Speaker 1: Hello and welcome to The Australian's Money Puzzle podcast. I'm
Speaker 1: James Kirby, the Wealth editor at the Australian. Welcome aboard everybody.
Speaker 1: Now imagine, imagine as an investor, a share investor, how
Speaker 1: would you feel if this happened? You wake up tomorrow morning,
Speaker 1: you look at your phone of the television and you
Speaker 1: find out that the wars treat is down twenty three
Speaker 1: percent in the day overnight. You say, oh my god.
Speaker 1: You hope Australia when it opens will be better. Maybe
Speaker 1: there'll be a recovery, maybe there'd be some bargain hunting.
Speaker 1: The ax in a fashion which was established way back
Speaker 1: when and continues to this day, overdoes it and actually
Speaker 1: falls harder than the American market and it falls twenty
Speaker 1: five percent in a single session. Now, I wanted to
Speaker 1: keep this in mind at the moment. These days, we
Speaker 1: get terribly worried. If we have a bad day on
Speaker 1: the Essex. We have a three percent drop, it's a
Speaker 1: big deal. If we have a five percent drop, it's
Speaker 1: front page news. Its billions have been wiped off the
Speaker 1: stock exchanges to the londondumbers. The thing is that in
Speaker 1: nineteen eighty seven, we had a twenty five percent drop.
Speaker 1: It was the greatest stock market crash of our time.
Speaker 1: It was the biggest since nineteen twenty nine, the.
Speaker 2: Crash of eighty seven. Around the world, shear market pandemonium,
Speaker 2: good evening. The stock market sale of the century continued
Speaker 2: around the world today, with more than sixty billion dollars
Speaker 2: wiped off the value of Australian shares in the past
Speaker 2: thirty hours. At the end of and.
Speaker 1: It's worth knowing this, the previous worst day Essex before
Speaker 1: the twenty five percent drop was her four percent drop,
Speaker 1: So it was like five times six times anything that
Speaker 1: people had seen before.
Speaker 2: At the end of the day's trading on the Sydney
Speaker 2: Stock Exchange, the market's leading indicator, the All Ordinaries Index,
Speaker 2: had fallen five hundred and fifteen points. As the selling
Speaker 2: stampede continued around the world, some economists in now forecasting
Speaker 2: the start of a worldwide recession with.
Speaker 1: All Now, what's that line, the historic line, If you
Speaker 1: forget the past, you're condemned to repeat it. So I
Speaker 1: wanted to remind people that crash happened this week. In
Speaker 1: nineteen eighty seven.
Speaker 2: The Sydney Stock Exchange fifteen minutes before opening the cab
Speaker 2: before the collapse with history that no one wanted to
Speaker 2: make as Australian investors played a leader in a line
Speaker 2: that I.
Speaker 1: Was actually in the market, very junior, but I was
Speaker 1: in the market, and I can remember there was a
Speaker 1: lead up to the Spring Racing Carnival in Melbourne. There
Speaker 1: was a Melbourne cuff looming. I had just arrived in Australia.
Speaker 1: By that, I mean I was here a couple of
Speaker 1: weeks and I was a reporter on the Financial Review,
Speaker 1: and I can still remember how difficult it was for
Speaker 1: us to grasp this because we didn't have the communications
Speaker 1: we have now. We were basically standing around what they
Speaker 1: call a wire machine and I wanted to talk to
Speaker 1: someone in the market who would be good on this,
Speaker 1: who recalls it clearly. And my guest today was in
Speaker 1: the thick of it all at the time. He's an
Speaker 1: Australian who was in London at the time, but he
Speaker 1: was right across it. His name is Alex Moffatt. He's
Speaker 1: at the Joseph Palmer Group. Hi, Alix, how are you?
Speaker 3: Good morning, James, thank you for the invitation. It's good
Speaker 3: to speak to you with you. It's delightful to have
Speaker 3: you on.
Speaker 1: So it turns out, funnily enough, you're the Australian, but
Speaker 1: you're in London, and I was here on that day,
Speaker 1: which was a Monday in New York and a Tuesday
Speaker 1: in Australia, the last great crash we had. And I
Speaker 1: want to talk to our listeners today about this, because folks,
Speaker 1: there's got to be another crash. I don't know the
Speaker 1: skal of it, and I don't know when, but crashes
Speaker 1: are part of the market and we possibly as investors
Speaker 1: are having it's so good that we've probably forgotten just
Speaker 1: how scary it is. Where were you, Alex, and tell
Speaker 1: me about the d okay.
Speaker 3: I was in London. I was working in Irving Trust
Speaker 3: Companies dealing room in Abchurch Lane in London, and for
Speaker 3: those who know London well, Abchurch Lane is just up
Speaker 3: the road from the Cannon Street railway station. Living Trust
Speaker 3: Company was not a stockbroker. They were an American bank
Speaker 3: that was running their global bond dealing operation from London.
