NEAL CONAN, host:
This is TALK OF THE NATION. I'm Neal Conan in Washington.
Right now, time for our monthly visit with The Motley Fool. When the economy is in the dumps, one of the first assets you're likely to look at is your portfolio, that 401(k) plan at work or the college fund you put into the markets, or if you have questions about what to do with your investments in a shaky economy, how to protect yourself, maybe even make a little extra cash from the falling dollar, about trends or philosophies of investment, our number is 800-989-8255. E-mail talk@npr.org.
David Gardner is the co-founder of The Motley Fool and is in a studio at their headquarters in Virginia.
And, David, we also have to do a one year wrap of my fantasy portfolio today, too. So nice to have you on the program as always.
Mr. DAVID GARDNER (Co-founder, The Motley Fool): Thank you, Neal. Good to be here.
CONAN: And we'll get to calls in the moment. But first, our usual words of caution, neither David nor I will offer advice on whether to buy yourself any particular stock, we're talking about a fantasy portfolio with imaginary money not meant to be financial advice and will not be a recommendation for or against any investment. And a good thing, too, because of that fantasy $10,000 we invested right now, I made $9,329.69.
Mr. GARDNER: Well, it hasn't been a great year, Neal, but you've got some things to celebrate. Again, we have to go to back to you Apple Computer call of the year ago; I think you made it around, well, 85, 90 today. Even though it's down substantially from its high, it's on 130, so you got that one right and you even convinced me because I recently recommended it myself. I really have to say Apple is one of the few bright spots in the market today. As you may have noticed, the company announced 10 million iPhones; they're promising still to ship the in 2008. So you have had some highlights.
CONAN: And the other big winner was ConocoPhillips, a well-managed company, we think, in an oil industry where prices are going through the roof. But nevertheless, some real stinkers too. For example, well, Tempur-Pedic, my most recent purchase, which is down 40 percent.
Mr. GARDNER: You know - and I've had some of those too, who hasn't? Yes, that was, sort of a - that was a December move, I believe.
CONAN: Yeah.
Mr. GARDNER: And now, here we about to approach March, hasn't even been three months, really, it seems unfair but then again there's so many good companies, and I think Tempur-Pedic remains one that have had that kind of a thrill ride these last three months.
CONAN: So, anyway, next month what we're going to do is take - I'm going to take a look at my holdings and decide, well, maybe after a year, it might be time to move some of my fantasy portfolio into other stocks. We'll talk about that next month. In any case, we got loads of questions about the economy in these conditions. And well, David, just today the stock market is down again, the most recent flash I saw shows it down, what, 90 points on the day. So as this steady drumbeat of bad days on Wall Street comes in, it's hard to sustain your discipline, isn't it?
Mr. GARDNER: Well it is, and you know a year ago if we were talking about the subprime problems they were just about breaking at this point. The news and some of those companies which are today out of business that were making those loans were just - it was all coming to light right around now. As you know, that's spilled out into a bigger story about the real estate market overall, and it wasn't just small banks who were once loaning to people that probably shouldn't have been getting loans in the first place, but rather more broadly. It started to affect lots of banks, and then there were some questions about hedge funds, which there always will be I think for the rest of our lives.
CONAN: Yup.
Mr. GARDNER: And then today, Neal, it's about is this economy slipping into a recession. And I guess my foolish, with the capital F, point about this is it's always funny how often that word is use because there's very little group understanding of what recession even is. Neal, not to put you on the spot but do you know, right off the top of your head, what a recession is?
CONAN: Declining growth, two consecutive quarters.
Mr. GARDNER: Okay. And you're an ace. Now, I guarantee you, though, if I were to buttonhole somebody on the street and ask him or her do you know what a recession is, most people I don't think would give that answer. That is the standard answer, and I just don't think that there's that much broad recognition of exactly what a recession is. So, my antenna always go up when I start to hear a word banded about so frequently that most people don't really understand.
