Five Ways That You -- and Companies -- Can Maintain a Competitive Edge

Published October 09, 2017
Motley Fool

Getting ahead isn't simply a matter of having a great idea, nor of improving your mastery in your chosen arena. The key is to focus on edges that you can keep for the longer term. In the Aug. 28 episode of Motley Fool Answers, Alison Southwick and Robert Brokamp are joined by former Fool Morgan Housel to talk about figuring out what your sustainable advantages are, both in investing and in life. Plus, Alison presents the guys with a pop quiz on some memorable business-world failures.

A full transcript follows the video.

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This video was recorded on Aug. 28, 2017.

Alison Southwick: This is Motley Fool Answers. I'm Alison Southwick and I'm joined, as always, by Robert Brokamp, personal finance expert here at The Motley Fool.

Robert Brokamp: Hi, Alison!

Southwick: Hello! In this week's episode, Morgan Housel is back to discuss finding your sustainable advantage, whether that's in investing, business, or just life in general. We'll also answer your question about why stocks that beat earnings estimates still get clobbered, and take a pop quiz in failure. All that, and more, in this week's episode of Motley Fool Answers.

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Southwick: It's time for Answers, Answers and for those of you who have not been listening to the podcast for very long I should probably introduce you to Morgan Housel. Hi, Morgan!

Morgan Housel: Hi, guys. I'm back!

Southwick: Hey, you are back. Morgan used to write for the Fool. He had a very successful, popular column and then he left us.

Housel: Yeah, but I'm back!

Southwick: You are back. So where are you, now?

Housel: So, I work at a private equity venture capital fund called the Collaborative Fund based out of New York. It's very similar to what the Fool does in terms of buying good businesses. We want to hold for the long time, but it's with young, private companies. [These are] either start-ups that are very young or companies that are a little more established but still private. Versus buying public equities that trade on stock exchanges, these are just closely held. Other than that, it's pretty much the same thing. It's just looking for great companies that are doing good things, run by good people, and investing in them and holding them for the long run.

Brokamp: What's particularly unique is that "doing good things" aspect. They are looking for companies that are going to make the world better.

Housel: Yes, and that aspect of it is really just trying to find companies that are at the intersection of "for profit" and "for good." Or another way to think about it is the intersection of better for the world and better for the individual. When those two things line up, that's when you get a lot of momentum and exponential growth.

We have a heuristic that we use called "the villain test," which is we want to back companies that are doing good in the world -- that have a social mission to move society forward -- but only those companies in which a self-interested villain would also be attracted to. And the reason why that's important is because a company that's doing good in the world [won't have] their goodness detract from customer experience, or brand, or taste -- if it's a food company. If your ability to do good in the world detracts from your product, it's always going to be an anchor, whereas when the two line up with doing good in the world and doing better for the individual, you get a lot of exponential growth.

The best example of that I think is Tesla. Tesla has a big environmental mission of reducing carbon emissions and cutting back on oil; but also if you were just a purely self-interested villain, you would look at it and say, "That's a beautiful car and I want one."

So, when those two things line up, that's when you get something that's really special, so that's what we look for. [This] is just a long-winded way of saying, "Yes, we want to back companies that are doing good in the world, but we want that goodness to be a propellant of the company's success and not an anchor."

And there are a lot of companies in which their desire to do good in the world is an anchor. It's self-inflicted. They don't mind that it's an anchor. Maybe they're going to give away part of their products or they're intentionally underpricing their products in order to help out certain segments and that's great. There are a lot of funds and philanthropies that will back that mission that are totally OK if they don't earn a very good investment return. We're looking for companies whose mission is part of their secret weapon to accelerate them as a business.

Southwick: That sounds like fun.

Housel: It is fun. I like it.

Southwick: Let's get to the question for today, shall we? It comes from Edward in Australia. He writes, "This earnings season we've seen a fair bit of volatility, which is to be expected. However, I was surprised by the number of companies that released great or expected results and immediately dropped in value. Investors not being happy even with awesome results suggests to me that a company might be significantly overvalued and when we see it with heaps of large companies, does this mean the whole market is too overvalued?"

