1 00:00:12,960 --> 00:00:15,960 Speaker 1: Hello and welcome to The Australian's Money Puzzle podcast. I'm 2 00:00:16,040 --> 00:00:19,840 Speaker 1: James Kirby, the Wealth editor at the Australian. Welcome aboard everybody. 3 00:00:20,320 --> 00:00:23,680 Speaker 1: Now imagine, imagine as an investor, a share investor, how 4 00:00:23,720 --> 00:00:27,320 Speaker 1: would you feel if this happened? You wake up tomorrow morning, 5 00:00:28,000 --> 00:00:31,240 Speaker 1: you look at your phone of the television and you 6 00:00:31,360 --> 00:00:35,239 Speaker 1: find out that the wars treat is down twenty three 7 00:00:35,280 --> 00:00:38,920 Speaker 1: percent in the day overnight. You say, oh my god. 8 00:00:39,040 --> 00:00:42,280 Speaker 1: You hope Australia when it opens will be better. Maybe 9 00:00:42,280 --> 00:00:44,760 Speaker 1: there'll be a recovery, maybe there'd be some bargain hunting. 10 00:00:45,360 --> 00:00:49,720 Speaker 1: The ax in a fashion which was established way back 11 00:00:49,760 --> 00:00:54,320 Speaker 1: when and continues to this day, overdoes it and actually 12 00:00:54,360 --> 00:00:57,840 Speaker 1: falls harder than the American market and it falls twenty 13 00:00:57,880 --> 00:01:00,960 Speaker 1: five percent in a single session. Now, I wanted to 14 00:01:01,000 --> 00:01:04,280 Speaker 1: keep this in mind at the moment. These days, we 15 00:01:04,319 --> 00:01:06,679 Speaker 1: get terribly worried. If we have a bad day on 16 00:01:06,720 --> 00:01:10,000 Speaker 1: the Essex. We have a three percent drop, it's a 17 00:01:10,000 --> 00:01:13,480 Speaker 1: big deal. If we have a five percent drop, it's 18 00:01:13,959 --> 00:01:16,800 Speaker 1: front page news. Its billions have been wiped off the 19 00:01:16,800 --> 00:01:19,840 Speaker 1: stock exchanges to the londondumbers. The thing is that in 20 00:01:19,959 --> 00:01:23,440 Speaker 1: nineteen eighty seven, we had a twenty five percent drop. 21 00:01:23,480 --> 00:01:26,160 Speaker 1: It was the greatest stock market crash of our time. 22 00:01:26,240 --> 00:01:29,440 Speaker 1: It was the biggest since nineteen twenty nine, the. 23 00:01:29,440 --> 00:01:33,520 Speaker 2: Crash of eighty seven. Around the world, shear market pandemonium, 24 00:01:33,640 --> 00:01:36,840 Speaker 2: good evening. The stock market sale of the century continued 25 00:01:36,880 --> 00:01:40,319 Speaker 2: around the world today, with more than sixty billion dollars 26 00:01:40,400 --> 00:01:43,360 Speaker 2: wiped off the value of Australian shares in the past 27 00:01:43,400 --> 00:01:45,440 Speaker 2: thirty hours. At the end of and. 28 00:01:45,520 --> 00:01:49,720 Speaker 1: It's worth knowing this, the previous worst day Essex before 29 00:01:49,760 --> 00:01:52,960 Speaker 1: the twenty five percent drop was her four percent drop, 30 00:01:53,200 --> 00:01:57,360 Speaker 1: So it was like five times six times anything that 31 00:01:57,520 --> 00:01:59,440 Speaker 1: people had seen before. 32 00:02:00,000 --> 00:02:02,080 Speaker 2: At the end of the day's trading on the Sydney 33 00:02:02,080 --> 00:02:06,560 Speaker 2: Stock Exchange, the market's leading indicator, the All Ordinaries Index, 34 00:02:06,880 --> 00:02:10,440 Speaker 2: had fallen five hundred and fifteen points. As the selling 35 00:02:10,480 --> 00:02:14,680 Speaker 2: stampede continued around the world, some economists in now forecasting 36 00:02:14,760 --> 00:02:17,680 Speaker 2: the start of a worldwide recession with. 37 00:02:17,720 --> 00:02:21,080 Speaker 1: All Now, what's that line, the historic line, If you 38 00:02:21,120 --> 00:02:24,080 Speaker 1: forget the past, you're condemned to repeat it. So I 39 00:02:24,160 --> 00:02:29,200 Speaker 1: wanted to remind people that crash happened this week. In 40 00:02:29,280 --> 00:02:30,320 Speaker 1: nineteen eighty seven. 41 00:02:30,200 --> 00:02:34,360 Speaker 2: The Sydney Stock Exchange fifteen minutes before opening the cab 42 00:02:34,680 --> 00:02:38,280 Speaker 2: before the collapse with history that no one wanted to 43 00:02:38,320 --> 00:02:42,680 Speaker 2: make as Australian investors played a leader in a line 44 00:02:42,720 --> 00:02:43,200 Speaker 2: that I. 45 00:02:43,360 --> 00:02:47,480 Speaker 1: Was actually in the market, very junior, but I was 46 00:02:47,520 --> 00:02:49,720 Speaker 1: in the market, and I can remember there was a 47 00:02:49,840 --> 00:02:53,560 Speaker 1: lead up to the Spring Racing Carnival in Melbourne. There 48 00:02:53,600 --> 00:02:57,680 Speaker 1: was a Melbourne cuff looming. I had just arrived in Australia. 49 00:02:57,800 --> 00:03:00,079 Speaker 1: By that, I mean I was here a couple of 50 00:03:00,280 --> 00:03:03,680 Speaker 1: weeks and I was a reporter on the Financial Review, 51 00:03:04,560 --> 00:03:08,520 Speaker 1: and I can still remember how difficult it was for 52 00:03:08,600 --> 00:03:11,360 Speaker 1: us to grasp this because we didn't have the communications 53 00:03:11,360 --> 00:03:13,600 Speaker 1: we have now. We were basically standing around what they 54 00:03:13,600 --> 00:03:17,240 Speaker 1: call a wire machine and I wanted to talk to 55 00:03:17,440 --> 00:03:19,640 Speaker 1: someone in the market who would be good on this, 56 00:03:19,800 --> 00:03:24,360 Speaker 1: who recalls it clearly. And my guest today was in 57 00:03:24,400 --> 00:03:26,240 Speaker 1: the thick of it all at the time. He's an 58 00:03:26,240 --> 00:03:28,720 Speaker 1: Australian who was in London at the time, but he 59 00:03:28,840 --> 00:03:32,000 Speaker 1: was right across it. His name is Alex Moffatt. He's 60 00:03:31,760 --> 00:03:37,080 Speaker 1: at the Joseph Palmer Group. Hi, Alix, how are you? 61 00:03:37,840 --> 00:03:40,120 Speaker 3: Good morning, James, thank you for the invitation. It's good 62 00:03:40,120 --> 00:03:42,440 Speaker 3: to speak to you with you. It's delightful to have 63 00:03:42,480 --> 00:03:42,880 Speaker 3: you on. 64 00:03:43,400 --> 00:03:46,000 Speaker 1: So it turns out, funnily enough, you're the Australian, but 65 00:03:46,080 --> 00:03:50,000 Speaker 1: you're in London, and I was here on that day, 66 00:03:50,440 --> 00:03:54,120 Speaker 1: which was a Monday in New York and a Tuesday 67 00:03:54,280 --> 00:03:58,000 Speaker 1: in Australia, the last great crash we had. And I 68 00:03:58,040 --> 00:04:02,360 Speaker 1: want to talk to our listeners today about this, because folks, 69 00:04:03,040 --> 00:04:05,960 Speaker 1: there's got to be another crash. I don't know the 70 00:04:06,000 --> 00:04:09,240 Speaker 1: skal of it, and I don't know when, but crashes 71 00:04:09,240 --> 00:04:13,040 Speaker 1: are part of the market and we possibly as investors 72 00:04:13,760 --> 00:04:16,560 Speaker 1: are having it's so good that we've probably forgotten just 73 00:04:16,680 --> 00:04:19,400 Speaker 1: how scary it is. Where were you, Alex, and tell 74 00:04:19,400 --> 00:04:20,599 Speaker 1: me about the d okay. 75 00:04:20,640 --> 00:04:23,600 Speaker 3: I was in London. I was working in Irving Trust 76 00:04:23,640 --> 00:04:27,200 Speaker 3: Companies dealing room in Abchurch Lane in London, and for 77 00:04:27,240 --> 00:04:30,960 Speaker 3: those who know London well, Abchurch Lane is just up 78 00:04:31,000 --> 00:04:34,320 Speaker 3: the road from the Cannon Street railway station. Living Trust 79 00:04:34,320 --> 00:04:37,160 Speaker 3: Company was not a stockbroker. They were an American bank 80 00:04:37,160 --> 00:04:40,640 Speaker 3: that was running their global bond dealing operation from London. 81 00:04:41,080 --> 00:04:44,040 Speaker 3: New York at the time was the secondary operation because London, 82 00:04:44,080 --> 00:04:47,000 Speaker 3: of course at the time was the center of the universe. 