With that said, as you may have seen today, Neal, that the government reported that the gross domestic products was scantily growing by the end of last year, these numbers are always two months delayed and so it's sort of a
so frequently that most people don't really understand.
With that said, as you may have seen today, Neal, the government reported that the gross domestic product was scantily growing by the end of last year. These numbers are always two months delayed. And so it's sort of a funny thing. We all ask, are we in a recession. And we only hear two months later where we were three months ago. So it's about flat right now, isn't it?
CONAN: Yeah, just about flat. And so we're going to have to see again economists disagree sharply about this. But again, we'll have to see.
Here is an e-mail we have from Esvashai(ph) in Toronto. With more luck than brains, I sold my house at the peak of 2005, moved to Canada. But the house money is still invested in the U.S. Would you leave it there or bring it over to the border to invest in Canada where there is no war in Iraq, no housing crisis and no deficit. It seems like a no-brainer but I'm no economist. Any advice?
Mr. GARDNER: Well, I - part of it, for me, would be a light question. How long is that e-mailer going to be staying in Canada? If it was a big move, I would probably tend to move my assets where I'm living or where I'm planning to. But if it's temporary, I probably wouldn't make a big switch.
Yes, you're right. The U.S. is a good example right now of a troubled economy, and there are a few others that are quite as troubled-looking as ours. At the same time, we remain a very strong economy. Canada specializes in some of our favorite sectors right now. If you look at metals, oil and gas, railroads, some of the best stocks out there are actually Canadians. So I think every American should consider looking in that direction a little bit, even if you just buy an ETF. But as for whether to actually move all of your money into another country, I think it really comes down to how long you're going to be in that country.
CONAN: A lot of people, though, are asking, you know, the loonie suddenly looks like a more stable currency than the dollar, certainly so does the euro. How do you make investments in those kinds of things?
Mr. GARDNER: Well, I think - first of all, you can outright buy foreign stocks on for exchanges. And so that's always an option. I know that it doesn't look good right now for the U.S., but I do - I have a lot more faith in the U.S. economy and in our innovation and our ability to bounce back that maybe in the doldrums of a potential recession a lot of us feel. So I think it can be short-term thinking.
While I know it's frustrating to see our currency deflate, it's also worth remembering there are benefits to that, too. U.S. exports up markedly and surprising economists when that data came out this morning. So if we start looking at some U.S. companies that - whose products are now being purchased more frequently abroad, thanks to that lower dollar. You'll start seeing that there is some benefit to a weaker currency.
CONAN: Let's get some callers on the line. This is Anne(ph), Anne with us from Colorado.
ANNE (Caller): Hi.
CONAN: Hi, Anne.
ANNE: Thanks for taking my call.
CONAN: Sure.
ANNE: I am wondering, I have a substantial 401(k) plan and I'm probably 15 years away from retiring. And I'm wondering if it's better maybe since my investments aren't doing well to borrow from my 401(k) and pay off my mortgage.
Mr. GARDNER: Yeah. And in general, Anne, I would not recommend doing that. We don't really like to borrow. If you're ever going to borrow against your 401(k), I would suggest doing so in small amounts. But a lot of people have gotten in trouble by doing that, especially in the last two years. And I just don't think - it isn't an example of the fiscal prudence that we at The Motley Fool are trying to get our country to begin to adopt more frequently. So I'm sorry if that's not the happy answer, but to me it's the serious answer.
CONAN: Well, why would it be - why would you be inviting trouble?
Mr. GARDNER: Well, you know, if the value of your 401(k) declines, if you're borrowing too much from your 401(k), some people are borrowing from their 401(k) to buy depreciating assets like a new car. There are lots of reasons that it's not at a broad mainstream level a good answer. That said, Neal, there are certainly are exceptions. Have you done it?
CONAN: Me? Oh, Anne. Anne, have you done it?
