more about the housing plan that the president announced today to help some homeowners. That's going to freeze interest rate on subprime mortgages, if borrowers qualify. And there are a lot of qualifications, and, well, you'll have to listen to the news more closely for that. But if somebody invested in these big lenders, these banks that seemed to have been exposed to all of this, well, all of this risk, should they be worried?

Mr. GARDNER: I think that - I don't own any bank stocks myself. There are two key reasons. First of all, I don't really know the banking industry that well, but second, I don't really like the banking industry much right now. I do believe that this was mainly a political move. I don't begrudge the president making political moves. After all, he's in politics. But I think that the banks wouldn't have agreed to do this unless he didn't really cost them too much.

And I don't actually think that this probably prevents a lot of the problems that I think will continue this throughout the banking industry. After all, what may have started as sort of a subprime, remember? I think it was this March or April where that news broke - the big surprise and what hurt the market so much over the summer. And since then, as we found out, it wasn't just subprime mortgages was it? It was actually that friend of yours that respectable professional who lives down the other end of the block who's also now a little bit in trouble.

I'm not here to cast doom and gloom about because I believe in the resiliency of our economy. But I do believe that this is a little bit of a band-aid and more of a political answer than really something that addresses the fundamental problems, which are irresponsible borrowing and irresponsible lending. And I - if I can - just before hopping down off my foolish soapbox, I guess I would just say, I'm not one who thinks that you need to bail those actions out.

I actually think that the best way to reward irresponsible borrowing and lending is to make people pay for it. Because that's the only way we learn. That's what we do for our kids, right? We make sure that they feel the natural consequences of their actions. And, you know, obviously, you want to be compassionate and I certainly am compassionate for anybody who's in trouble. I know a lot of people are. But, you know, that's the way we learn.

CONAN: A lot of people say they were just pursuing the American dream. Homeownership and - they got stung by predatory lending problems.

Mr. GARDNER: Well, and that's true. In many cases though, those people were not fully reading through the documents. We have somebody on our Motley Fool discussions boards posting just a couple days ago saying, you know, I admit it. I, you know, I do think that I was the victim of predatory lending, at the same time, I have to admit I didn't even read the document.

And so I see both sides of it. I bet you do too. I mean, I think that - I don't believe that there's any big bogeyman or any villain here. It's not the individual and it's not the bank. I believe they were all responsible and we're kind of trying to get ourselves out of this. And I don't believe that the big headline this week, which is noteworthy, ultimately fixes everything.

CONAN: Let's get some callers in on the conversation, as always - 800-989-8255, if you'd like to talk with the Motley Fool, David Gardner, or e-mail us talk@npr.org. Let's start with Mike(ph) and Mike's with us from Jacksonville in Florida.

MIKE (Caller): Hi, how are you?

CONAN: Very well, thanks.

MIKE: I had a question - I've been looking at ways - I think the dollar has a bit harder to fall. Is there a way to borrow - say, if I favored Euros - is there a way to buy something denominated in Euros so that the return of the stock is compounded and, hopefully, buy an increase in the Euro against the dollar? ADR don't do it - that's denominated in dollars. If I buy something on Wall Street, that's denominated in dollars. I wanted a - can I own a foreign stock in a foreign currency?

Mr. GARDNER: You sure can. Yeah, you can go to a foreign market. It takes extra effort and time, but you can buy a foreign stock in foreign currency. You need to convert your currency over first.

I'm somebody who - well, regretting the weak dollar because it makes it a lot harder for you and for me to travel abroad. And that can be an enriching experience from time to time. I'm not about to head for the hills on the dollar and I'm not sure that you won't find yourself not highly rewarded three years from now for your efforts of trying to make that conversion.

It's such a complex thing. It's hard to isolate out currency risk and make that the reason that you would invest your money in a certain way. After all, that weak dollar does help a lot of American companies export their goods abroad. So you could start saying, well, maybe actually I should be investing more of these American multinationals that all of a sudden are getting stronger exports as a consequence of the low dollar. So in the end, I…

MIKE: No, I think there's a - I think there's a way to go just in our trade and balance and the amount of budget deficits are running. When the trade gap narrows and when we run less of a deficit then it's supply and demand, we won't be throwing that many dollars around. It will definitely turn around and you wouldn't want to be - well, you want to be in dollars at that point.