Morgan, when you were at the Fool you wrote many a column about quarterly earnings reports. How do you feel about Edward's question?

Housel: I always think there's an irony or almost an oxymoron that most investors expect earnings to beat expectations. And if you're expecting something to beat expectations ...

Southwick: You're like, "Wait a second."

Housel: It's like this weird game. The expected numbers of a company "beating their numbers" is a game that's not really rooted in like, "Oh, well you beat your numbers so this should be good for the stock." Those expectations don't really mean anything. It's effectively a made-up number that companies and analysts picked out of thin air. "We're going to earn $1.32 per share during this quarter."

Southwick: Why not $1.31?

Housel: Right. It's just the numbers, themselves, are kind of meaningless. But more important, your markets are forward-looking, so a company can beat its earnings expectations for the previous quarter. But if it gives any guidance on the future that sales are going to slow down, or blah, blah, blah, or maybe the CEO just had a tone in his voice on the conference call that made investors a little anxious; then markets can react in that way.

The bigger, more important point, though, is I think for any serious investor, both the quarterly earnings themselves and the reaction to quarterly earnings shouldn't play a big part in your outlook as an investor. That aspect of investing is, I think, a game that a lot of short-term traders play. And if you are a short-term trader then maybe, great, that's what you're looking for. But if you're a long-term investor it's really just noise.

Southwick: What about Edward's question [as to whether] the whole market is too overvalued? Do you think it's overvalued?

Brokamp: Of course it's overvalued, but that doesn't mean it's going to drop tomorrow. For me overvaluation just means as a retirement planner what kind of returns [I can] expect from my savings so that I can see how much I'm going to have in 10 or 20 years so I know I can retire.

Housel: My only problem with something like that -- even though I, in theory, 100% agree with it -- is that every calculation that says when the market is valued at X then over the subsequent 10 years it should earn Y; none of those have a good track record. You can look backwards and piece together, and have like a hindsight is 20/20 vision of it, but every investor that has these fancy models that say since the market is overvalued [they] should do X with [their] money -- not back tested on the chalkboard but they're actual returns that investors earn -- are terrible.

Brokamp: Right.

Housel: So, I agree with you in theory, but I think it gets dangerous when investors say, "Because stocks trade at 22x earnings, I'm going to sell everything because that tells me they're overvalued."

Brokamp: Right, that's the tricky part. But from a retirement planning perspective, and as longtime listeners know, I love my retirement calculators. You have to put in an assumption for what you are going to earn, and when the market is highly valued, you should not expect to get that historical 10% over the rest of your life. I would say you put in closer to 5-6%. Hopefully you're wrong in the terms that you get upside surprise, but you don't want to count on double-digit returns from the stock market at this point to bail you out of your retirement.

Southwick: Having a great idea is obviously the first step in the path to success, but what if that idea can easily be copied by someone else? As Morgan Housel writes in a recent column for the Collaboration Fund -- which we all just learned about -- the key to business and investing success isn't about finding an advantage, but having a sustainable advantage. Morgan is here, today, to talk about five ways that you can maintain a competitive edge -- or that companies can maintain a competitive edge -- in business, investing ... I don't know. Anywhere you want an edge.

Housel: Stuff.

Southwick: Everybody gets an edge.

Housel: You get an edge, and you get an edge, and you get an edge.

Southwick: Here are five ways to do it. So, before we break it down, why did you decide to write about this topic?

Housel: I think it's important for every investor or every business that is trying to actively compete against other people. That's not every investor, but if you are an active investor, I think you should be able to coherently answer the question, "What is my edge? What can I do better than if not everyone else, what can I do better than most people?" And if you can't honestly answer that question, I think that's a flag that you should try to overcome because basically all businesses are competitive.

The reason I wrote the column is because I found if you ask people that simple question -- businesses, CEOs, investors -- a lot of times they struggle to answer it, not because maybe they don't have an edge but because they haven't thought about it, and articulated it. I just wanted to [talk about] what [some of the most common], sustainable sources of competitive advantage are.