ANNE: I have not done it, but I'm in a position now where I don't have much tax benefit because my mortgage is so small.
CONAN: You're paying off principal rather than interest.
ANNE: Yeah. I feel like if I pay myself back at an interest rate that maybe I would be better off since I'm not making money in the market right now anyway.
CONAN: Well…
Mr. GARDNER: No strong feelings here. I mean, certainly, with a lot of - it sounds like a lot of your mortgage is paid off. That changes the calculus a little bit.
ANNE: It is. The mortgage is, you know, very small. So I just been trying to figure out a way to, you know, not watch my investments go down. And I thought that might be a way to - if I ended up debt-free and paid myself back that maybe in the long run I would do better.
Mr. GARDNER: Well, I'm somebody who doesn't necessarily hasten to pay off mortgage debt especially if it's at a lower interest rate, but I understand. And I think for a lot of us, if it is a substantial question. That is if it's something that would cause you to sleep at night or, let's say, six figures are involved, at the stage I really would encourage you to look at the financial adviser and just think through the numerical implications of doing that. (Unintelligible) financial advisers are our favorites at The Motley Fool. They are the people that you just pay by the hour. They're not trying to also sell you on their 401(k) plan.
ANNE: Okay.
Mr. GARDNER: But it sounds like you may be in the latter stages here, Anne. And I'm not necessarily going to dissuade you strongly because it sounds like you've got a better head on your shoulders than most people who have asked that question at the Motley Fool.
(Soundbite of laughter)
ANNE: Okay. Thank you.
CONAN: And thanks for the phone call, Anne. Bye-bye.
Let's talk now with Giovanna(ph). Giovanna is with us from Kansas City in Missouri.
GIOVANNA (Caller): Yes. Hello, Neal, I love your show.
CONAN: Well, thank you. That's so nice of you.
GIOVANNA: See, my question is regarding our 401(k) and IRAs. We have - I mean, I follow them pretty close. And since September, we have lost quite an amount of value on our accounts. The only ones - the only funds that are doing good are the international-based funds. And would it be convenient to just move the funds, the ones that are not doing good, into money market funds until the markets stabilized a little better?
Mr. GARDNER: Well, the problem with that Giovanna is that it's hard to sometimes know when that's going to happen. And if there were a magic bell that rang to let you know the market is about to turn around then you would probably make the right decision. But I think most of us have done well by simply remaining invested in the 401(k). After all, it is a long-term plan. You are going to be invested, I assume, in the stock market with a portion of it. It sounds like you are.
And you have to understand that one year out of every three, the stock market, historically, has declined. Historically, very few people have proven real consistent ability to predict which one out of every three years that will happen. And so I think we make mistakes when we start to - try to time our way into and out of the market. Even in a 401(k) plan moving between, let's say, an index fund that invests in stocks, and then the money market as you mentioned. So I have to say nobody likes to lose money. I certainly don't. I bet I've lost more in percentage terms than you have because I'm invested in more aggressive growth stocks, and probably always will be, over these last three months.
So that - nobody likes that. Psychologists tell us the pain of loss is three times the joy of gain. So we always feel it a lot harder when things go down. But with that said, I do believe that if you are at least, let's say, 10 years away from retirement, and most of us are, I would recommend that you just stay invest and keep saving. The biggest challenge is to keep saving and adding for most of those months in and months out.
GIOVANNA: Mm-hmm.
CONAN: Good luck, Giovanna.
GIOVANNA: Okay. Thank you.
CONAN: And thanks so much for the phone call and for your kind words.
We're talking with David Gardner of The Motley Fool.
You're listening to TALK OF THE NATION from NPR News.
And, David, I did want to ask you about a news item we saw this week. IBM announced that they're going to be buying back millions-dollars worth of their own stocks. What does that generally tell you about the company when they are deciding to that?