83 00:04:47,880 --> 00:04:49,919 Speaker 3: The Australian firm that sent me. There was one of 84 00:04:49,920 --> 00:04:53,960 Speaker 3: the discount houses at the time in Australia, trans City Discount, 85 00:04:54,480 --> 00:04:57,880 Speaker 3: and I was running the Australian bond operation for trans 86 00:04:57,880 --> 00:05:01,440 Speaker 3: City Discount through irving trust officers in London. 87 00:05:02,320 --> 00:05:05,440 Speaker 1: What was the atmosphere like, well, how do people react 88 00:05:05,480 --> 00:05:07,560 Speaker 1: with the cell of the orphant news? So James, there 89 00:05:07,640 --> 00:05:11,000 Speaker 1: was You were right in your earlier comments the week before. 90 00:05:11,480 --> 00:05:13,400 Speaker 1: If I can just paint a little bit of a 91 00:05:13,440 --> 00:05:17,719 Speaker 1: picture the week before the Obviously, as a bond dealer, 92 00:05:17,880 --> 00:05:19,880 Speaker 1: you look at all the markets around you and we 93 00:05:20,000 --> 00:05:21,800 Speaker 1: keep half an eye on the stock market. 94 00:05:22,000 --> 00:05:25,640 Speaker 3: The bond market globally is about double the size of 95 00:05:25,960 --> 00:05:29,680 Speaker 3: the total of the world's stock markets, but you do 96 00:05:29,760 --> 00:05:31,560 Speaker 3: keep an eye on it. But it's important a lot 97 00:05:31,560 --> 00:05:34,920 Speaker 3: of investment dollars go there. In the week prior to 98 00:05:35,600 --> 00:05:40,480 Speaker 3: the Friday night, the sixteenth of October in London, the 99 00:05:41,120 --> 00:05:43,919 Speaker 3: S and P five hundred dropped about ten percent, not 100 00:05:44,040 --> 00:05:45,920 Speaker 3: in one day, but over the course of that week, 101 00:05:45,960 --> 00:05:48,760 Speaker 3: and you alluded to that in your comments. You could 102 00:05:48,800 --> 00:05:51,200 Speaker 3: tell that there was something wrong. We went home on 103 00:05:51,240 --> 00:05:55,520 Speaker 3: the Friday night and it just didn't feel right. Now, 104 00:05:55,560 --> 00:06:00,560 Speaker 3: when the stock market has issues, credit spreads also start 105 00:06:00,600 --> 00:06:03,880 Speaker 3: to widen against the risk crew rate, against government bond yields, 106 00:06:04,200 --> 00:06:06,719 Speaker 3: and so the pressure was being felt in credit spreads, 107 00:06:06,760 --> 00:06:09,200 Speaker 3: which is the market that I dealt in, as well 108 00:06:09,200 --> 00:06:12,160 Speaker 3: as in the stock market. Now in adding it a 109 00:06:12,200 --> 00:06:14,960 Speaker 3: little bit of further color, and some of your listeners 110 00:06:15,000 --> 00:06:19,800 Speaker 3: may be very young. On Sunday night, the eighteenth of October, 111 00:06:20,000 --> 00:06:24,679 Speaker 3: a wild hurricane hit London and decimated a very large 112 00:06:24,800 --> 00:06:27,560 Speaker 3: part of certainly Hyde Park, which was near where I 113 00:06:27,640 --> 00:06:30,400 Speaker 3: was living. To the end that when I got a 114 00:06:30,400 --> 00:06:33,200 Speaker 3: phone call very early on Monday morning, the nineteenth of 115 00:06:33,200 --> 00:06:37,960 Speaker 3: October and someone said, Mop, look out your window and 116 00:06:38,560 --> 00:06:41,520 Speaker 3: tell me what you see. We were living in devere 117 00:06:41,560 --> 00:06:46,159 Speaker 3: cottages in Kensington at the time, and out on Kensington 118 00:06:46,240 --> 00:06:48,400 Speaker 3: High Street I could see a double decker bus on 119 00:06:48,440 --> 00:06:51,240 Speaker 3: its side. I walked to work that day. 120 00:06:51,920 --> 00:06:54,680 Speaker 1: There was a sense of doom in the airport. There 121 00:06:54,880 --> 00:06:58,640 Speaker 1: was separate to the markets. There were a lot of 122 00:06:58,680 --> 00:07:00,160 Speaker 1: trees down in Hyde Park. 123 00:07:00,320 --> 00:07:03,400 Speaker 3: I walked to work and in the city of London 124 00:07:03,400 --> 00:07:06,800 Speaker 3: in at Church Lane, and the morning was it just 125 00:07:06,920 --> 00:07:09,960 Speaker 3: you could feel the black clouds around the dealing room. 126 00:07:10,520 --> 00:07:14,679 Speaker 3: The American Central Bank had been holding monetary policy fairly tight. 127 00:07:14,760 --> 00:07:18,200 Speaker 3: Alan Greenspan was the new president of the Federal Reserve. 128 00:07:18,840 --> 00:07:21,920 Speaker 3: It just it was a surreal day. And then when 129 00:07:22,040 --> 00:07:27,200 Speaker 3: the Dow jones components, and for your listener's information, the 130 00:07:27,240 --> 00:07:31,400 Speaker 3: Dow comprises the thirty largest stocks in the US, and 131 00:07:31,440 --> 00:07:34,640 Speaker 3: when they open those thirty stocks, they opened one stock 132 00:07:34,760 --> 00:07:38,720 Speaker 3: every minute for half an hour. They started about one o'clock, 133 00:07:38,840 --> 00:07:43,280 Speaker 3: and by ten quarter past one, the Dow was down 134 00:07:43,520 --> 00:07:46,120 Speaker 3: very hard, indeed down probably ten days. Were they're trying 135 00:07:46,160 --> 00:07:51,320 Speaker 3: to stage manage such a crash that then do was happening. 136 00:07:51,880 --> 00:07:54,760 Speaker 3: That's a really good question, James, And at the time 137 00:07:55,000 --> 00:07:58,480 Speaker 3: there were. It was basically the start of program trading 138 00:07:58,920 --> 00:08:02,880 Speaker 3: and ground trading is probably was the lead into the 139 00:08:03,480 --> 00:08:07,360 Speaker 3: I guess the artificial intelligence inspired program trading that we 140 00:08:07,440 --> 00:08:09,760 Speaker 3: have now. But there are an awful lot of cell 141 00:08:09,920 --> 00:08:13,320 Speaker 3: orders going into the stock market, which was why the 142 00:08:13,320 --> 00:08:15,960 Speaker 3: market was going down at a rapid rate. And this 143 00:08:16,080 --> 00:08:19,240 Speaker 3: was impacting credit spreads. As I said, people started selling 144 00:08:19,520 --> 00:08:23,200 Speaker 3: just to cover risk positions, So people were selling good 145 00:08:23,200 --> 00:08:26,320 Speaker 3: assets like bonds to cover their bad assets like stocks. 146 00:08:26,320 --> 00:08:29,440 Speaker 3: At the time, the downdrop twenty percent on that day 147 00:08:29,480 --> 00:08:31,960 Speaker 3: as the S and P was down twenty percent. It's 148 00:08:32,000 --> 00:08:35,319 Speaker 3: probably the worst day since the nineteen twenty nine crash, 149 00:08:35,360 --> 00:08:38,040 Speaker 3: the anniversary of which is coming up very shortly. 150 00:08:38,440 --> 00:08:41,679 Speaker 1: Yes, it's interesting, isn't it. The big crushes are this 151 00:08:41,760 --> 00:08:45,920 Speaker 1: time of year. They are so what Stutterbolt, do you 152 00:08:45,960 --> 00:08:48,760 Speaker 1: think I have my own theory on that. 153 00:08:49,120 --> 00:08:53,640 Speaker 3: We in the Southern Hemisphere have our holidays around Christmas time, 154 00:08:53,800 --> 00:08:56,880 Speaker 3: But in the Northern Hemisphere school breaks up for summer 155 00:08:57,160 --> 00:08:59,600 Speaker 3: in late journe and a lot of the big fund 156 00:08:59,600 --> 00:09:02,840 Speaker 3: manager and captains of industry go away to their summer 157 00:09:02,880 --> 00:09:06,559 Speaker 3: houses in Spain or wherever for a long summer break, 158 00:09:06,600 --> 00:09:08,840 Speaker 3: take the children with them, and they leave the juniors 159 00:09:08,880 --> 00:09:11,160 Speaker 3: on the desk, go to the summer period. Oh yeah, 160 00:09:11,320 --> 00:09:15,240 Speaker 3: when they come back in September, late August, September and 161 00:09:15,280 --> 00:09:20,240 Speaker 3: school resumes, university goes back, They have investment committee meetings 162 00:09:20,360 --> 00:09:24,880 Speaker 3: and they readjust their risk settings, their investment parameters, et cetera. 163 00:09:25,679 --> 00:09:30,199 Speaker 3: And program trading at the time was in its infancy. 