And I made the point that intelligence is not one of them. Again, that is a lot of people's answer when you [ask them what their edge is]. "Well, I'm really smart, or my team is really smart." They think that's why they're going to do better. And I just think it's so clear that in investing and in business, intelligence is a commodity these days. There are so many smart people out there. Brilliant people who are looking at the same numbers as you are.

So, if your edge is you think, "I'm just going to be smarter than everyone else," that's a difficult edge to hold onto. I wanted to come up with [some other things] that are not just edges, but "sustainable" edges that you can probably hold onto over time.

Southwick: Well, let's get into them. The first one is the ability to learn faster than your competition.

Housel: In both markets and in business, things are always changing, and adapting, and evolving. And if you can learn from those changes and adapt quicker than everyone, then that, itself, is an edge. And one example that I use is what you see in companies like Sears and Kodak that have not adapted -- they have not learned -- and they're trying to solve 1980s problems today. They just haven't learned very quickly and yet you have other companies that do. When the market changes or the market shifts, they learn incredibly quickly.

I think Facebook (NASDAQ: FB) purchasing Instagram was a really smart example of a company that just learned very quickly and learned faster than some of its competitors where the market was shifting. The same with Facebook when it purchased WhatsApp. That was viewing where the market was going and learning from others in that industry before they got to it. If you can just learn faster about where things are going -- faster than your competitors -- that's an advantage, and that doesn't have anything to do with being smarter than your competitors are. It's just looking at where the world is going and just trying to learn from it quicker. Embracing reality faster than your competitors.

Southwick: No. 2 is the ability to empathize with customers more than your competition.

Housel: Yes, this is something that I've seen a lot. I think this is especially true as the economy bifurcates with income inequality. You have CEOs and managers, or entire companies, that can't empathize with their customers because they are so far removed from the product or the experience that their company is targeting for those customers.

I give [this] example in the article. How many times do you think the CEO of Delta Airlines or United Airlines -- I won't pick on anyone -- has been booted from a flight or had their bags lost?

Southwick: Or even flown coach.

Housel: Or even flown coach and had their knees shoved up into their chest because they're 6'3" sitting in coach. Probably never. It's hard to truly empathize with the experience that your customers are going through when you are so far removed from that.

The other example I give is how often the CEO of McDonald's goes to McDonald's because that's truly what he wants to eat that day, and not because, "Oh, I'm the CEO. I need to go try the product and make an appearance." But truly they're driving down the street, they're hungry, and they say, "I need to go to McDonald's." If you can't fully empathize or just put yourself in your customers' shoes, to that extent there's always going to be a disconnect between the product that you think you're delivering and the actual experience that your customers are experiencing.

Brokamp: In a previous episode we talked about the rise of artificial intelligence. And one of the points was along the lines of what you said earlier. That intelligence is essentially going to be a commodity at some point. Computers are ultimately smarter than we are. To the extent we all want to keep our jobs, we have to focus on things that computers can't do and one of them is empathy. Exactly.

Housel: Completely. 100%.

Southwick: No. 3: the ability to communicate more effectively than your competition.

Housel: I think this is really important in financial services and it's something that The Motley Fool ...

Southwick: I was going to say. This sounds like The Motley Fool.

Housel: ... has done since day one. It's really the essence of The Motley Fool -- the ability to take something that is complicated and intimidating, like investing, and just communicate it better than other financial advisors or brokers who might be out there. I think there are a lot of really smart financial advisors out there who could add a really good service for their clients, but they can't communicate very well with their clients.

There's something I mentioned in the piece. For a lot of financial advisors it's hard for customers, especially if they are novices to investing, to distinguish between confusion on the customer's end and obfuscation on the financial advisor's end. If the financial advisor is using big terms and lingo that the customer doesn't understand, from the customer's point of view it's hard to distinguish between, "Do I just not know what he's talking about, or is he trying to pull the wool over my eyes?"

You see this a lot. A great example besides The Motley Fool is Josh Brown of Ritholtz Wealth Management. Josh, Barry, and Michael Batnick -- those guys are big on Twitter and Josh is on CNBC a lot -- have the competitive edge as financial advisors because they are incredible bloggers, and they can communicate their vision to the world in ways that anyone can understand.

