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Tesla vs. SEC, More IPOs, and What Brothels Can Teach You About Risk Management

Chris Hill, The Motley Fool

In this week's Motley Fool Money, host Chris Hill and Motley Fool contributors Andy Cross and Jason Moser look over the market's biggest stories. Amazon.com (NASDAQ: AMZN) is quietly making big moves into advertising, and we should expect more of that to come. Tesla (NASDAQ: TSLA) and the SEC were instructed to work something out in the next two weeks, and Tesla's future remains uncertain. A new IPO hit the market, looking a lot more profitable than some other recent IPOs we might mention. And, as always, the guys share some stocks on their radar this week. Plus, Chris interviews author and journalist Allison Schrager about her new book, An Economist Walks Into a Brothel. Schrager shares insights about risk management outside of the investing world, the state of the U.S. economy, and more.

To catch full episodes of all the Motley Fool’s free podcasts, check out our podcast center. A full transcript follows the video.

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This video was recorded on April 5, 2019.

Chris Hill: It's the Motley Fool Money radio show! I'm Chris Hill. Joining me in studio this week, senior analysts Jason Moser and Andy Cross. Good to see you as always, gentlemen! We've got the latest headlines from Wall Street. We will dip into the Fool mailbag. And as always, we'll give you an inside look at the stocks on our radar. 

But we begin this week with Amazon. Not Amazon the retailer, not Amazon Web Services, but Amazon advertising. Wall Street Journal reporting this week that the ad spend in the U.S. hit $212 billion last year, that's up nearly 10% from the year before. But within that story about U.S. advertising writ large came the news that Amazon more than doubled its ad revenue to roughly $6 billion. Andy, I know I shouldn't be surprised by that. And yet, I still am.

Andy Cross: There's been a lot of great conversation recently and articles written about the exploding growth of Amazon's ad business. They are now by some estimates the third largest advertising player in the market behind Facebook and Google, upwards of north of $10 to $11 billion. It's a significant player now in this space as more and more of our ad searches and our product searches move from Google over to Amazon. By the estimate of this article you mentioned, WPP, which is the largest ad buyer in the country, spent $300 million directly on Amazon ad searches last year, two to three times as much as a year ago, and 75% of that came from budgets that were originally allocated to Google Ad searches. Google is still the dominant player. They have the largest market share when it comes to ad searches. But clearly consumers now are searching more directly on Amazon than what we used to do.

Jason Moser: I think we're going to start to see the strengths of Amazon's business model. I guess we've really already seen the strength of it, but we're going to see more so how the advertising component benefits and complements their business model. They've always been on that commerce side. It's natural to go ahead and bring that search behavior over to the Amazon platform. When you think about Google, you're doing the search for whatever, and it's taking you ultimately to another place to buy something. So it's a little bit less of a dynamic relationship there. With Amazon, you're bringing that search and advertising component already over to a very powerful e-commerce engine. It's not going to be as meaningful as Google's ad business is to it. But it will be nice, incremental revenue and high-margin revenue at that, that really helps feed their bottom line profitability for a lot of years to come.

Cross: By one study now, 54% of our product searches now start directly on Amazon, as opposed to where it was a few years ago at 46%. 

Moser: I would say personally, I do that more.

Cross: Me too!

Moser: It's just a quicker way to get to what I'm trying to find.

Cross: Now, Google is still the largest player in this space. It's not like they're a threat from Amazon particularly with this, but maybe on the margins, more and more ad clients start moving their dollars more toward Amazon.

Hill: I feel like we've seen this movie before with Amazon in this sense -- for the longest time, the focus was on the e-commerce site, and rightfully so. All of a sudden, you started to hear about this Amazon Web Services business. And by the time that story really got to be mainstream for mom-and-pop investors, the thing was a behemoth. I feel like this is what we're seeing now with the advertising business.

Cross: The digital ad space is still growing very rapidly, almost 20% a year, and it's still a relatively small part of the overall ad budget for clients globally as they spend dollars on advertising. So I think you're right, Chris. You look out five years, and the Amazon advertising story is not going away. We will hear more and more about it.