164 00:09:30,520 --> 00:09:34,079 Speaker 3: There were no buffers built into the programs. That controls 165 00:09:34,120 --> 00:09:38,280 Speaker 3: came after that, so the setting perpetuated setting exactly. It 166 00:09:38,320 --> 00:09:41,720 Speaker 3: was like a rolling snowball and it just kept rolling. 167 00:09:42,000 --> 00:09:44,080 Speaker 1: It's interesting with people off and ask about what were 168 00:09:44,080 --> 00:09:46,120 Speaker 1: the causes of the eighty seven crash. And one of 169 00:09:46,160 --> 00:09:49,120 Speaker 1: the things about it's almost like a sort of a 170 00:09:49,160 --> 00:09:51,040 Speaker 1: mirror inmature of what were the causes of the First 171 00:09:51,040 --> 00:09:53,679 Speaker 1: World War? There's the pilot causes. What were the causes 172 00:09:53,679 --> 00:09:58,160 Speaker 1: of the eighty seven crash? Nothing in particular jumps out 173 00:09:58,320 --> 00:10:02,320 Speaker 1: for the crash. One of the things was that not 174 00:10:02,360 --> 00:10:05,360 Speaker 1: only did it so that was the day everybody listeners 175 00:10:05,360 --> 00:10:07,800 Speaker 1: and I'm sure the vast majority of listeners don't remember. 176 00:10:08,120 --> 00:10:11,959 Speaker 1: I may not even know about this. It fell twenty 177 00:10:11,960 --> 00:10:14,720 Speaker 1: five percent on the day, and for what it's worth, 178 00:10:14,760 --> 00:10:17,160 Speaker 1: it kept going and the next few months were worse, 179 00:10:17,200 --> 00:10:20,000 Speaker 1: and in the end it fell forty percent. And the 180 00:10:20,040 --> 00:10:23,760 Speaker 1: bottom at that time was about five or six months 181 00:10:23,840 --> 00:10:28,240 Speaker 1: later in February eighty eight, and then it started to turn. Now, 182 00:10:28,520 --> 00:10:31,320 Speaker 1: the most recent crash that we're familiar with wasn't so 183 00:10:31,440 --> 00:10:33,840 Speaker 1: much a crash as a slow what did they call it, 184 00:10:33,880 --> 00:10:37,520 Speaker 1: the slow motion train wreck, which is the GFC where 185 00:10:37,679 --> 00:10:41,480 Speaker 1: because the authorities were trying again to stage manage how 186 00:10:41,520 --> 00:10:45,920 Speaker 1: bad things were, shares fell fifty percent, but they took 187 00:10:46,040 --> 00:10:49,920 Speaker 1: two years to four fifty percent from two oh seven 188 00:10:50,080 --> 00:10:51,000 Speaker 1: to two nine. 189 00:10:51,320 --> 00:10:52,400 Speaker 3: Now what I want to. 190 00:10:52,400 --> 00:10:57,920 Speaker 1: Ask you, Alex is tell me about having been in 191 00:10:57,920 --> 00:11:03,160 Speaker 1: the thick of things and you were credential profess in 192 00:11:03,240 --> 00:11:06,920 Speaker 1: nineteen eighty seven, I was a junior reporter. I was 193 00:11:07,000 --> 00:11:10,160 Speaker 1: just standing there with my mouth, just watching me and 194 00:11:10,360 --> 00:11:13,640 Speaker 1: watching everybody. I remember someone saying to me, you should 195 00:11:13,640 --> 00:11:15,840 Speaker 1: go around to the stock exchange, because there was a 196 00:11:15,840 --> 00:11:18,600 Speaker 1: physical stock exchange on Corlett Street in the Melbourne and 197 00:11:18,600 --> 00:11:20,480 Speaker 1: you could go and there was choveboards and all that. 198 00:11:20,520 --> 00:11:23,480 Speaker 1: And I remember trying to go in, but the crowds, 199 00:11:23,520 --> 00:11:26,439 Speaker 1: of course, had were around the doorways. You couldn't really 200 00:11:26,440 --> 00:11:28,679 Speaker 1: get in. Normally there was no one in there apart 201 00:11:28,720 --> 00:11:30,400 Speaker 1: of the traders and chokies and all that. But you 202 00:11:30,400 --> 00:11:33,079 Speaker 1: couldn't get in because it was like sixty But I'll 203 00:11:33,120 --> 00:11:35,000 Speaker 1: never forget it. But what I want to ask you 204 00:11:35,120 --> 00:11:40,920 Speaker 1: is having witnessed, and professionally witnessed as an investor, the 205 00:11:41,000 --> 00:11:44,160 Speaker 1: worst crash of our time being the Great Crash at 206 00:11:44,200 --> 00:11:47,760 Speaker 1: nineteen eighty seven, did it change you did in the 207 00:11:47,800 --> 00:11:49,280 Speaker 1: way that people say, Oh, I grew up in the 208 00:11:49,280 --> 00:11:51,520 Speaker 1: Great Depression, my parents grew up with the Great Depression, 209 00:11:51,520 --> 00:11:56,720 Speaker 1: and it characterized me. It formed me did it? What 210 00:11:56,760 --> 00:11:59,880 Speaker 1: did it do to you as an investor? From then on? 211 00:12:00,640 --> 00:12:02,800 Speaker 3: It was a real water change to see change for 212 00:12:02,920 --> 00:12:06,439 Speaker 3: me James, and the word valuation took on a real 213 00:12:06,559 --> 00:12:10,440 Speaker 3: new meaning. And when I transitioned from the bond market 214 00:12:10,480 --> 00:12:14,240 Speaker 3: to the stock market twenty years ago, valuation became all important. 215 00:12:14,520 --> 00:12:18,240 Speaker 3: And there's a number of companies now which people probably 216 00:12:18,640 --> 00:12:22,160 Speaker 3: are watching the technology stocks going up and up, exceeding 217 00:12:22,360 --> 00:12:26,719 Speaker 3: their realistic valuations. And there's a means of calculating your 218 00:12:26,720 --> 00:12:30,800 Speaker 3: company's valuation and measuring it against its peers. And I 219 00:12:30,840 --> 00:12:33,320 Speaker 3: think that's what drove it into me. So I became 220 00:12:33,360 --> 00:12:36,199 Speaker 3: a value investor after that. And that goes for bonds 221 00:12:36,240 --> 00:12:39,120 Speaker 3: as well as stocks. Buy when it's cheap, and so 222 00:12:39,280 --> 00:12:40,600 Speaker 3: when it's expensive. 223 00:12:40,720 --> 00:12:43,800 Speaker 1: Yes, it's hard to sell. When it's expenses. It's hard 224 00:12:43,840 --> 00:12:45,360 Speaker 1: to sell when you've made a lot of money out 225 00:12:45,360 --> 00:12:46,240 Speaker 1: of something, isn't it? 226 00:12:47,080 --> 00:12:48,839 Speaker 3: You can always take some off the top, though. You 227 00:12:48,880 --> 00:12:51,079 Speaker 3: can always take your capital out and let the the 228 00:12:51,120 --> 00:12:51,720 Speaker 3: profit run. 229 00:12:52,280 --> 00:12:56,880 Speaker 1: Are you listening, waste tech investors? Are you listening NEXTDC investors? 230 00:12:57,200 --> 00:12:58,920 Speaker 1: My dear waist tech is selling off for you, so 231 00:12:58,960 --> 00:13:01,600 Speaker 1: you don't have to worries. But are you listening, shall 232 00:13:01,679 --> 00:13:05,120 Speaker 1: we say Nvidia Investors one of the most popular overseas 233 00:13:05,120 --> 00:13:07,559 Speaker 1: stocks on the Australian market at the moment, and all 234 00:13:07,640 --> 00:13:09,960 Speaker 1: the big tech stocks that are that our listeners love, 235 00:13:10,200 --> 00:13:15,280 Speaker 1: the meta and alphabeta et cetera, et cetera, Facebook and Google. Okay, 236 00:13:15,440 --> 00:13:17,640 Speaker 1: what we might do is take a short break and 237 00:13:17,679 --> 00:13:19,320 Speaker 1: I want to going to do with the second part 238 00:13:19,440 --> 00:13:23,520 Speaker 1: is I'm going to put the key question to Alex, 239 00:13:23,559 --> 00:13:27,920 Speaker 1: which is all very interesting. But those were different days? 240 00:13:28,280 --> 00:13:30,640 Speaker 1: Or were they different days? And could it all happen again? 