Someone who has no experience in investing can read Josh's blog and say, "I know what you're doing, and I trust you because I've read so much of what you're doing. I know how you see the world and I know how you invest, so I'm comfortable going to you as a client just because of that. Just because of your ability to effectively communicate what you're doing." That sets up a new level of trust and, I think, especially in financial services that is a sustainable competitive advantage.

It's sustainable because it's so difficult for people to do. Effective communication is a really difficult thing that I think is difficult to teach some people. So, if you're able to do it well, that's an edge that will stick with you.

Southwick: And people like Josh and Barry also speak with a confidence that a lot of people sometimes lack in finance, too. That obfuscation that you talk about is what people resort to when they really don't know what they are talking about a lot of the time. Whereas Josh and Barry are like, "This is how it is. This is my strong opinion. Take it or leave it. I'm too busy. I'm moving on to the next thing."

Housel: Exactly. No problem saying, "I don't know." They're not going to try to BS their way through a question. If you ask them a question that they don't know they'll tell you, and that, itself, is a communication tactic that sets up trust.

Southwick: All right. No. 4: the willingness to fail more than your competition.

Housel: This is especially true for businesses. I think it's probably true for investors, as well, but especially for large corporations. It's the inability to want to do anything that doesn't equate to short-term profits, or instant profits I should say. They tend to punt. They don't want to fail.

Individual managers view it as career risk. Companies view it as [not making their] quarterly earnings. So, the desire to not take a risk sets them up for stagnation, and in a world that's always adapting and evolving into something new, if you are a company that's unwilling to take risk, you're probably going to get left behind.

I think two amazing examples of companies that failed better than anyone else are Google (NASDAQ: GOOGL) (NASDAQ: GOOG) and Amazon. In my view I think Amazon is probably the most impressive company of the last 50 years and maybe the last century. It's just absolutely staggering what Jeff Bezos has been able to accomplish, especially just in the last 10 years.

And the root of that, I think, is his ability to take risk. And not just take risk, but his willingness to fail. Things like the Kindle Fire Phone, which by any definition was just a disastrous failure. They hardly sold any phones. Even when they were trying to sell them for a dollar, they couldn't sell them. A total failure.

And when Jeff was on conference calls -- and granted it's easier to do this when the rest of the company is super successful ...

Southwick: I was going to say. It's easy to fail when you have a massive war chest ...

Housel: When you have a lot in, but that goes both ways. The reason they have a massive war chest is because they've been willing to fail and that willingness let them find other business segments that ended up doing incredibly well. If you're never willing to fail, you're not going to find one of those segments that does really well.

When Bezos talked about the Fire Phone, I think most managers would say, "Oh, well, the market moved against us. Our suppliers didn't ..." They would try to either sweep it under the rug or pass blame. And Bezos's comment -- this isn't verbatim, but it's pretty close to it -- is when he said, "If you think the Kindle Fire Phone was a failure, you ain't seen nothing yet." He said, "We're going to have much bigger failures. I guarantee it."

That's just his mentality. I think that because he has that mentality, Amazon is going to keep finding new business segments that are incredibly profitable because they're willing to go out and take the risk that's needed to find those things.

Brokamp: You've gone from the world of The Motley Fool -- that looks at publicly traded companies -- to where you are now, looking at privately held companies or private equity. And there's a big debate, now. Why is it that companies are more reluctant to go public or at least wait longer? Is part of it this whole having to meet quarterly earnings?

Housel: I think that's part of it, but the rebuttal would be that as companies grow and they're in the private equity space [so they're not start-ups -- they're established companies but they're privately owned] those companies do face earnings pressure. Maybe it's not quarterly. Maybe it's annually, but it's not a distinct difference.

There's often a viewpoint, sometimes, that if you're a private company you don't ever have to make your numbers again, and that's just not the case. Private owners of stocks want their companies to perform and sooner rather than later. So, I'd say the pressure is reduced when you're a private company, but it doesn't go away.

Why are so many companies staying private? The big statistics is that there are half as many publicly traded companies today as there were in 1995. The number of publicly traded companies peaked in 1995. I think it was 7,300 and now there's like 3,400. It's a huge reduction in the past 20 years.