Hill: Real quick, Jason, one other story this week regarding Amazon cutting prices at Whole Foods. As a shareholder, should I be happy about this? As a consumer, I am happy about this.

Moser: It's certainly not surprising. A lot of us expected it to happen. Whole Foods' biggest challenge when Amazon bought it was figuring out a way to rid itself of that reputation for being very high-priced, that Whole Paychecks nickname which we've seen thrown around so often. They're really trying to figure out how to get rid of that. When you look at grocery, the key to grocery, it's such a low-margin game to begin with, the key is traffic. What's the easiest lever to pull for traffic? Lower prices. So, I don't think this is the last time they'll do that, but it's one more way they can help try to gen up traffic. Ultimately with Amazon, it's about that Prime relationship and figuring out ways to offer more and more value for that Prime relationship. This is another one. Remember, too, it's not just going to be Whole Foods. They're going to be opening up Amazon grocery stores as well that will be focusing on a lower price point. I think this is just the very early days of what is going to be very big presence for Amazon in the grocery space. 

Hill: This week, a federal judge gave Elon Musk and the SEC two weeks to settle the dispute about whether Musk violated the settlement he had agreed to back in October. Judge Alison Nathan told both sides to "take a deep breath and put on their reasonableness pants." I'm unfamiliar with these pants, but I like the approach that the judge is taking here.

Moser: I feel like I'm going to take that home and use it on my kids once or twice in the coming week. Listen, this is such a battleground stock. I really do feel sorry for anyone who is exceptionally over-weight in this company. It's got to be tough to sleep at night if you are. Probably the worst thing about this is that I'm not surprised at all. [laughs] I think that the trouble with being a publicly traded company is that Tesla the business is going to be held to these arbitrary benchmarks on a quarterly basis when it comes to producing cars. What we're finding now, and I'm sure what Elon Musk has known for a while, is that it's very difficult to make and sell cars. 

I think the bigger question for Tesla, for me -- I think they've clearly established themselves as a viable competitor in the space. But you look at the business itself... it's anything but simple, the capital structure. I start thinking ahead to when the next recession hits -- we know that's when, not if -- what happens to this stock when that next recession hits? I think the space is only going to get more and more difficult now, more and more competitive. From a management perspective, it's probably better if Musk quits poking the bear and just focused on actually running the company. But clearly, he likes stirring up trouble. I don't know that you're going to be able to get away from that.

Cross: Poking the bear, you're talking about the SEC. Let's just talk about the quarter. They delivered 63,000 vehicles. That's down 31% from the fourth quarter, which was a record. The Model 3, which is really what they're banking on being the mass-market vehicle for consumers, deliveries there were down 20%. So, what I'm looking forward to is understanding how the Model 3 will be from a profitability perspective. As they lower that price to drive up demand, will that be profitable enough to continue to drive Tesla toward some kind of profitability that investors are ultimately going to want?

Hill: If you're a shareholder, do you want Elon Musk being reasonable? I don't think he got to where he is at this point in his life by being reasonable.

Moser: I don't think, as a shareholder, I want to have to deal with this narrative regarding the investment. I would rather see him just keep his head down and just keep doing what he does best. 

Going back to some of those numbers, it is important to note that while those numbers came in shy for quarter one, there was some pull-forward of demand from quarter one into quarter four of last year because of a step-down in the federal tax credit. And that's important to note, because that goes to that pricing power thing. We've always questioned Tesla's ability to raise prices. Really, there are a lot of incentives involved in getting people to purchase those cars. Talking about profitability, this is not something where they can just raise prices at the drop of a hat.

Cross: That's in the U.S. So much the demand is coming from Europe and China, and they had some struggles there from the operations side. To Jason's point, I think the thing we really want to see with Tesla, and the hope is that Elon Musk will do this, which is drive Tesla from a car manufacturing company, being able to solve these problems so they can get these deliveries set to where they want to be and they can manufacture these companies. Especially when I think about China, which they're investing a ton of money into that Gigafactory over in China.