241 00:13:30,679 --> 00:13:40,559 Speaker 1: We'll be back in a moment. Hello and welcome back 242 00:13:40,559 --> 00:13:43,920 Speaker 1: to the Australian's Money Puzzle podcast. I'm James Kirby talking 243 00:13:43,920 --> 00:13:48,440 Speaker 1: to Alex Moffatt of Joseph Palmer and Sons. Alex is 244 00:13:48,559 --> 00:13:51,560 Speaker 1: a veteran of the market. He also writes a newsletter 245 00:13:51,600 --> 00:13:53,760 Speaker 1: for his clients which he very nicely a few years ago, 246 00:13:53,800 --> 00:13:56,880 Speaker 1: put me on the Put me on the circle and 247 00:13:57,360 --> 00:13:59,120 Speaker 1: I have a look at it every morning and it's 248 00:13:59,240 --> 00:14:03,640 Speaker 1: very interesting and he has a historic perspective of the 249 00:14:03,679 --> 00:14:07,679 Speaker 1: wider market which is invariably missing. Can I say from 250 00:14:07,720 --> 00:14:10,320 Speaker 1: a lot of from a lot of commentations that we read, 251 00:14:10,840 --> 00:14:14,640 Speaker 1: and it's really important to know what has happened in 252 00:14:14,679 --> 00:14:17,920 Speaker 1: the past, Alex, you were going to I know you were, 253 00:14:18,000 --> 00:14:19,920 Speaker 1: just I could see you were heading towards something there 254 00:14:19,920 --> 00:14:22,080 Speaker 1: a minute ago before we talk about the prospects of 255 00:14:22,120 --> 00:14:25,840 Speaker 1: it all happening against about the big companies, when in 256 00:14:25,920 --> 00:14:30,120 Speaker 1: that at that time some of the biggest companies in 257 00:14:30,160 --> 00:14:33,320 Speaker 1: Australia nineteen eighty seven, that was companies like specific dun 258 00:14:33,400 --> 00:14:37,520 Speaker 1: Lopigon which was a giant company. Btr night X was 259 00:14:37,560 --> 00:14:40,920 Speaker 1: a giant companies. There was the great the Buccaneers, the 260 00:14:41,720 --> 00:14:45,600 Speaker 1: John Elliots with Elders, the Adnate Steamship Group for John 261 00:14:45,680 --> 00:14:50,560 Speaker 1: Spalvin's Homes of Court and his various enterprises, and of 262 00:14:50,560 --> 00:14:53,440 Speaker 1: course the iconic figure the one, the one that stands 263 00:14:53,440 --> 00:14:58,200 Speaker 1: out to this day, Alan Bond and his empire. They're 264 00:14:58,240 --> 00:15:02,320 Speaker 1: all gone and many of them were. That was the 265 00:15:02,320 --> 00:15:04,560 Speaker 1: beginning of the end for them, wasn't it from any 266 00:15:04,680 --> 00:15:09,000 Speaker 1: of them? The eighty seven craft Well, I think so 267 00:15:09,080 --> 00:15:12,600 Speaker 1: different today. 268 00:15:11,400 --> 00:15:14,640 Speaker 3: The difference, James, and you've highlighted a lot of them. 269 00:15:14,920 --> 00:15:18,280 Speaker 3: Quintex is another one that comes to mind. Christopher Scayes, 270 00:15:18,400 --> 00:15:21,280 Speaker 3: who I stood in front of his desk in Collins 271 00:15:21,320 --> 00:15:24,680 Speaker 3: Street in Hardy House while he signed a mountain of 272 00:15:24,720 --> 00:15:26,880 Speaker 3: bills exchange for me. You wouldn't let me sit down 273 00:15:26,920 --> 00:15:29,080 Speaker 3: while he did them. But nonetheless, I think the difference 274 00:15:29,280 --> 00:15:33,000 Speaker 3: between those days and these is there's one word missing 275 00:15:33,000 --> 00:15:36,520 Speaker 3: in those days profit And a lot of those companies 276 00:15:36,640 --> 00:15:42,200 Speaker 3: were going up on promises, expectation, sheer flow of investor money, 277 00:15:42,360 --> 00:15:45,760 Speaker 3: but they weren't delivering profit or dividends. And certainly I 278 00:15:45,760 --> 00:15:49,880 Speaker 3: remember that was the case in ad Steam Quintech's bond corporation. 279 00:15:50,640 --> 00:15:54,320 Speaker 3: There was a lot of sharp practices and you may 280 00:15:54,480 --> 00:15:58,800 Speaker 3: remember a practice which was called bottom of the harbor. 281 00:15:59,320 --> 00:16:02,680 Speaker 1: The tax ski they were around when at that time, 282 00:16:02,720 --> 00:16:05,360 Speaker 1: but I was only vaguely aware of really for result. 283 00:16:05,480 --> 00:16:07,800 Speaker 3: They started in about the mid seventies and went through 284 00:16:07,840 --> 00:16:10,800 Speaker 3: till the late eighties. And that's where entrepreneurs would come 285 00:16:10,840 --> 00:16:13,960 Speaker 3: in by a company strip of its strip it of 286 00:16:14,040 --> 00:16:17,960 Speaker 3: its assets and put some bogus directors in and then 287 00:16:18,160 --> 00:16:21,640 Speaker 3: avoid any tax payments. And if you go back through 288 00:16:21,680 --> 00:16:23,800 Speaker 3: your history books and there's James I'm a real fan 289 00:16:23,840 --> 00:16:26,960 Speaker 3: of history, you learn a lot from it. The painters 290 00:16:27,000 --> 00:16:32,200 Speaker 3: and dockers in Victoria were probably very helpful to some 291 00:16:32,280 --> 00:16:35,400 Speaker 3: of these companies. In providing stand in directors for some 292 00:16:35,480 --> 00:16:38,320 Speaker 3: of these shell companies that were stripped through the bottom 293 00:16:38,320 --> 00:16:42,240 Speaker 3: of the harbor schemes. So profit is the answer. 294 00:16:42,680 --> 00:16:47,480 Speaker 1: When things are really good, then the nature of scandals change, 295 00:16:48,000 --> 00:16:51,120 Speaker 1: and I think people are not as worried. But it's 296 00:16:51,160 --> 00:16:54,240 Speaker 1: a tough look on Chris Ellison and min As Miners, 297 00:16:54,280 --> 00:16:56,720 Speaker 1: the big lithium player. They're holding it out as an 298 00:16:56,720 --> 00:16:59,920 Speaker 1: example this morning both why not because there's an investigation 299 00:17:00,160 --> 00:17:02,680 Speaker 1: going on now and Asika has come from. They're investigating 300 00:17:02,680 --> 00:17:05,720 Speaker 1: how he's dealing with his with some sort of what 301 00:17:05,720 --> 00:17:10,000 Speaker 1: would seemed to be an alleged tax arrangement that should 302 00:17:10,000 --> 00:17:13,320 Speaker 1: not have happened at Minrais. But what I want to 303 00:17:13,359 --> 00:17:14,800 Speaker 1: the point I want to make is not so much 304 00:17:14,800 --> 00:17:17,639 Speaker 1: about him, But it seems to me that the scandals 305 00:17:17,680 --> 00:17:19,320 Speaker 1: we get at the top of the market in a 306 00:17:19,440 --> 00:17:25,479 Speaker 1: hoff market are scandals of greed, and that is at common. 307 00:17:25,520 --> 00:17:28,679 Speaker 1: That was a common theme in terms of how people 308 00:17:28,800 --> 00:17:32,160 Speaker 1: were dealing in around that time. In the later he said, 309 00:17:32,200 --> 00:17:35,040 Speaker 1: we had a terrible crash, and we had the Harlan 310 00:17:35,400 --> 00:17:39,200 Speaker 1: scheme if you remember at Elders, and we had various 311 00:17:39,240 --> 00:17:41,560 Speaker 1: issues at quintechs, not to mention the sort of mind 312 00:17:41,600 --> 00:17:44,000 Speaker 1: bending stuff that was going on at Bond and we 313 00:17:44,080 --> 00:17:47,800 Speaker 1: have something this week now at Minrais where there is 314 00:17:47,880 --> 00:17:52,680 Speaker 1: again a see you under suspicion for trying to make 315 00:17:52,840 --> 00:17:56,600 Speaker 1: even more money than they're already making. And I just wondered, 316 00:17:56,720 --> 00:18:00,600 Speaker 1: do you detect in the bull market that we have now, 317 00:18:00,840 --> 00:18:06,119 Speaker 1: do you detect some sort of tremors or signals that 318 00:18:06,440 --> 00:18:11,520 Speaker 1: would lead us to a reprise of eighty seven? 319 00:18:12,080 --> 00:18:14,959 Speaker 3: The only things I can detect James and stewardship, And 320 00:18:15,000 --> 00:18:18,520 Speaker 3: you very rightly raise that is very important. Certainly, stewardship 321 00:18:18,800 --> 00:18:22,280 Speaker 3: in our company analysis through our own business is a 322 00:18:22,359 --> 00:18:25,280 Speaker 3: key factor of our due diligence process before we invest 323 00:18:25,280 --> 00:18:28,600 Speaker 3: a penny of our clients' funds into any company. You're 324 00:18:28,680 --> 00:18:32,080 Speaker 3: quite right in raising that it's just simply appalling, and 325 00:18:32,320 --> 00:18:35,080 Speaker 3: he has put his hand up astic of course will 326 00:18:35,119 --> 00:18:37,359 Speaker 3: go in and do what they do, But have my 327 00:18:37,440 --> 00:18:41,919 Speaker 3: own opinions of Chris Ellison, and I certainly won't share them. 328 00:18:41,960 --> 00:18:44,399 Speaker 3: Hear it, But it's not a stock that I would 329 00:18:44,600 --> 00:18:48,000 Speaker 3: happily buy into. To me, the I think paul Ford 330 00:18:48,040 --> 00:18:51,280 Speaker 3: Australia has come a long way since nineteen eighty seven 331 00:18:51,560 --> 00:18:55,600 Speaker 3: and you look at company CEOs and boards, and there 332 00:18:55,680 --> 00:18:59,560 Speaker 3: is a very high degree of probity amongst those boards. 