CONAN: I keep expecting Alex Rodriguez to demand that his contract be denominated in Euros.

(Soundbite of laughter)

MIKE: There you go.

Mr. GARDNER: That's when we all need to convert the Euros. I'd certainly - let me say, I don't believe - I think it's a perfectly valid thing to look into. I think most listeners today probably don't have the energy and I'm not sure that for most of us, we would be rewarded for doing that. However, there are some smart people who are very engaged out there who, you know, stayed out of the dollar from three years ago. And I certainly, as just a holder of American stocks, have not benefited by my, maybe relative complacency to that person. But I still don't feel insecure about my decision to just be fully invested in American stocks and ADR as well.

CONAN: Okay. Mike, good luck.

MIKE: Thank you.

CONAN: Bye-bye.

Here's an e-mail question from Nicolas(ph) in Portland, Oregon: I'd like to ask a question about diversification of our retirement accounts. Everybody says you're supposed to be diversified and my wife and I are, at least I think so. We have our IRA and deferred compensation money invested in 22 different stock and bond funds. However, we use only three different investment firms to manage those funds.

My question is, is, if say, Schwab for example, were to suddenly go out of business, are the funds that are held for me by them at risk? Should we be more diversified in our management funds also?

Mr. GARDNER: Well, first of all, we all do get some insurance from the government for holdings up to 500,000 or $1 million. And you can apply to your brokerage firm to get additional protection for your money with them. If we're talking about the idea that gosh, I own funds from this one brokerage firm, usually, if there's a problem, it'll be within an individual fund. I'm not going to be too worried about, you know, banking with one primary brokerage firm and having my money in their different funds. I don't believe that that's a risk you need to diversify away from.

I think that e-mail mentioned, Neal, 22 separate investments?

CONAN: Mm-hmm.

Mr. GARDNER: And I like to think for a fully built out portfolio, it's about somewhere between 15 and 40. And, you know, some people like to really spread things out. That's fortyish(ph). That's actually me. I like to spread things out. Some people like to run a tighter, more focused investment portfolio. Those are usually people who are very highly engaged, maybe even more so than I am.

So I would say that that number 22 is pretty good. You are - sounds like invested in funds. My 22 were all stocks. So I need to be more diversified. If you own a single mutual fund, the vanguard SNP 500 index fund, let's say, you own 500 companies. So even though you just think of yourself as only one fund, you actually own little pieces of 500 different things. I'm not sure most of us needed to be in 22 different mutual funds. However, sounds valid to me. I'm not - I'm certainly not going to come out against it. There might - I hope there's some good funds in there.

CONAN: David Gardner is co-founder of the Motley Fool. You're listening to TALK OF THE NATION from NPR News.

And let me ask you because we're running out of days in 2007, this would be a good time of the year, note, to reevaluate, reassess your profile - your portfolio?

Mr. GARDNER: Yeah, I do think so. Once a year is probably a good a rhythm. And I think for most of us, we just want to make sure that we have - if we're still working in this world, we want to try to have a date in mind when we think we can achieve financial independents. I'm not going to say retire because I don't like that word. It implies for me a disengagement from the world and I had a grandfather who lived to age of 98 because he stayed fully engaged all his life. So I don't use the word retire. But it is awfully nice to sit down with a financial professional, a financial adviser, the only I would suggest, and circle your date.

Where is the date where you can live off the interest of your investment portfolio? For many of us, it's a long-term, long-shot dream and certainly for some listeners they're already living that. I have seen it happened enough with people that didn't think it could happen in their lives that I'm a real optimist for planning for that date. And I think once a year, just see how far you're along. And…

CONAN: And…

Mr. GARDNER: Go ahead.

CONAN: Well I was going to ask you also another thing that a lot of people do at the end of the year is to make charitable donations. And you say that donating stock might be a good idea.

Mr. GARDNER: In fact I think it's the best way to donate. You want to donate appreciated stock, not the one you're underwater on because the beauty of donating…

CONAN: So I kept up my serious stock.