Moser: Just to reiterate, they did reaffirm in the release prior guidance of 360,000 to 400,000 vehicle deliveries in 2019. They're not backing off of that number yet. Granted, it's still very early on in the year, but it's worth noting.

Hill: Constellation Brands (NYSE: STZ) (NYSE: STZ-B) is the parent company of Corona beer as well as a portfolio of wine and spirits brands. This week, that portfolio got smaller. Constellation is selling some of its lower-end brands for $1.7 billion. Jason, what are they going to do with that money? More investments in cannabis? 

Moser: Probably. Probably a little bit. I liken this to your 'add to your winners' mentality that David Gardner has done such a good job of teaching us through the years. When you look at what Constellation does -- beer, liquor wine -- you can see the challenges in all of those spaces, particularly when you look at the craft beer segment. It's just such a saturated market. What they're looking at with the wine segment here is pretty interesting, just focusing on those higher price points, leaving those lower price points to... I don't know, is it Trader Joe's you would go to for the $3-5 bottles of wine? They're apparently pretty good. I also think you're seeing in beer and wine more of a big move toward local. You're seeing more and more customers wanting to support their local vineyards, their local breweries. So, for me, this is about Constellation getting rid of underperformers and thinking, "Hey, where are the opportunities in the coming years?" There's clearly opportunity there with their premium beer offerings. We're talking about Corona, Modelo, Pacífico. They're going to be investing more and more in that lifestyle brand. We've seen commercials from Kona recently investing in that lifestyle brand with Hawaiian beer. I think there is something there. 

And then, to your point about marijuana and the market opportunity going forward there, they clearly have a big investment in Canopy. Canopy is still looking at a $1 billion run rate here on the revenue side by next year. I would imagine that if they continue to deliver those results, Constellation will be looking at investing some of that capital into that business and focusing more on the future and getting rid of some of the underperformers of the past.

Cross: I was pretty impressed by this quarter. Their beer market actually has grown pretty nicely with those brands, Jason, that you mentioned. Beer in general for the year was down 1.5% for shipments. That's an increase in drops from the year. They're actually gaining some market share in a market that, like Jason said, is changing a lot. 

What's interesting for the liquor and spirits business is really the growth of these low and no-alcohol products, the alcopops. That's really a growing market that you start to see a lot of companies invest in, including Diageo, which is a big player in the spirit space.

Moser: The beer market's not easy. We just saw Boston Beer get downgraded. Quarter in and quarter out over the past couple of years, we've seen the only real thing that's driving those depletions numbers for Boston Beer, it's more about the offerings other than beer, seltzer and cider, Twisted Tea, things like that. They continue to have trouble with that Samuel Adams brand. I think that speaks to Andy's point about a tough time right now in the beer market overall.

Hill: Tradeweb Markets is an electronic trading platform. Tradeweb went public on Thursday at $27 a share. Promptly shot up 30%. Andy, if you like fixed income trading markets, this might be the stock for you.

Cross: And I do. It was a great performance. They went public at $27. Originally were pricing around $25. They received 17X more orders than they could actually fill. Really good showing. Continues to show the demand for a lot of these IPOs. 

Tradeweb, along with MarketAxess, which is another company I follow pretty closely, they are the leaders in the electronic bond trading platform, fixed income trading, which is still done through a lot of old-school, old-fashioned telephone and text-message buying. These companies are trying to innovate that space. It was a really nice success for this business. And these are large businesses, Chris. These are $10 billion businesses, attracting capital to a market that is in desperate need of some innovation. 

Hill: You mentioned the size of the IPO. I saw a report this week. This could be a record year in terms of money raised in IPOs. The record is currently held by the year 2000. Which didn't end well for a lot of people.

Cross: That's right.

Hill: Should we be rooting for this?