333 00:18:59,560 --> 00:19:03,560 Speaker 3: And see to the second part of the question. I'm 334 00:19:03,600 --> 00:19:09,359 Speaker 3: looking also at the overall market valuations, and your observation 335 00:19:09,520 --> 00:19:12,280 Speaker 3: is quite right. Our market at the moment is the 336 00:19:12,359 --> 00:19:15,320 Speaker 3: A six two hundred is valued at about twenty one 337 00:19:15,400 --> 00:19:19,560 Speaker 3: times historic earnings. The long term average long term is 338 00:19:19,600 --> 00:19:22,680 Speaker 3: twenty years. It's a fair measure is about just under 339 00:19:22,720 --> 00:19:26,280 Speaker 3: fifteen times. So our market's expensive at the moment, and 340 00:19:26,480 --> 00:19:29,479 Speaker 3: it is being driven by weight of money. And you 341 00:19:29,560 --> 00:19:33,439 Speaker 3: would be very well aware that superannuation contributions assist that 342 00:19:33,480 --> 00:19:36,840 Speaker 3: weight of money going in. It's yes, the mandatory wit 343 00:19:36,880 --> 00:19:40,600 Speaker 3: of money correct, exactly right. And a lot of that 344 00:19:40,920 --> 00:19:45,119 Speaker 3: weight of money is going into two very large Australian superfunds, 345 00:19:45,119 --> 00:19:48,080 Speaker 3: Australian Super being one of them, and so that money 346 00:19:48,119 --> 00:19:50,200 Speaker 3: has to be invested, and it's invested at the time. 347 00:19:50,320 --> 00:19:53,920 Speaker 3: So our market is trading expensively. I think it goes 348 00:19:53,960 --> 00:19:57,159 Speaker 3: back to what I mentioned before. It's very hard finding 349 00:19:57,280 --> 00:20:01,000 Speaker 3: value in the current market, and I think investors have 350 00:20:01,080 --> 00:20:05,439 Speaker 3: every right to be cautious, and in being cautious, you 351 00:20:05,520 --> 00:20:08,159 Speaker 3: spend more time doing your due dilsions before buying. 352 00:20:08,720 --> 00:20:11,960 Speaker 1: Okay, Now, one of the things about all our crashes, 353 00:20:12,880 --> 00:20:14,880 Speaker 1: I don't know much about what happened in nineteen twenty 354 00:20:15,000 --> 00:20:18,840 Speaker 1: nine here, except that obviously there was a perfect reflection 355 00:20:18,960 --> 00:20:22,200 Speaker 1: of that crash, and the perfect reflection of the later depression, 356 00:20:22,840 --> 00:20:25,680 Speaker 1: the Great Depression in eighty seven, there was a mirror 357 00:20:25,760 --> 00:20:29,399 Speaker 1: image of the crash. In the two thousand dot Com crash, 358 00:20:29,440 --> 00:20:31,679 Speaker 1: there was a mirror image of the crash. So we 359 00:20:31,760 --> 00:20:34,720 Speaker 1: tend to mirror Wall Street, and when they have a crash, 360 00:20:35,359 --> 00:20:39,959 Speaker 1: for all our conservatism, this is recent counteratism. And for 361 00:20:40,000 --> 00:20:43,160 Speaker 1: all our emphasis on dividends, for instance, so it's less 362 00:20:43,840 --> 00:20:49,199 Speaker 1: the less our share market gives better dividends, but it 363 00:20:49,200 --> 00:20:52,439 Speaker 1: doesn't give as good price appreciation as the US market. 364 00:20:52,480 --> 00:20:55,680 Speaker 1: But for all that, when things go bad, we fall 365 00:20:55,760 --> 00:20:58,920 Speaker 1: with them just as just as much, if not more worth. 366 00:20:59,400 --> 00:21:03,920 Speaker 1: If the US has the shaft downturn, and no one 367 00:21:03,960 --> 00:21:06,840 Speaker 1: knows why it would happen, but a black Swan event, okay, 368 00:21:06,920 --> 00:21:08,760 Speaker 1: so we just can't see what it is. But something 369 00:21:08,840 --> 00:21:11,359 Speaker 1: happens that no one thought was going to happen, and 370 00:21:11,600 --> 00:21:14,520 Speaker 1: everyone loses a nerve and there's a big fall on 371 00:21:14,600 --> 00:21:17,240 Speaker 1: War Street. Will we fall with them like we always do. 372 00:21:18,240 --> 00:21:21,639 Speaker 3: We definitely will, James. And the analogy is the end 373 00:21:21,720 --> 00:21:23,920 Speaker 3: of the tail on the dog. The dog wags his 374 00:21:24,040 --> 00:21:26,119 Speaker 3: tail in Australia can be right at the end of 375 00:21:26,160 --> 00:21:30,280 Speaker 3: the tails. Yes, we always overreact and then the recovery 376 00:21:30,400 --> 00:21:31,880 Speaker 3: is slow. As you've pointed out. 377 00:21:32,600 --> 00:21:35,560 Speaker 1: If we're at twenty one times and the average is fifteen, 378 00:21:36,000 --> 00:21:38,840 Speaker 1: is there a number of foot qu get seriously scared 379 00:21:38,880 --> 00:21:42,120 Speaker 1: and say this has to Tom Belova. Look, I thought 380 00:21:42,160 --> 00:21:46,360 Speaker 1: when the market fell over in two thousand and twenty 381 00:21:46,640 --> 00:21:49,920 Speaker 1: with Covid our market Sorry edition p. Five hundred dropped 382 00:21:49,920 --> 00:21:52,840 Speaker 1: about thirty five percent. That was a very fast drop, 383 00:21:53,119 --> 00:21:57,359 Speaker 1: but recovered very quickly. You mentioned before the downturn in 384 00:21:57,400 --> 00:22:00,000 Speaker 1: two thousand and seven eight, and you mentioned how long 385 00:22:00,160 --> 00:22:02,760 Speaker 1: it took to fall that. I think it went down 386 00:22:02,800 --> 00:22:06,760 Speaker 1: eventually about sixty odd percent. It took until twenty twelve 387 00:22:06,800 --> 00:22:11,480 Speaker 1: to recover. I've noticed too that through the clients who 388 00:22:11,520 --> 00:22:15,240 Speaker 1: we act for, we haven't had a single instance of 389 00:22:15,320 --> 00:22:19,600 Speaker 1: anyone panicking. So it's been people have held their nerve 390 00:22:19,760 --> 00:22:23,800 Speaker 1: generally and recognized the downturns for what they are, typically 391 00:22:23,920 --> 00:22:29,840 Speaker 1: an overreaction to an event, whether it be COVID or 392 00:22:30,119 --> 00:22:33,840 Speaker 1: a housing crisis in the US, or lack of corporate 393 00:22:33,880 --> 00:22:37,040 Speaker 1: profitability and bottom of the harbor in nineteen eighty seven. 394 00:22:37,640 --> 00:22:39,720 Speaker 1: The markets will eventually right themselves. 395 00:22:39,720 --> 00:22:41,800 Speaker 3: And if you look at a chart of say the 396 00:22:41,880 --> 00:22:43,800 Speaker 3: S and P five hundred or the Dow or the 397 00:22:44,160 --> 00:22:48,560 Speaker 3: Australian All Ordinaries Index over the last fifty years, it's 398 00:22:48,600 --> 00:22:52,680 Speaker 3: a very gentle, upwardly sloping line. Yes, there are bumps 399 00:22:52,680 --> 00:22:55,360 Speaker 3: and ticks, but if you go back and look at 400 00:22:55,359 --> 00:22:58,359 Speaker 3: that fifty year chart of the S and P five hundred, 401 00:22:58,760 --> 00:23:01,800 Speaker 3: the crash in nineteen eighty seven is a minuscule move. 402 00:23:02,640 --> 00:23:04,880 Speaker 3: And time in the market. 