And there are a lot of reasons for that. It's expensive to be a public company. You have the spotlight on you all the time where the 24/7 news media is always going to be seeing what's going on and wanting to write the big, headline-grabbing story of what's going on with the company's culture. So, the more public information you have, the more burdensome spotlight you have on you.

And as you alluded to, the quarterly earnings race for a public company can be really difficult. I think the big reason is there now is just so much private money out there that companies don't need to go public. There's just no need to do it. Twenty years ago there was no way that Uber or Lyft could stay private like they have now. There wasn't that much money in venture capital or private equity that would fund them to this point. They would have had to go public when they were still a really small company.

But now a company like Uber, which is valued at $70 billion in its last round, can stay private and can keep raising as much money as it needs to from private investors. There's just no need to go public, so there's no reason for a lot of companies to go through the rigmarole and the hassle of being a public company if there's no tangible benefit of doing so.

And that is, I think, only growing. The amount of money in private markets is growing so much that that trend, I think, will continue. And something that's happened just this year is SoftBank. A big financial company based out of Japan raised a $100 billion venture capital fund this year. And to put that into context, $100 billion is more than all of the IPO proceeds raised from 2010 to 2012 and that's just one fund. So, having that much money in private markets just means that big companies like Uber, Lyft, and Airbnb don't need to go public.

Southwick: And the last one is the willingness to wait longer than your competition.

Housel: I think this is especially true for individual investors, but it spans a lot of fields including business and just people's careers and whatnot. And to me it's the most tangible and the most realistic competitive edge that an individual investor can have. Because if you're an individual investor and you're trying to compete against the intelligence of Goldman Sachs (NYSE: GS) or supercomputers, that's just not something I think you can realistically say. "I'm smarter than the analysts at Goldman Sachs are."

If you can say the analysts at Goldman Sachs are only willing to wait for six months and I'm willing to wait for five years, that's an edge. And I think it's really the only edge that exists for individual investors these days, where the parsing of information has been [so competitive] that it's hard for any individual investor, no matter who you are, to have an informational edge on anyone else.

But if you can have a time horizon edge and just be a little more patient than everyone, that is something that I think [will accrue] superior returns to you over time. Over a long period of time. Waiting longer might mean that you need to have a 10-year or a 20-year time horizon. If you can truly have that, then good things are almost certainly to come to you.

Southwick: What would you say is your own personal, sustainable source of competition? A competitive advantage? What's your edge?

Housel: I would say that as a writer it's explaining complicated things in a simple way. It's what I try to do.

Southwick: Yes, I would definitely say that's your sustainable competitive edge. It's one of them.

Housel: It's hard.

Southwick: You're good at it.

Housel: Thanks.

Southwick: Bro, how about you?

Brokamp: This is so cliché, but I would just say that I am willing to work hard. I put a lot of effort into a lot of things I do, and I try to do lots of different things. I was in Florida over the summer where I grew up, and we drove by where the old Blockbuster Video used to be. I pointed out to my kids it's now a bank. And I was explaining to them [that] you cannot have, as a business or as a person, just one skill or just one thing because at some point the world is going to change and people aren't going to value that. So, I would say that my competitive edge is because I'm willing to try different things.

Housel: That's good.

Southwick: That is good. That was not one of the five options that Morgan laid out here for you.

Brokamp: Well, do I have to stay with one of his?

Southwick: No, you can come up with your own, I guess.

Housel: It was good, though. I might add that as a sixth to the article.

Southwick: All right. Rick, do you have an answer?

Rick Engdahl: Patience. And I don't hold grudges.

Housel: That's a good one.

Engdahl: That's why this show works.

Southwick: Ouch!

Brokamp: But you're also adaptable. I mean, when you joined the Fool you were doing tech work, essentially. Right? Design work?

Engdahl: Yes, design and front-end development, yes.

Brokamp: You've had several jobs, here, at The Motley Fool. You're also very adaptable.

Brokamp: And you, Alison? What's your competitive advantage?