Cross: Well, I think it's great to see companies come to the public markets. As we have seen over the last couple of years, more and more companies are staying private for longer and longer. We've seen a shrinking pool of opportunities for investments in the public markets. Tradeweb is exceptionally profitable, growing very nicely, which is a little bit different than some of the other IPOs we've seen recently. 

Hill: pets.com?

Cross: And other IPOs we'll see this year. It's certainly much different than what we saw in the late '90s and 2000s.

Hill: On Monday, Burger King announced it is testing a new burger called the Impossible Whopper. Some people, including myself, thought it was a joke because Monday was April Fool's Day. This is not a joke, Jason. These are veggie burgers made by a company called Impossible Foods. Burger King is testing this in and around St. Louis. This is going to be interesting to watch.

Moser: Anyone that wants to be considered a modern-day burger company in this market, they're going to have to make sure they offer an option like this if they want to be taken seriously. I look at this space, and I'm frankly, I'm a little bit surprised that McDonald's has not done something like this yet, given everything that Steve Easterbrook has done so well. I would imagine we would see something from McDonald's on this very soon. 

You look back to the Super Bowl, remember that ad for Carl's Jr? They were adding a Beyond Meat burger to their menu. Beyond Meat is another one that's really interesting. They filed their S-1, they're going to go public. Based on their information in the S-1, vegans and vegetarians represent only 5% of the U.S. population. That feels low. I feel like that's a low number. Regardless, I think we're going to see that number grow in the coming years. When you look at the market opportunity for companies like this, they're not necessarily even trying to cater to just the vegan and vegetarian market. They're just trying to offer another alternative for people who may want to try something different, who are altering their diet a little bit. These companies, I think, are doing a very good thing. It'll be exciting to watch. I don't think it's going away.

Cross: They represent 75% of my household. Three out of four of us are vegan or vegetarian. I agree with Jason; this is long overdue. I'm surprised it actually hasn't gained more momentum across the space. I expect that to change as more and more consumers start looking to alternative diet plans. 

Hill: Our email address is radio@fool.com. Question from Renee Acosta, who writes, "On an episode of Market Foolery this week, you were discussing potential acquisitions for Warren Buffett. What about Humana? Buffett has the healthcare project with Jeff Bezos and Jamie Dimon. He's already in the property and casualty insurance business. Humana has a market cap of $36 billion and there have been rumors of a merger or sale the past few years."

Cross: I think that's actually a really good call! Very good one! It's a $36 billion business, $12 billion in cash, only $6 billion in debt. It's not that expensive, generates pretty good returns and profits. It's in a space, like she said, that's gaining the attraction of Warren Buffett. 

I didn't include that one, but at $36 billion, it's only a little bit larger than Berkshire Hathaway's largest acquisition, Precision Castparts. It's right in that space.

Hill: Question from Jay, who writes, "Could you touch on the recent drop in Teladoc, and if the decrease in earnings is a concern? Also, are there any direct competitors to Teladoc that are providing video medical consultation, or is Teladoc the only one of its kind so far?"

Moser: I guess you want me to answer this question, Chris. 

Hill: That's why you're in the room!

Moser: [laughs] Listen, the stock's up 20% for the year. It's been a decent year. But I've noted many times, it's a volatile holding. When you have a company that is fairly new in a market that is very new and still getting established, you have to expect that volatility. There was an article put out a few weeks back from someone who was questioning... they don't like adjusted EBITDA, they were calling the stock overvalued. Listen, when you have a company that doesn't make any money, you have to go buy some adjusted number until you can actually become profitable. To that point, they do expect to be cash flow positive this year. I'm encouraged by that. And, it does seem to have recovered whatever drop it fell from that little stretch there. 

There are competitors in the space. Most of them are far smaller. There is a big competitor in the space in UnitedHealth. They're building out their own telemedicine service as well. That's always something to keep in mind. But it's not a winner-take-all space. I think that really explains why Teladoc is moving so quickly to make all of these little acquisitions and grow that network as big as they can on a global scale. 

