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David and Tom Gardner

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from: Tom Gardner

Final Thoughts

Posted Thursday, May 10, 2001, at 2:55 PM ET

Dave,

Great note. Thanks. I thought I'd end with a few lessons or reminders I take away from our exchange, and the exchange in "The Fray." Here are my six big takeaways from this past week:

1. THE DRUG WAR

I brought this conclusion into our exchange, and I leave with it intact. I think that America's drug war is a sad misallocation of energy and resources. To use or abuse drugs is a personal choice for adults in a free country--whether it's an ultimately deadly drug like nicotine and tobacco, or a catalyst like caffeine, or an addictive like heroin, or a depressant like alcohol. Drug use is a matter of personal choice and drug addiction should be treated as a medical problem. Do we really think Daryl Strawberry and Robert Downey Jr. should be going to jail?

2. GREAT ORGANIZATIONS

I'm not convinced that for-profit companies hold all the answers to solving present and future problems. In a free society, for example, there's always a bottom 5 percent in personal income and savings that won't attract a lot of commercial providers. In particular, I think that's where not-for-profits and government funding are an absolute necessity. In that spirit, I think it's more important for us to understand what make for great organizations (for-profit and not-for-profit) than to decide where they'll be effective. In America, we are definitely allocating too much money to mediocre and worse for-profits and not-for-profits.

3. THE NEED FOR FINANCIAL EDUCATION

I certainly take away from this exchange that there's a lot of concern about the levels of poverty in American life today. One solution I suspect we can all agree on is the need for mandatory personal finance and investment education at every level in school. Today, we're graduating from grade schools, high schools, colleges, and graduate schools millions of students who have no degree of mastery over the simple mathematics and basic concepts of personal finance. It may just be one very small step toward solving the problems of poverty. But it's a step worth taking.

4. DEFINING QUALITY OF LIFE

My vacation and our exchange here has convinced me that we need a different scoring system for the quality of a life. It's easy to oversimplify. If someone has millions in their brokerage account, they must be happy, right? The Dalai Lama would giggle at that idea. And while I certainly don't think a lifeguard on the Big Island is a proxy for the "have nots" in America, what she said does remind me that financial success is one--yes, an important one--but just one of many factors that make for a good life. Perhaps on the mainland, she's right, we do rate it too highly.

5. POLITICIANS AND ECONOMISTS

Dave, your comments about economists and politicians persuade me (though they didn't persuade everyone) that we're living in a country and moving into an era where the private sector will grow much faster than the public sector. As a nation, we're asking a lot of the tough questions about what the roles of our local, state, and federal governments are. We should always be asking these questions. And in the end, I side with former Fed Governor Wayne Angell, who--when hanging on Fool radio--said, "Never before has it been so fun and so fascinating to dig into economics and use these economic tools to understand the world around us."

6. HOMER SIMPSON HANGS OUT ON SLATE

And he does eat Krispy Kremes. Amazing. Those are my takeaways for the week that was. Thanks to Slate for having us. Thanks to everyone in The Fray for reading, reviewing, and reacting to our thoughts. And thanks, Dave, for actually talking to your younger brother this week.

Have a great day and weekend.

Best,
Tom

the breakfast table
entries
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from: Tom Gardner

Final Thoughts

Posted Thursday, May 10, 2001, at 2:55 PM ET
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David and Tom Gardner are co-founders of The Motley Fool, a personal finance company. They are dedicated to educating, amusing, and enriching people through their Web site, books, newspaper column, and radio and television shows.
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[Notes from the Fray Editor: We're running Arthur Stock, because of his starring role in this week's "Breakfast Table" (this was his featured post), but Kate persuasively argues the opposite about Krispy Kreme here ("Hot sugar and fat beat microchips..."). Some good ruminations about the quality of life of the have-nots: try LT here (the lifeguard was a woman in fact--LT knows why that would be ironic...), or this post: "Short sightedness does not magically transform the HaveNots into Haves, it just keeps them from griping about the inequities." RonK has a comprehensive flame post for anyone looking for an argument here. There are Questions for Sowell here from Tom R, and two points of view on what The Fray has to offer in this thread.]


Krispy Kreme is a pure momentum play, and its momentum is played out. It's a product that appeals to the stock-buying class, and was new to many in that class (since it went national very recently) when they bought the stock. These stocks do well at first because people buy the stock after enjoying the product, without looking at balance sheets. Then the stocks collapse to sane levels--P/E closer to 20 than 90. Think of Calloway Golf Clubs some years back, mircobreweries, cigar sellers, Yahoo, and in the food world Snapple and Boston Chicken. Starbucks is almost an exception that proves the rule, but even it had several 50% falls along the way.

Krispy Kreme has limitations that can't be fixed: food is a competitive industry; Dunkin' Donuts demonstrates that there is competition even in the sub-category; franchise operations are subject to all kinds of accounting gimmicks for the first year. Boston Chicken, now in bankruptcy, was notorious--I don't know if Krispy Kreme is playing accounting games, but it would be difficult to determine that it isn't.

Foods with holes in them are especially poor investments, as Manhattan Bagel, Einstein Bagel, and several other bagel purveyors proved.

--Arthur Stock

(To reply, click here.)


 Whenever I hear someone start talking about finding for-profit solutions to social problems [Monday's entry] I think of a quote by Bill Speidel about Seattle's city fathers. "If they could have made more money by not building a city, they would have."

And there, in a sentence, you have the promise--and the problem--of for-profit ventures. What looks from outside like a remarkable feat of a healthy social conscience, in truth, relies on nothing more than a healthy respect for the bottom line.

The trouble is there in that "if" clause: when that bottom line comes into conflict with the social goals and one or the other has to give, which way are the venture philanthropists going to jump? Especially with any philanthropy that ventures into the tricky area of public goods, the good accomplished is only rarely monetizable.

--James Grimmelmann

(To reply, click here.)


 As far as I know, no society has yet come up with an incentive structure which rewards leaders by how well they are able to make impartial policy decisions, though it would be a great discovery. It's a nice try, but I don't think hiring economists to run the country would be the perfect solution.

The problem with economists is that they study only certain social relations, those that can be converted into cash. There are indeed harsh economic realities that we must face in making policy decisions. However, there are also harsh social, diplomatic, and environmental realities which economists do not take into account in their analyses. Of course economic growth is important, and policy makers should know exactly what they are doing to the economy and to individual businesses, but they should not assume that commerce trumps all other interests. (Stop waving those copies of Atlas Shrugged at me! Ayn Rand isn't even an economist!)

--Jane Grey

(To reply, click here.)

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