(Soundbite of laughter)

Mr. GARDNER: No, you want to take that apple stock, Neal, and you want to give away some shares of it. The reason is you are forgiving the capital gains tax that you would've paid on that. So, you know, if you in a small F - foolish way decide to sell that, pay the 20 percent capital gains tax and then donate that money, you just forewent 20 percent more that you could've given the charity. If instead of selling and then giving the money away, you just give the stock directly, that charity receives the full value and no one ever pays taxes on the capital gain that you achieved there. So you're able to give more by giving stock.

CONAN: Let's get a caller in. Jack(ph) joins us from Nantucket in Massachusetts.

JACK (Caller): Hi. It used to be common financial advise for people to have say, 5 or 10 percent of their portfolio in something like gold as a hedge against inflation or recession. With today's threat of recession, is that a good idea again?

Mr. GARDNER: You know, I think for a lot of us that comes down to our timeframe, I do think that the, well, the metals have been a great place to be invested the last few years. And I believe that they are great worldwide forces and trends behind base commodities - and this extent, certainly, beyond metals - being more dearly priced here of the next few years. The great stories about the emerging middle classes in countries like China and India are a good reason, I think, to suspect that there will be more and more demand for just base commodities. That's already part of the story so I'm speaking the fifth inning confidently about what's already happened in innings one through four, but believing that we're not through this ball game yet.

So that would argue for yes. A higher than 5 to 10 percent allocation to, let's say, gold. But I also have to mention that Professor Jeremy Siegel of the Wharton Business School, an esteemed financial author, has written a few good books in his time. And one of them talks about how if you'd actually owned gold over the last 300 years, you're about where you started. And those - there's been no real above inflation, appreciation of gold as an asset. You know, whereas, a lot of us are looking at, you know, new technologies and other things that are emerging that do create real value over time.

So to close that answer up, if you are more short-term in your inclination, I do think that gold will outperform and if you're getting near retirement, and you're looking to juice things up a little bit, you might want to consider it. However, if you have a 25-year mentality as I do, and I would say the same if I were 65 today - I'm 41 - I might avoid gold altogether because I don't think that there's a great long-term argument for it.

CONAN: I would say that if I had held any stock for 300 years, no matter how it did, I'd be very, very pleased.

(Soundbite of laughter)

Mr. GARDNER: Well, you know, it's hard to do. I do believe and you'd have to check my math on this here, Neal, but I think Ben Franklin actually in his will willed a sum to the city of Philadelphia and if the city had truly kept it invested instead of dipping into its conference and spending it out, the actual value of that would be more than enough to purchase the United States of America today. If Philadelphia had just allowed that to appreciate at 10 percent compounded. You know, compounding returns can do miracles over multi-hundred years.

CONAN: Jack, thanks very much for the call and good luck.

JACK: Thank you both.

CONAN: All right, bye-bye.

And I'm afraid we're out of time, David.

Mr. GARDNER: Well, it's always a pleasure, Neal. And don't forget that Garrison Keillor line. I really do believe a lot of us for these holidays should just wish for what we already have.

CONAN: Happy holidays. We'll talk to you in the New Year.

David Gardner is the co-founder of the Motley Fool. We have a link to my portfolio at their site at npr.org/blogofthenation. We'll do it again in 2008.

Tomorrow, it's SCIENCE FRIDAY. Ira Flatow will be here. We'll talk to you again on Monday. It's TALK OF THE NATION from NPR News. I'm Neal Conan in Washington.

Copyright © 2007 NPR. All rights reserved. No quotes from the materials contained herein may be used in any media without attribution to NPR. This transcript is provided for personal, noncommercial use only, pursuant to our Terms of Use. Any other use requires NPR's prior permission. Visit our permissions page for further information.

NPR transcripts are created on a rush deadline by a contractor for NPR, and accuracy and availability may vary. This text may not be in its final form and may be updated or revised in the future. Please be aware that the authoritative record of NPR's programming is the audio.

Comments

 

Please keep your community civil. All comments must follow the NPR.org Community rules and terms of use, and will be moderated prior to posting. NPR reserves the right to use the comments we receive, in whole or in part, and to use the commenter's name and location, in any medium. See also the Terms of Use, Privacy Policy and Community FAQ.