One final thing; just think about it from a global perspective. They're going to have the opportunity to see how a lot of different healthcare systems work around the world. I think that is only going to help companies like this in the coming years as they figure out ways to evolve and become better services.

Hill: What do movie producers, prostitutes, and big wave surfers have in common? Well, if they're successful, they're all good at managing risk. It is the central topic of the brand new book, An Economist Walks Into a Brothel, and Other Unexpected Places to Understand Risk. Economist, journalist, and author Allison Schrager joins me now from New York City. Allison, thanks for being here!

Allison Schrager: Thanks for having me!

Hill: So, you traveled all over the country, interviewing people who are each in their own way experts at managing risk. There are so many interesting stories in your book. We should probably start where you start, in Chapter 1, which is at the Moonlight BunnyRanch, a legal brothel in Nevada. What did you learn there?

Schrager: Many things, as you do. The main thing I learned was how the sex work industry puts a price on risk. I was searching out interesting stories, in particularly risky industries. Sex work is traditionally a fairly risky job. You meet customers and you put yourself in very intimate situations with them, and being in an illegal market, maybe you're not attracting the best people; you risk being arrested. I've done a lot of research on the illegal market, too, and all the women I've spoken to have a lot of bad stories. I went to the BunnyRanch to see how they price eliminating that risk. A lot of those risks are eliminated there. There's security. You can't get violent with women. It's legal, so you can't get arrested. The women are screened for diseases each week. 

It turns out, as you might expect, that there's a huge markup for this service, because it is risk-free. This is the central theme in finance -- you pay to reduce risk.

Hill: There are a lot of books out there about macroeconomics; there are a lot of books about investing, whether it's in options or commodities or stocks. This is a book about risk. What do you think most people misunderstand about risk?

Schrager: I find that people really are smart about taking risk in one area of their life. We have it in us. But they don't realize there is a science and a way of thinking about it that can make it a little bit easier to manage, you can feel more comfortable taking risk on. I think people just feel lost, especially when it comes to personal finance, since we moved away from defined benefit to 401(k)-type pension plans. It put this huge risk problem on everyone, and no tools for how to deal with it, no good ways to think about risk. 

And as you brought up, this is even pervasive in economics. My Ph.D. is actually in macro. And I was going along, thinking that was a fun way to understand the economy. But then, after grad school was when I started working with Robert Merton and got exposed to financial theory. A million lights went on of, wow, thinking about the world in terms of risk-reward, thinking about risk-reward being this really fundamental part of value, thinking about what it costs to reduce risk is a much better way to understand the macro economy and, well, everything. It's more rigorous, it's just more interesting.

Hill: Let's get to a couple of more examples from your book. I find it fascinating. I'm a big fan of movies. When I look at Hollywood -- and maybe I shouldn't be, but I am still surprised that in this day and age, it seems like pretty much every year, some studio puts out a movie that not only is not very good, but financially is a disaster to the point where a studio will have to write down tens of millions of dollars. How do movie producers think about risk?

Schrager: Well, I think it was William Goldman who said, in Hollywood, no one knows anything. You really see that when you look at data on movie profits, what data is available, because they tend to be very secretive about it. In finance, we call this a skewed distribution. Most movies lose money, then you have this huge right tail, where some break even and some are these enormous blockbusters. And no one really knows what it's going to be. And because all the money happens in the tail, it's really unpredictable where you're going to be and it's really hard to manage it. 

It's also a similar thing you see in venture capital, where you also see people taking huge bets on big bombs. And you're like, why would you ever do that? It is because certain risks are much harder to measure than others, and when you're taking a risk that's hard to measure, it's inherently more risky.

Hill: You went out to Hawaii, met with big wave surfers. They're engaging in an activity that I can't imagine ever doing, just going out there... not only are you dealing with sharks, but you're dealing with hundred-foot waves. Those folks are so much more thoughtful about risk management than I would have guessed. I look at them as just daredevils. In your book, they come across as some of the most thoughtful people when it comes to managing risk.