403 00:23:04,600 --> 00:23:09,520 Speaker 1: Is very important. Yeah, time heels all wounds exactly, including 404 00:23:09,560 --> 00:23:12,439 Speaker 1: twenty five percent sell offs. I I just before one, 405 00:23:12,560 --> 00:23:15,200 Speaker 1: I think before we go to the break, talked about 406 00:23:15,320 --> 00:23:19,240 Speaker 1: how it was five years for the market to come back, 407 00:23:20,040 --> 00:23:22,440 Speaker 1: and it was only six months actually six months to 408 00:23:22,440 --> 00:23:24,800 Speaker 1: get to the bottom in eighty seven, two years to 409 00:23:24,800 --> 00:23:27,600 Speaker 1: get to the bottom in two oh seven, and the 410 00:23:27,600 --> 00:23:30,160 Speaker 1: COVID crash very quick, that is. But that a short, 411 00:23:30,160 --> 00:23:32,240 Speaker 1: sharp crash with a short sharp rebound, which is what 412 00:23:32,320 --> 00:23:35,240 Speaker 1: everyone would prefer. Nothing is worse than the sort of 413 00:23:35,600 --> 00:23:37,720 Speaker 1: death of a thousand cuts where you have this long, 414 00:23:37,760 --> 00:23:40,600 Speaker 1: slow decline which you had in the GFC. But what 415 00:23:40,880 --> 00:23:42,760 Speaker 1: I want to ask you is this, there's a theory 416 00:23:42,760 --> 00:23:45,720 Speaker 1: that there's an acceleration of everything, an acceleration of speed, 417 00:23:45,760 --> 00:23:49,280 Speaker 1: acceleration of trading, acceleration of all business cycles. Would that 418 00:23:49,359 --> 00:23:51,520 Speaker 1: mean that if we had a crash that it probably 419 00:23:51,560 --> 00:23:55,080 Speaker 1: would rebound faster than historically. 420 00:23:55,359 --> 00:23:59,000 Speaker 3: It probably would. And they mentioned before the program trading 421 00:23:59,160 --> 00:24:01,119 Speaker 3: was was aligned large part of the cause of the 422 00:24:01,119 --> 00:24:05,320 Speaker 3: eighty seven crash. The authorities after that put it measures 423 00:24:05,320 --> 00:24:08,440 Speaker 3: in place so that when the market drops a certain percentage, 424 00:24:08,480 --> 00:24:10,600 Speaker 3: they stop trading for ten minutes, so people can never 425 00:24:10,680 --> 00:24:14,399 Speaker 3: think about it. So those buffers are brought in to 426 00:24:14,600 --> 00:24:18,520 Speaker 3: try to slow a disaster. Now it doesn't happen on 427 00:24:18,560 --> 00:24:21,120 Speaker 3: the up side, it happens on the downside, and it's 428 00:24:21,119 --> 00:24:25,200 Speaker 3: a protection mechanism. It's to stop a total meltdown. So, yes, 429 00:24:25,240 --> 00:24:27,320 Speaker 3: it will happen again. I have no doubt it will 430 00:24:27,359 --> 00:24:29,439 Speaker 3: happen again. I don't know what's going to cause it. 431 00:24:29,720 --> 00:24:32,639 Speaker 3: You use the term black swan. I think that's exactly right, James. 432 00:24:33,200 --> 00:24:35,959 Speaker 3: But we know there are there cushions put in place 433 00:24:36,200 --> 00:24:39,720 Speaker 3: to ease the falls when they happen, and allow people 434 00:24:39,760 --> 00:24:43,040 Speaker 3: time to think and take stock with thieves about the 435 00:24:43,080 --> 00:24:46,760 Speaker 3: earth cushions when it comes that is inevitably will folks, 436 00:24:46,840 --> 00:24:48,600 Speaker 3: and I just say that, and I meal for the 437 00:24:48,600 --> 00:24:50,960 Speaker 3: blow of my heart too, who was relatively new to 438 00:24:51,000 --> 00:24:54,760 Speaker 3: the markers, particularly for instance, if you came in just 439 00:24:54,880 --> 00:24:58,000 Speaker 3: after the COVID period and you've had nothing but uphill 440 00:24:58,480 --> 00:25:00,600 Speaker 3: enough upheld. But if you've had nothing but and upswing 441 00:25:00,720 --> 00:25:04,240 Speaker 3: basically since the day you started, just be careful that 442 00:25:04,520 --> 00:25:08,480 Speaker 3: it's not as easy as it seems. And in the end, 443 00:25:08,680 --> 00:25:12,240 Speaker 3: the value investing dry though it is, is very. 444 00:25:12,040 --> 00:25:15,040 Speaker 1: Strong approach to the market. Okay, we take a break 445 00:25:15,040 --> 00:25:23,879 Speaker 1: with customer, really good questions. Hello, welcome back to the 446 00:25:23,920 --> 00:25:28,440 Speaker 1: Australian's Money Puzzle James Kirvely with Alex Moffatt. Today we're 447 00:25:28,480 --> 00:25:32,119 Speaker 1: talking on the week that is the adversary of the 448 00:25:32,160 --> 00:25:37,639 Speaker 1: Great Crash of nineteen eighty seven. Now, interesting, really appropriate 449 00:25:38,040 --> 00:25:42,399 Speaker 1: question from Paul. Are the Australian US and other markets 450 00:25:42,440 --> 00:25:47,040 Speaker 1: approaching long term pe value peaks? Don't they tend to 451 00:25:47,080 --> 00:25:50,960 Speaker 1: correct at this point? What does history tell us you 452 00:25:51,000 --> 00:25:53,040 Speaker 1: would think of, Paul that you trigger the whole show 453 00:25:53,480 --> 00:25:56,320 Speaker 1: which is just a useful coincidence. It's there a point 454 00:25:56,320 --> 00:25:58,680 Speaker 1: of which I was saying that to you. You said 455 00:25:58,680 --> 00:26:01,679 Speaker 1: the long term average is fifty. Then you said that 456 00:26:01,720 --> 00:26:04,520 Speaker 1: it we're currently trading at twenty one, right, folks, that's 457 00:26:04,640 --> 00:26:07,920 Speaker 1: twenty one times price earnings value ratio, which is still 458 00:26:08,000 --> 00:26:11,400 Speaker 1: the metric that people use in terms of the value 459 00:26:11,440 --> 00:26:14,359 Speaker 1: of a stock. How much is it worth, in other words, 460 00:26:14,359 --> 00:26:15,800 Speaker 1: for the amount of money you put in the amount 461 00:26:15,840 --> 00:26:19,200 Speaker 1: of getting back, how is its value? But the US 462 00:26:19,240 --> 00:26:23,520 Speaker 1: stocks often go into the thirties. So we've had stocks 463 00:26:23,520 --> 00:26:27,240 Speaker 1: that go into those stratosphere and they can be justified 464 00:26:27,280 --> 00:26:31,520 Speaker 1: because they've got extraordinary earnings growth or whatever is it. 465 00:26:31,560 --> 00:26:33,800 Speaker 1: But can it ever be justified with the market getting 466 00:26:33,880 --> 00:26:35,440 Speaker 1: up to that? Does it have to go back to that? 467 00:26:36,000 --> 00:26:37,840 Speaker 1: Does it have to return to the mean as such 468 00:26:37,920 --> 00:26:39,600 Speaker 1: the fifteen times? 469 00:26:41,920 --> 00:26:43,880 Speaker 3: I didn't think so, James. In fact, I was looking 470 00:26:43,880 --> 00:26:47,720 Speaker 3: at some data only last night in preparation for this discussion, 471 00:26:48,280 --> 00:26:51,639 Speaker 3: and I note that China, the current average market pee 472 00:26:51,640 --> 00:26:54,679 Speaker 3: there is trading below it's long term average. You're trading 473 00:26:54,680 --> 00:26:57,159 Speaker 3: currently at ten point six times long term average is 474 00:26:57,160 --> 00:27:01,000 Speaker 3: about twelve times. Australia, I mentioned where we're above, but 475 00:27:01,040 --> 00:27:05,320 Speaker 3: we're nowhere near the top of the twenty year range. 476 00:27:05,960 --> 00:27:08,719 Speaker 3: India is the most expensive market at the moment, at 477 00:27:08,760 --> 00:27:11,399 Speaker 3: about twenty five and a half times it's earnings with 478 00:27:11,480 --> 00:27:15,879 Speaker 3: the long term average. The US is expensive. Japan is 479 00:27:15,920 --> 00:27:18,280 Speaker 3: probably the cheapest at the moment, trading at about fourteen 480 00:27:18,280 --> 00:27:20,760 Speaker 3: and a half times against a long term average of 481 00:27:20,800 --> 00:27:24,280 Speaker 3: about sixteen times. So I think it's horses for courses. 482 00:27:24,320 --> 00:27:28,520 Speaker 3: And this is and parcel of choosing not blindly just 483 00:27:28,560 --> 00:27:31,040 Speaker 3: to invest in the US, but selecting the market that 484 00:27:31,119 --> 00:27:33,199 Speaker 3: you want to invest in and going for the value 485 00:27:33,200 --> 00:27:35,159 Speaker 3: in that market. So what currency do you want to 486 00:27:35,200 --> 00:27:38,879 Speaker 3: be in, which geopolitical area, which sector of market do 487 00:27:38,880 --> 00:27:41,520 Speaker 3: you want to be in? Because I know a rising 488 00:27:41,680 --> 00:27:46,399 Speaker 3: tide floats all boats, but some boats float higher than others. 489 00:27:46,960 --> 00:27:50,440 Speaker 1: Yes, what was our what's our high than we said 490 00:27:50,440 --> 00:27:52,680 Speaker 1: it don't come averages fifteen. We're at twenty. 