Southwick: I think -- and I don't know if this is my competitive, sustainable advantage -- but I think I'm pretty good at getting a bunch of different people together to make things [happen].

Housel: I'd agree with that.

Brokamp: I was going to say. You've got awesome people skills.

Southwick: Yeah. I can rally a group toward a cause.

Brokamp: Computers will not be able to replace you. That's what we're saying.

Southwick: I hope not. All right, Morgan, do you want to stick around and test your smarts when it comes to epic fails?

Housel: No, I'm good.

Southwick: OK. You have to. I'm locking the door. Don't let him out!

__

Southwick: The bus is here, boys. I'm taking you back to school -- the school of hard knocks -- for lessons on failure, courtesy of some of the greatest minds of our time, so let's see how well you can do with our quiz. Who wants to go first?

Housel: I'm ready.

Southwick: The first class is English. In 2009, Jeff Bezos issued a public apology after creeping the heck out of some Kindle users when, in a very Big Brotheresque move, the company remotely deleted copies of Animal Farm and this dystopian classic.

Housel: I have no idea.

Brokamp: Fahrenheit 451.

Southwick: Uh, do you both want to guess on each one?

Housel: No, I'm bowing out. I don't know. I passed the mic to Bro.

Southwick: A very Big Brotheresque move, this dystopian classic.

Engdahl: 1984.

Southwick: Rick got it. Rick's not even playing.

Brokamp: Oh, Rick got it.

Housel: I was going to say [The] Fountainhead.

Southwick: Jeff said that they... Jeff, because I'm on a first-name basis with him.

Housel: Big J.

Southwick: Big J. J-Dog said they were trying to remove illegally sold copies of the books and suddenly deleting them from people's Kindles was "stupid, thoughtless, and painfully out of line with our principles."

Housel: More willing to fail.

Southwick: There you go.

Brokamp: There you go.

Southwick: Spelling. Are you ready? It's our little spelling bee.

Housel: All right.

Southwick: I'll send this to you, first. Spell the name of Reed Hasting's most famous blunder in 2011 when he decided to spin off the digital side of Netflix from the DVD delivery side. You've got to spell it.

Housel: Do you want me to go? Are you going to go?

Brokamp: I'll pass this one to Morgan.

Southwick: OK, this is being passed back to Morgan.

Housel: Q-U-I-K-S-T-E-R?

Southwick: You said Q-U-I-K-S-T-E-R?

Housel: Yeah.

Southwick: Very close, but no. [Bzzz!]

Brokamp: Q-W.

Engdahl: No E-R. Just "R" at the end.

Southwick: No, also wrong. Bro?

Brokamp: Just replace the U with a W.

Southwick: Yes. So it's awful. Q-W-I-K-S-T-E-R.

Housel: Are there any other words in the English language that are Q-W?

Southwick: Q-W-I-K-S-T-E-R. Yeah, right. The stock took a major hit -- in fact, 25% -- and the company admitted they lost 800,000 subscribers as a result. Of course, in hindsight, this really presented investors with a buy opportunity as the stock is up a bajillion percent since. I didn't have time to look it up, exactly, but trust me. It's up a lot.

Brokamp: It's close to a bajillion.

Southwick: It's close to a bajillion.

Housel: It rounds to a bajillion.

Southwick: All right, social studies. Who wants to go first?

Brokamp: I'll do it.

Southwick: Google co-founder Sergey Brin admitted that it was probably a mistake for him to work on what failed Google product because he's "not a very social person and kind of a weirdo."

Brokamp: The Google Flock, I guess.

Southwick: No.

Housel: I'd say the Google Glasses.

Southwick: No!

Engdahl: Google Plus.

Southwick: Yes! Rick got that one. Google Plus. Fun facts. Google planned to buy -- at the time -- the popular social networking site Friendster back in 2003 ...

Brokamp: Oh, I remember Friendster.

Southwick: ... and offered $30 million but Friendster snubbed this offer. Also a fun fact. My husband and I are together today because of Friendster.

Housel: Is that right?

Southwick: Yes.

Brokamp: Nice.

Housel: Wow! You're the only people ever to do that.