Schrager: Yeah, I was surprised, too. It's not their stereotypes. I remember when I first saw Riding Giants, that famous documentary about the big wave community, you had Laird Hamilton saying things like, "I must ride it because it's there." And I'm like, "Well, that's not a good risk story." But when I actually met the community, especially the Big Wave Risk Assessment Group, which I worked with, you find very thoughtful risk-takers. They're actually quite nerdy. Even the process of finding a big wave that meets certain conditions takes a lot of math. These guys are on their computers all day, downloading numbers like they're day traders or something, looking for that perfect wave. And it's not just a matter of being big, it has to be the right conditions. Even when they're deciding which waves to take, they'll usually take a later wave in a set -- waves travel in packs -- just because that's less risky. They'll let a really great big wave go just so they can take a later wave because it's less risky. 

The man I profiled, Brian Keaulana, brought jet skis to big wave surfing, is really passionate about risk science. Totally self-taught. He's really fascinated by this idea that risk is something that can be managed, which is exactly what we do in finance. We take risks, and we try to make them less risky, or sell risk to someone else. This is exactly what he does. Well, he doesn't sell risk to someone else, but it's the same principle.

Hill: One of the things you just touched on comes up in the book, certainly. When you're talking to professional poker players, which is, at the end of the day, we can run all the computer models we want, but we're human beings, and therefore we are going to make mistakes. And, we're irrational. It was interesting to hear professional poker players talk about recognizing that in themselves and trying to figure out ways to manage their own irrationality.

Schrager: It's interesting -- already, with the book out on Twitter, I profiled Phil Hellmuth, who's known for throwing these huge tantrums. He's emotional, he's a volatile guy, who can't even win graciously. And if he loses, he just cuts loose, screaming at everyone. It's this contrast, when he plays, he's so patient. He can be down. Most people, when they're down, play more aggressively than when they're up, because of loss version. When you're down, you're worried about losing, so you take big bets to get you out of the hole, but usually you just end up further in the hole. And he recognized that he could never be a successful poker player if he behaved that way. 

Part of it was just training. He talks about, in his early days, he literally passed out from exhaustion from trying to keep his emotions in check. Now, he has all these tricks. Some is experience, but he also takes a lot of risk off the table to help keep him stay focused when he's playing. For instance, he goes in hedged. He never puts in more than $10,000 of his own money in a poker tournament. He gets other people to sponsor him and then shares the winnings with them.

Hill: Has the process of writing this book affected the way that you manage risk in your own life?

Schrager: I'm not sure. Writing a book is inherently risky, so, maybe there's that. I studied risk training as a financial economist a lot. Actually, my work there, I noticed, it affected me in thinking that risk problems were everywhere, and I could apply the same principles of finance to every decision I made. So I was doing it before. 

But I think, definitely, the book made me more open, open to ideas and stories I definitely wouldn't be exposed to in academia or even traditional media.

Hill: Well, one of the things I learned in your book is that in addition to David Bowie being a brilliant performer and one of the most influential musicians of the last 50 years, David Bowie was also an expert in hedging risk. I had no idea that he turned his song catalog into a bond.

Schrager: Yeah! It's fascinating! He could only have done that -- this is a great example of hedging. Hedging is taking less risk, right? You take your risky portfolio and you put something in a risk-free asset, like a bond. The opposite of hedging is leverage, which is where you borrow. Hedging reduces your expected returns, but you have less downside; leverage increases your potential returns, but you get more upside, potentially. 

Bowie is interesting in that when he was young, just starting out, got his first record deal, usually what they do is they give you an advance, and they own your royalties. That sounds horrible, and this is why musicians always say they're poor, even when they're successful, but it's actually a fairly good risk trade, because most contracts are signed for people who will never make money, but they get to keep their advance. So the music company is just taking a long shot that your royalties will be worth anything. Odds are, they aren't. But David Bowie, when he was young, he was like, "I'm going to make it. I will take a smaller advance." He didn't have much money, "because I want to keep my royalties because I believe the net upside will go to me." And he was right, obviously. He became David Bowie. 