491 00:27:52,400 --> 00:27:56,280 Speaker 3: One, okay, our high point our in Australia the twenty 492 00:27:56,359 --> 00:27:58,959 Speaker 3: year this is average, mind you, for the whole market, 493 00:27:59,000 --> 00:28:02,080 Speaker 3: not just single stock, is about twenty one times, so 494 00:28:02,160 --> 00:28:04,040 Speaker 3: we're close to it. So we're pretty close to the 495 00:28:04,119 --> 00:28:04,840 Speaker 3: high point at the moment. 496 00:28:04,840 --> 00:28:08,679 Speaker 1: If you had an ETF know that, folks, because that's 497 00:28:08,720 --> 00:28:12,840 Speaker 1: what ETFs reflect. Okay, the entire average market. All right, 498 00:28:12,960 --> 00:28:16,240 Speaker 1: great question. Hope that was useful to you, paulled Lewis. 499 00:28:16,840 --> 00:28:20,480 Speaker 1: I would like to get some observations, not advice, but 500 00:28:20,640 --> 00:28:22,959 Speaker 1: sage wisdom. Thank you for reminding me to us this 501 00:28:23,040 --> 00:28:28,640 Speaker 1: is never advice. These information folks on next DC, as 502 00:28:28,680 --> 00:28:31,880 Speaker 1: a current shareholder with the company next DC, have recently 503 00:28:33,119 --> 00:28:36,640 Speaker 1: receives another announcer of the share purchase plan which has 504 00:28:36,760 --> 00:28:40,760 Speaker 1: been completed, etc. Yes, indeed they are always raising money. 505 00:28:41,040 --> 00:28:44,200 Speaker 1: My question is are these guys burning cash too quickly? 506 00:28:45,560 --> 00:28:48,160 Speaker 1: There is no target CAF at the raising with shareholders 507 00:28:48,200 --> 00:28:51,200 Speaker 1: cafter thirty thousand pound investors this time around. Is there 508 00:28:51,280 --> 00:28:56,280 Speaker 1: something fishy here? Okay, I don't We would hope there's 509 00:28:56,280 --> 00:28:59,400 Speaker 1: nothing fishy at all at next DC. It's a certain 510 00:28:59,440 --> 00:29:01,800 Speaker 1: type of common beney folks. I have mentioned it the show. 511 00:29:01,840 --> 00:29:03,560 Speaker 1: I've actually mentioned the fact that it's in my own 512 00:29:03,640 --> 00:29:07,800 Speaker 1: SMSF thankfully, very happy to say it is, and it's 513 00:29:07,800 --> 00:29:10,160 Speaker 1: one of the biggest holdings I have. I didn't choose that. 514 00:29:10,680 --> 00:29:14,680 Speaker 1: It just swelled on me where it's gone up to 515 00:29:15,040 --> 00:29:19,160 Speaker 1: about eighteen dollars at the moment. It's got a couple 516 00:29:19,160 --> 00:29:24,760 Speaker 1: of issues. It's a data center company. The two outstanding issues. 517 00:29:24,800 --> 00:29:27,560 Speaker 1: One is it's become the share market proxy along with 518 00:29:27,640 --> 00:29:32,280 Speaker 1: Macquarie Technology for AI in our market, though it isn't AI, okay. 519 00:29:32,400 --> 00:29:38,160 Speaker 1: It's actually a freely conservative semi property type of company 520 00:29:38,160 --> 00:29:42,959 Speaker 1: that fills data centers. It is very well regarded. And 521 00:29:43,040 --> 00:29:45,080 Speaker 1: I don't want to say what I think about is, 522 00:29:45,120 --> 00:29:47,680 Speaker 1: but I'll just quote, and this is some public record 523 00:29:47,760 --> 00:29:50,719 Speaker 1: from a fund manager, Andrew Mitchell of o Fair Asset Management, 524 00:29:50,720 --> 00:29:53,080 Speaker 1: who was in others, who has had them for a while, 525 00:29:53,120 --> 00:29:54,920 Speaker 1: even longer than I have, and of course loves them 526 00:29:55,080 --> 00:29:56,880 Speaker 1: as you would when you've done very well out of them. 527 00:29:56,880 --> 00:29:59,480 Speaker 1: But it's just quoting from a report he recently said. 528 00:29:59,600 --> 00:30:02,560 Speaker 1: Makes this He has been the most successful operator in 529 00:30:02,560 --> 00:30:05,680 Speaker 1: the space, reporting a solid full year result with revenues 530 00:30:05,720 --> 00:30:09,440 Speaker 1: growing thirty percent on the prior year and EBITDA plus 531 00:30:09,480 --> 00:30:12,720 Speaker 1: twenty eight. And he basically spells out what he likes 532 00:30:12,760 --> 00:30:15,400 Speaker 1: about them, that they have lots of tenants if they're 533 00:30:15,480 --> 00:30:20,440 Speaker 1: very well positioned, and there remains over fifteen hundred multi 534 00:30:20,480 --> 00:30:23,840 Speaker 1: tenant data center providers globally. The top ten now account 535 00:30:23,840 --> 00:30:26,120 Speaker 1: for more than half of the industry's revenue, and we 536 00:30:26,160 --> 00:30:30,920 Speaker 1: would expect that portion to grow as further consolidation plays out. 537 00:30:31,000 --> 00:30:33,680 Speaker 1: So fun I just like them. I don't like the 538 00:30:33,720 --> 00:30:36,200 Speaker 1: fact that they continually raise money, and I didn't go 539 00:30:36,240 --> 00:30:39,080 Speaker 1: into the last raising. But I'm an individual investor, I'm 540 00:30:39,080 --> 00:30:42,880 Speaker 1: not an institution. There was no discount whatsoever. I thought 541 00:30:42,880 --> 00:30:45,160 Speaker 1: on that, so I didn't Why would you go in 542 00:30:45,240 --> 00:30:47,360 Speaker 1: you goodbye any days for the more or less the 543 00:30:47,360 --> 00:30:50,080 Speaker 1: same price that That's why I held off on that one. 544 00:30:50,400 --> 00:30:52,520 Speaker 1: There was one other point I wanted to make. Yes, 545 00:30:52,840 --> 00:30:56,880 Speaker 1: air Trunk of course sold for inextraordinary multiple recently, and 546 00:30:56,920 --> 00:30:59,400 Speaker 1: they're in the same business. Everything's going their way at 547 00:30:59,400 --> 00:31:02,440 Speaker 1: the moment. That might be a problem for someone like 548 00:31:02,520 --> 00:31:06,040 Speaker 1: Alex who's a value investor. Have you looked at the 549 00:31:06,080 --> 00:31:08,600 Speaker 1: AICNE Have you looked at next DC? Alex? 550 00:31:09,360 --> 00:31:11,520 Speaker 3: I have, and I like the business. I like the 551 00:31:11,600 --> 00:31:14,400 Speaker 3: data center business. Another one that is starting to move 552 00:31:14,440 --> 00:31:17,160 Speaker 3: into that area is the Goodman Group, and I think 553 00:31:17,360 --> 00:31:21,440 Speaker 3: certainly they're worthy of investor intention, but I'd look closely 554 00:31:21,640 --> 00:31:22,160 Speaker 3: next to DC. 555 00:31:22,400 --> 00:31:23,120 Speaker 1: It's just too. 556 00:31:23,000 --> 00:31:25,720 Speaker 3: Expensive for me to buy James. I think he's trading 557 00:31:25,760 --> 00:31:29,920 Speaker 3: at about nearly fifteen twenty percent above what a fair value, 558 00:31:30,080 --> 00:31:32,600 Speaker 3: but certainly keep an eye on it. I think hYP 559 00:31:32,680 --> 00:31:35,000 Speaker 3: to reserate. I like the business, it's what. 560 00:31:34,920 --> 00:31:37,040 Speaker 1: Do you do with these companies never come into value 561 00:31:37,120 --> 00:31:40,640 Speaker 1: what I often see value investor seeing it's fallen six percent, 562 00:31:41,080 --> 00:31:44,000 Speaker 1: it's nearly there another three it will be in our ends, 563 00:31:44,160 --> 00:31:46,440 Speaker 1: but it never comes down that little really good companies. 564 00:31:46,760 --> 00:31:48,760 Speaker 3: When did Goodman ever come in to value? It's a 565 00:31:48,760 --> 00:31:51,400 Speaker 3: really good point, James. For my own self managed superfund. 566 00:31:51,600 --> 00:31:54,120 Speaker 3: If I really like a company and I own next DC, 567 00:31:54,640 --> 00:31:56,520 Speaker 3: I'll buy a small amount and put a toe in 568 00:31:56,560 --> 00:32:00,000 Speaker 3: the water and then use when there's a major drop. 569 00:32:00,120 --> 00:32:03,600 Speaker 3: Like Wise, texts happened, assess the situation, what is the 570 00:32:03,680 --> 00:32:05,680 Speaker 3: reason for the drop? Watch the nature of the change 571 00:32:05,680 --> 00:32:08,880 Speaker 3: of the business. Is rich and White going to be 572 00:32:09,000 --> 00:32:12,880 Speaker 3: the MD forever? And then adds that position or leave 573 00:32:12,920 --> 00:32:15,960 Speaker 3: it alone? Yeah, certainly a toe in the water. It 574 00:32:16,000 --> 00:32:16,560 Speaker 3: doesn't hurt. 575 00:32:18,120 --> 00:32:22,600 Speaker 1: Yeah, okay, just on that key person risk. It's an issue, 576 00:32:22,680 --> 00:32:26,600 Speaker 1: isn't it? Richard at Ways Tech, Chris Ellison at Menrez. 