Mr. GARDNER: Well, every company has a bank account like you and I have, Neal. And so the company has the decision what it wants to do with that money in the account. And two primary decisions that they make are, number 1, let's reinvest it in our business. Let's, gosh, let's come out with the iPhone. Let's make some new products and get it out there. Or number 2, if they feel as if an even better investment of some of those dollars might be in buying back their own shares, they can do that. Of course, the third option is many companies will pay a dividend out of its bank account to its shareholders as well.
Now, companies specifically that decide to buy back shares, we generally favor at the Motley Fool. Why? Because the fewer shares out there, the more ownership of earnings in the future that company by those shareholders that have retained their shares. So when, all of a sudden, a company that, let's say, had 100 million shares outstanding decides to buy back 10 million of those, now you only have 90 million shares outstanding. If you still have your same 100 shares, well, you now own a greater part of the company's pie, of its earnings as they come out every year or so.
Companies that enough cash in the first place, that have positive cash flow and can buy back their shares, end up, in many cases, being the best companies that hold for the long-term. So I'm not a big follower of IBM. Either way, those really, really big companies like that - Wal-Mart, others - don't quite interest me as much because they don't feel as if they'll be good growth stocks over longer periods of time. I prefer to look at companies that, say, have a market cap of $50 billion, not $200 or $300 billion - $50 billion and lower.
So a lot of the companies in the Neal Conan portfolio we've talked about fit that kind of mid-cap strategy that you've been deploying as well. So as far as IBM, I'm not excited or not by the stock, but I do like share buybacks.
CONAN: Nice to know I had a strategy. I didn't know that before.
(Soundbite of laughter)
Let's talk now with Mary(ph). Mary is with us from California.
MARY (Caller): Oh, hello. My husband and I are seniors. And he's semi-retired, works part-time. I'm totally retired. No income. We have currently $20,000 in a matured account we had that is just sitting there. My question is should we take that amount of money and pay off all of our credit cards, which amount to just about that much money, or should we reinvest it? And if so, in what?
Mr. GARDNER: At what rate is your credit card interest?
MARY: Oh, they vary. We have Visa. We have MasterCard. We have Macy's. We have Mervyns. We have Home Depot. So they're - I think Home Depot is the highest. It's probably 10 or 19 percent.
Mr. GARDNER: And what would be the lowest?
CONAN: Lowest credit card rate.
Mr. GARDNER: That's right.
MARY: Probably the Visa. Five and a half, I think.
Mr. GARDNER: Okay. So I would make haste quickly, not slowly, as Erasmus once suggested, but make haste quickly to pay off anything that has an interest rate of 10 percent or more. For anyone listening, regardless of whether you're a retiree or a student, a young person, I would suggest that you pay off all credit cards in full all the time that have double-digit interest rates. It's just - well, it's just prudent because when you think about it, the stock market, which is generally the best mainstream investment vehicle available to all of us has a historically rate of return annually of 10 percent.
So if you're borrowing and having to pay back money at 10 percent and hoping to invest, you're about neutral and you're sweating it, by the way, when you're at a 10 percent interest rate. If your credit cards are charging you more than that, get out.
MARY: Okay.
CONAN: Good luck, Mary.
MARY: Thank you.
Mr. GARDNER: It's great, Mary, to have that $20,000 sitting there. And yes, spend as much of it, great rid of that Home Depot debt fast.
CONAN: David, as always, thanks for being with us. And again, we'll be back next week and reevaluate that fantasy portfolio. Boy, Tempur-Pedic (unintelligible), though that serious stock isn't doing so much great either.
Anyway, David Gardner is co-founder of The Motley Fool, our money pal every month. Again, you can follow my fantasy portfolio online. The link is at npr.org/blogofthenation. If I can take the bad news, so can you.
David, as always, thanks very much.
This is TALK OF THE NATION from NPR News. I'm Neal Conan in Washington.
Copyright © 2008 NPR. All rights reserved. Visit our website terms of use and permissions pages at www.npr.org for further information.
NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.