But then, when he was in his late 40s, early 50s, he was really concerned. Napster was coming out and he was like, "I don't think these royalties are going to be worth much. This industry is going to totally change." Apparently, he had amazing foresight. Not just about the music industry, but, when he was young, about his potential. So he securitized his song catalogue. He turned it into a bond. So then, all of a sudden, he took that money, and gave the upside to someone else.

Hill: You're an economist. I would be remiss in my duties if I didn't ask you at least one question about what you think of the state of the U.S. economy right now, in terms of risk. Obviously, we've got basically a 10-year bull market that we've enjoyed. But every day, it seems like someone in the financial media is talking about risk, either in the housing markets, in terms of international trade. When you look at the U.S. economy, what do you see as the biggest risk right now?

Schrager: It's hard to say. Everyone's looking for what shoe's going to drop, what's going to be the next housing crisis. I think the odds are, historically, with better policy and better risk management, what happened in 2008 became an anomaly. I don't predict the future. Maybe we're headed for another severe financial crisis. But we might be overheated a bit. Which could mean, I'd put more odds on a good, old-fashioned 2001 mild recession, rather than something that's going to pose this huge systemic risk that takes out the whole economy. But you never know.

Hill: As an economist, as someone who's an expert in risk management, not to get overly personal, but how do you invest your own money?

Schrager: Like I said, I walk the walk. I'm all in on passive funds. Not only that, I have a lot of tilt toward factors.

Hill: Last thing, then I'll let you go. This is sort of a cocktail party question. What's one thing that people can do if they're looking at their own lives and thinking about risk? Risk is not something I think about on a day-to-day basis, then I started flipping through your book and started to think, "Wait, what can I be doing to better manage risk in my own life?" Or, even just from a starting point, assess risk in my own life?

Schrager: I think you probably were doing good risk management in all areas of your life, you just never realized it. Sometimes when you call out the reasoning and the science behind what you're doing, all of a sudden, that really good strategy you were using to pick a movie or a restaurant, maybe you realize it's actually more scientific than you realize. Once you have the tools, I think people should feel more comfortable taking risks in their lives in places maybe they hadn't before. Certainly, when it comes to any area of their life, that you can feel more comfortable taking risk, if you feel like you've measured it, if you're clear why you're taking the risk, and maybe you can take steps to hedge or insure against it going badly.

Hill: The book is An Economist Walks Into a Brothel, and Other Unexpected Places to Understand Risk. It is smart, it is eye-opening. On top of all that, it's just plain fun. It's available everywhere. Allison Schrager, thanks so much for being here!

Schrager: Thanks for having me! 

Hill: Avengers: Endgame opens in theaters on April 26. Tickets are already on sale. Demand was so great this week this ticket websites like Fandango crashed. Analysts are saying that Disney (NYSE: DIS) could expect an opening weekend of $250 million here in the U.S. Also a possibility of a worldwide open of $750 million. As a shareholder, Jason, I'm excited about that. I also feel like these numbers are getting a little out of control. 

Moser: I don't know, I feel like there are not a lot of compelling movies out there lately. It seems like everybody's trying to reboot something that was done so many years ago. It's refreshing to see companies like Disney getting out there and exploiting that IP that they have. 

Dumbo is another one, I probably wouldn't have given that a second look. But with what they've been able to do with it -- I actually can't wait to go see Dumbo, of all things. It just goes to show you the value in owning all of that intellectual property, whether it's Star Wars or Marvel content or Disney content. It really has given them a tremendous advantage. I think that's why they're going to witness some serious success with this streaming offering. They're going to have a load of great content that people really want to see.

Cross: I remember when $100 million, for the total showing of a movie, was big. This almost reminds me of the steroid-driven Home Run Derbies of the late 90s. These numbers are getting so huge. But when you are Disney, that size, you're investing that amount of capital, and furthermore, you have that flywheel of how you can reinvest that IP, as Jason said, you're willing to lay out huge amounts of capital, especially considering all the other streaming alternatives and competitive pressure from the likes of Netflix.