577 00:32:27,360 --> 00:32:29,920 Speaker 1: As a value investor must be really hard to assess that. 578 00:32:30,000 --> 00:32:33,560 Speaker 1: If you've got someone like Jerry Harvey at Harvey Norman. 579 00:32:33,600 --> 00:32:35,560 Speaker 1: I'm not talking now, I'm talking twenty years ago. If 580 00:32:35,560 --> 00:32:37,320 Speaker 1: you were looking at you see this company is completely 581 00:32:37,360 --> 00:32:40,840 Speaker 1: dominated by the sky. It's called Harvey Normous Jerry Harvey 582 00:32:42,080 --> 00:32:45,080 Speaker 1: as a value investor. Can you put that to one side? 583 00:32:46,160 --> 00:32:50,440 Speaker 1: Kerry Packet publishing, in broadcasting in un Musque. The companies 584 00:32:50,440 --> 00:32:56,320 Speaker 1: I simply won't invest in, just simply will not invest in. Okay, 585 00:32:56,440 --> 00:32:59,240 Speaker 1: to me, the principal risk is too great. It's all right, 586 00:33:00,160 --> 00:33:05,960 Speaker 1: just because because it's personality exactly dominant personality. Okay, very interesting, 587 00:33:06,160 --> 00:33:10,080 Speaker 1: very interesting, Okay, terrific. Folks just were not saying we 588 00:33:10,160 --> 00:33:13,840 Speaker 1: had someone had come in talking about revolution. Disappointed I had. 589 00:33:13,920 --> 00:33:16,440 Speaker 1: I had recently done a lot of the said something 590 00:33:16,840 --> 00:33:20,560 Speaker 1: and written quite enthusiastically about revolution. Which is of course 591 00:33:20,640 --> 00:33:25,040 Speaker 1: the big card services provider that I think is really 592 00:33:25,040 --> 00:33:28,240 Speaker 1: impressive in how they operate and will give our banks 593 00:33:28,240 --> 00:33:30,400 Speaker 1: a real run for their money when they really take 594 00:33:30,480 --> 00:33:36,520 Speaker 1: off here. They've got some remarkable features to their to 595 00:33:36,640 --> 00:33:39,720 Speaker 1: their cards which I think will challenge the banks in 596 00:33:39,720 --> 00:33:42,720 Speaker 1: a big ways in Europe. You can keep your money 597 00:33:42,720 --> 00:33:45,240 Speaker 1: on deposit with them, of course, which I would really 598 00:33:45,240 --> 00:33:47,800 Speaker 1: frighten our banks if you could do that. Here and 599 00:33:47,840 --> 00:33:50,440 Speaker 1: they have this extraordinary credit card not credit card, but 600 00:33:50,600 --> 00:33:53,600 Speaker 1: card arrangement where everyone's worried about the security of their 601 00:33:53,640 --> 00:33:57,640 Speaker 1: cards when they use it, particularly overseas, but they've come 602 00:33:57,720 --> 00:34:00,640 Speaker 1: up with this thing where you've once off disposable numbers, 603 00:34:00,640 --> 00:34:02,640 Speaker 1: so if you don't trust who you're dealing with, you 604 00:34:02,640 --> 00:34:05,000 Speaker 1: can just use your card and you can have a 605 00:34:05,000 --> 00:34:08,319 Speaker 1: once off number of which evaporates basically after you've finished it. 606 00:34:08,400 --> 00:34:12,000 Speaker 1: I thought it was brilliant actually as a financial innovation. 607 00:34:12,560 --> 00:34:16,440 Speaker 1: Now the list made the point that Revoluta has had 608 00:34:16,680 --> 00:34:21,640 Speaker 1: UK National Reporting Center for Fraud received ten thousand reports 609 00:34:21,680 --> 00:34:25,000 Speaker 1: in relation to Revolute and was disappointed that I didn't 610 00:34:25,040 --> 00:34:28,440 Speaker 1: make more of this fair enough. The only thing I 611 00:34:28,440 --> 00:34:31,239 Speaker 1: would say is that, yes, that all did happen, and 612 00:34:31,520 --> 00:34:34,799 Speaker 1: after that happened, the Bank of England signed them off 613 00:34:35,000 --> 00:34:37,200 Speaker 1: and give them a license. And I did make the 614 00:34:37,239 --> 00:34:39,120 Speaker 1: point in the piece I wrote that it took them 615 00:34:39,160 --> 00:34:41,200 Speaker 1: three years to sign it off. Normally they take a 616 00:34:41,239 --> 00:34:43,120 Speaker 1: year to sign these things off, so they did very 617 00:34:43,200 --> 00:34:46,240 Speaker 1: thoughly go through. Left just thought we keer off on that, okay, 618 00:34:46,840 --> 00:34:49,440 Speaker 1: Alex Moffat Joseph Parmer and sons, thank you very much. 619 00:34:49,480 --> 00:34:51,239 Speaker 1: That was really good. I knew it would be. It 620 00:34:51,280 --> 00:34:55,879 Speaker 1: was really interesting. I hope our listeners learned something from 621 00:34:55,920 --> 00:35:01,080 Speaker 1: that pretty scary story, which is not that long ago, 622 00:35:01,160 --> 00:35:03,600 Speaker 1: and in the same market that we offer it. And 623 00:35:03,680 --> 00:35:06,600 Speaker 1: we are in a pretty hot market right now. And 624 00:35:06,640 --> 00:35:09,239 Speaker 1: it's the hot markets that boil over as oppose to 625 00:35:09,280 --> 00:35:11,000 Speaker 1: the cool ones. Let just keep them. 626 00:35:11,120 --> 00:35:13,200 Speaker 3: Hint every money can I leave you with one thought 627 00:35:13,280 --> 00:35:15,920 Speaker 3: you can on my wall in my study here, I 628 00:35:15,960 --> 00:35:19,200 Speaker 3: have a certificate a share I'm sorry, A bond certificate, 629 00:35:19,239 --> 00:35:23,359 Speaker 3: a bond statement which I got framed. The bond was 630 00:35:23,400 --> 00:35:26,920 Speaker 3: brought by Bond Corporation on the sixteenth of October nineteen 631 00:35:27,000 --> 00:35:30,120 Speaker 3: eighty seven. That was a Friday. The lead manager was 632 00:35:30,160 --> 00:35:34,160 Speaker 3: Meryl Lynch. It was an eighteen million pound issue paying 633 00:35:34,200 --> 00:35:37,959 Speaker 3: six and a half percent interest. It was very successfully 634 00:35:38,120 --> 00:35:41,759 Speaker 3: delve into the market by Meryl Lynch, and by one 635 00:35:41,760 --> 00:35:45,800 Speaker 3: o'clock on Monday, the nineteenth of October, it was worth zero. 636 00:35:47,040 --> 00:35:50,440 Speaker 3: It went from one hundred pounds per unit per bond 637 00:35:51,440 --> 00:35:55,120 Speaker 3: eighty million pounds turned to zero by one o'clock Monday. 638 00:35:55,360 --> 00:35:56,879 Speaker 3: I have one on my study wall. 639 00:35:57,600 --> 00:35:59,520 Speaker 1: I tell you it has us two things, not just 640 00:35:59,520 --> 00:36:03,360 Speaker 1: about but it tells you that the biggest institutions in 641 00:36:03,400 --> 00:36:06,080 Speaker 1: the world get involved in these things, and just because 642 00:36:06,160 --> 00:36:09,560 Speaker 1: marilynch or anybody else is involved. Don't think that's actually 643 00:36:09,840 --> 00:36:11,799 Speaker 1: some sort of guarantee, folks. 644 00:36:11,719 --> 00:36:12,439 Speaker 3: Exactly wrong. 645 00:36:12,760 --> 00:36:14,839 Speaker 1: Okay, Hey, thank you Alex. Great to talk to you. 646 00:36:15,239 --> 00:36:19,279 Speaker 1: Thank you, and thanks for listening. Everybody, do mention us 647 00:36:19,480 --> 00:36:23,560 Speaker 1: to your friends and mentioned the show. We'd really appreciate that. 648 00:36:23,840 --> 00:36:26,560 Speaker 1: We have an email. We'd like to get some more 649 00:36:26,680 --> 00:36:29,239 Speaker 1: questions in. They were very good today. I really enjoyed them. 650 00:36:29,239 --> 00:36:32,200 Speaker 1: Thank you. Their money puzzle at the Australian dot com 651 00:36:32,239 --> 00:36:35,040 Speaker 1: dot au is the email. Thank you very much. We'd 652 00:36:35,040 --> 00:36:35,680 Speaker 1: talk to you soon.