Southwick: Well, thanks also goes to Ralph Wiggum, Adidas, and Marty Zeiger's annual Super Bowl party, so maybe I'll tell you the story one day.

Brokamp: Me fail English. That's impossible!

Southwick: That's literally what ...

Brokamp: I know.

Southwick: OK, you already know the story. Science. Are you ready for science? This is the last question.

Housel: All right. We haven't gotten any of them right so far.

Southwick: Rick's doing OK. Let's finish with the father of invention, himself, Thomas Edison. He had over 1,000 patents in the U.S. and invented the phonograph and the motion picture camera. As he maybe did or maybe didn't say of his struggles to invent the incandescent lightbulb, "I have not failed. I have just found a thousand ways that didn't work." Fill in the blank. "I owe my success to the fact that I never had a -- what -- in my workroom."

Brokamp: A bed. There's a reason why I said that, by the way. Or no, maybe it wasn't Edison. I can't remember, anyway. Go ahead. What's your guess?

Housel: I don't know. I have no idea.

Engdahl: A desk.

Southwick: The answer is a clock. He said 75 of us worked 20 hours every day and slept only four hours and thrived on it.

Brokamp: Got you.

Southwick: Here's another fun fact. His hearing was really bad.

Brokamp: "What?"

Southwick: His hearing was so bad, in fact... Yeah, Morgan will give you a pity laugh for that one. His hearing was so bad that according to a historian cited in The New York Times, Edison trained his second wife, Nina, to secretly tap out conversations in Morse code on his knee during dinner parties.

Housel: That sounds fun.

Engdahl: It sounds like an excuse to me.

Brokamp: The reason I said bed, and I may be wrong -- that this wasn't Edison -- but he would brainstorm by sitting at a desk holding a metal ball -- or a ball in his hand -- over a metal dish, and he would think about the problem and he'd start to fall asleep. But when you start to fall asleep, you get weird thoughts [and they would] cause him to brainstorm. He'd fall asleep. He'd drop the ball. It would hit the bowl ...

Housel: It would ding.

Brokamp: ... and he would wake up. He'd be like, "Oh, did I have any good thoughts, there?" And if he did he'd write it down.

Housel: That's a really cool idea.

Brokamp: Now I'll have to look it up and see if that's actually true, but it sounds good.

Housel: It's one of those stories that even if it's not true I don't care.

Brokamp: Exactly.

Housel: I don't care if it's not true. I like it.

Engdahl: Just because it didn't happen doesn't mean it's not true.

Housel: That's true.

Southwick: All right, Morgan, thank you for joining us today.

Housel: Thanks for having me back.

Southwick: Absolutely, and we're actually going to have you back here in a few more weeks, so that'll be great, too.

Housel: Great. I look forward to it.

Southwick: I have some postcards to talk about. Sgt. Mike sent us our first postcard from Florida. Can you believe it took us that long ...

Brokamp: Yay, Florida.

Southwick: ... to get a postcard from Florida? He says we are his favorite podcast with Motley Fool Money coming in second. Elizabeth sent us a card from Lucca, Italy where she writes that many of the buildings are a patchwork of architectural history because the people are so frugal, there, that they'd rather alter existing buildings than pay to replace them. True Fools.

Brokamp: Nice.

Southwick: Rod and Judy sent us our first card from Montenegro. They say it's a must-see location. And Rich suggests that we tape an episode of the show focused on chocolate from Hershey, P.A., which is where he took his family and they had a great time.

Brokamp: Ooh! That's a great idea.

Southwick: So, thank you everyone who sent in postcards. Please continue to send them in because you know I love them. Our address is 2000 Duke Street, Alexandria, Virginia, 22314. All right, that's going to do it for today. The show is edited tirelessly by Rick Engdahl. For Robert Brokamp, I'm Alison Southwick. Stay Foolish, everybody!

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Alison Southwick has no position in any of the stocks mentioned. Morgan Housel has no position in any of the stocks mentioned. Robert Brokamp, CFP owns shares of Facebook and Tesla. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Facebook, Netflix, Tesla, and Twitter. The Motley Fool has a disclosure policy.