Moser: Given the evolution of the industry and how we're getting our content these days, I'll flip this on its head a little bit and say we should probably look out for the fact that they're not going to be able to throw as many of these high-earning films out there as they once did. Maybe we're reaching a point where it might get a little bit more lumpy, so they have to really focus on these properties that they know are going to do really well. Those might be fewer and farther between. The good news is, they will have another way to get that content out there via their over-the-top distribution. 

Hill: Before we go to our man behind the glass, Steve Broido, also joining us behind the glass this week, longtime listener John Bonini hanging out with us. 

​Cross:​ Hey!

​Moser:​ Hey, John! Thanks for coming!

Hill: One more email, in reference to Steve Broido's rant on Market Foolery recently about United Airlines. Bruce Mann writes, "I agree with Steve Broido. A few years ago, I upgraded to first class for the first time as a treat from my wife. What a waste! The United flight attendants were anything but attendant, and they ran out of food in first class. United, definitely not my favorite airline." Steve, do you feel some level of vindication? 

Steve Broido: I do! I feel vindicated! I had a really bad experience on a United flight, and I was like, "I'm going to short this company." It didn't work out very well for me, but I did feel good about shorting it in the short-term.

Cross: Good lesson learned there!

Hill: All right, let's get to the stocks on our radar this week. Jason Moser, you're up first. What are you looking at? 

Moser: Earnings season getting ready to kick off next Friday. Wells Fargo will announce earnings in the morning, ticker WFC. We know that Tim Sloan is now out. The search for a new CEO is under way. This has been such a poorly managed company now for a couple of years, and I'm sure that dated back to many years before we even found that what was really going on. What this has all done, regulators have given Wells Fargo a timeout. They put them in the corner. They said, "We're going to hit you with an asset cap. You're not allowed to grow until you can show us that you can behave yourself." This new CEO, it's going to be external hire it looks like, is going to have to come in there and change that narrative a little bit. If they can do that, they can get this cap lifted, Wells Fargo probably has some better days ahead.

Hill: Steve, question about Wells Fargo?

Broido: When is it time for investors to forgive a company? Wells Fargo broke the trust of people with the scandal that went on with them. When should investors forgive that?

Moser: That's a great question! I think that's the line that every investor has to figure out on their own. Some don't care about it as much than others. I think that's just a line you have to determine on your own.

Hill: Andy Cross, what are you looking at?

Cross: Steve, forget about United Airlines. Look at Delta. They gave an update to their guidance for the quarter this week. I'm looking to see a little bit more clarity on what is driving its success. They updated their earnings guidance by about $0.15 to about $0.85 to $0.95 from $0.70 to $0.90. Revenue is up 7%. That's about what they were last quarter. Revenue per seat miles, they're moving progress there. That's going to be up 0% to 2%, probably closer to 2%. A lot going well with Delta. I want to hear some commentary on it.

Hill: Steve?

Broido: What year does flying become joyous?

Cross: For you, not this year!

Hill: What do you want to add your watch list, Steve?

Broido: I think Delta.

Hill: All right! Andy Cross, Jason Moser, thanks for being here, guys! That's going to do it for this week's show. Our engineer is Steve Broido. Our producer is Mac Greer. I'm Chris Hill. Thanks for listening! We'll see you next week!

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Andy Cross has no position in any of the stocks mentioned. Chris Hill has no position in any of the stocks mentioned. Jason Moser has no position in any of the stocks mentioned. Steve Broido has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon, Berkshire Hathaway (B shares), Boston Beer, Delta Air Lines, Facebook, MarketAxess Holdings, Netflix, Teladoc Health, Tesla, Twitter, and Walt Disney. The Motley Fool recommends Constellation Brands, Diageo, and UnitedHealth Group. The Motley Fool has a disclosure policy.