Speaker 3: New York at the time was the secondary operation because London,
Speaker 3: of course at the time was the center of the universe.
Speaker 3: The Australian firm that sent me. There was one of
Speaker 3: the discount houses at the time in Australia, trans City Discount,
Speaker 3: and I was running the Australian bond operation for trans
Speaker 3: City Discount through irving trust officers in London.
Speaker 1: What was the atmosphere like, well, how do people react
Speaker 1: with the cell of the orphant news? So James, there
Speaker 1: was You were right in your earlier comments the week before.
Speaker 1: If I can just paint a little bit of a
Speaker 1: picture the week before the Obviously, as a bond dealer,
Speaker 1: you look at all the markets around you and we
Speaker 1: keep half an eye on the stock market.
Speaker 3: The bond market globally is about double the size of
Speaker 3: the total of the world's stock markets, but you do
Speaker 3: keep an eye on it. But it's important a lot
Speaker 3: of investment dollars go there. In the week prior to
Speaker 3: the Friday night, the sixteenth of October in London, the
Speaker 3: S and P five hundred dropped about ten percent, not
Speaker 3: in one day, but over the course of that week,
Speaker 3: and you alluded to that in your comments. You could
Speaker 3: tell that there was something wrong. We went home on
Speaker 3: the Friday night and it just didn't feel right. Now,
Speaker 3: when the stock market has issues, credit spreads also start
Speaker 3: to widen against the risk crew rate, against government bond yields,
Speaker 3: and so the pressure was being felt in credit spreads,
Speaker 3: which is the market that I dealt in, as well
Speaker 3: as in the stock market. Now in adding it a
Speaker 3: little bit of further color, and some of your listeners
Speaker 3: may be very young. On Sunday night, the eighteenth of October,
Speaker 3: a wild hurricane hit London and decimated a very large
Speaker 3: part of certainly Hyde Park, which was near where I
Speaker 3: was living. To the end that when I got a
Speaker 3: phone call very early on Monday morning, the nineteenth of
Speaker 3: October and someone said, Mop, look out your window and
Speaker 3: tell me what you see. We were living in devere
Speaker 3: cottages in Kensington at the time, and out on Kensington
Speaker 3: High Street I could see a double decker bus on
Speaker 3: its side. I walked to work that day.
Speaker 1: There was a sense of doom in the airport. There
Speaker 1: was separate to the markets. There were a lot of
Speaker 1: trees down in Hyde Park.
Speaker 3: I walked to work and in the city of London
Speaker 3: in at Church Lane, and the morning was it just
Speaker 3: you could feel the black clouds around the dealing room.
Speaker 3: The American Central Bank had been holding monetary policy fairly tight.
Speaker 3: Alan Greenspan was the new president of the Federal Reserve.
Speaker 3: It just it was a surreal day. And then when
Speaker 3: the Dow jones components, and for your listener's information, the
Speaker 3: Dow comprises the thirty largest stocks in the US, and
Speaker 3: when they open those thirty stocks, they opened one stock
Speaker 3: every minute for half an hour. They started about one o'clock,
Speaker 3: and by ten quarter past one, the Dow was down
Speaker 3: very hard, indeed down probably ten days. Were they're trying
Speaker 3: to stage manage such a crash that then do was happening.
Speaker 3: That's a really good question, James, And at the time
Speaker 3: there were. It was basically the start of program trading
Speaker 3: and ground trading is probably was the lead into the
Speaker 3: I guess the artificial intelligence inspired program trading that we
Speaker 3: have now. But there are an awful lot of cell
Speaker 3: orders going into the stock market, which was why the
Speaker 3: market was going down at a rapid rate. And this
Speaker 3: was impacting credit spreads. As I said, people started selling
Speaker 3: just to cover risk positions, So people were selling good
Speaker 3: assets like bonds to cover their bad assets like stocks.
Speaker 3: At the time, the downdrop twenty percent on that day
Speaker 3: as the S and P was down twenty percent. It's
Speaker 3: probably the worst day since the nineteen twenty nine crash,
Speaker 3: the anniversary of which is coming up very shortly.
Speaker 1: Yes, it's interesting, isn't it. The big crushes are this
Speaker 1: time of year. They are so what Stutterbolt, do you
Speaker 1: think I have my own theory on that.
Speaker 3: We in the Southern Hemisphere have our holidays around Christmas time,
Speaker 3: But in the Northern Hemisphere school breaks up for summer
Speaker 3: in late journe and a lot of the big fund
Speaker 3: manager and captains of industry go away to their summer
Speaker 3: houses in Spain or wherever for a long summer break,
Speaker 3: take the children with them, and they leave the juniors
Speaker 3: on the desk, go to the summer period. Oh yeah,
Speaker 3: when they come back in September, late August, September and
Speaker 3: school resumes, university goes back, They have investment committee meetings
Speaker 3: and they readjust their risk settings, their investment parameters, et cetera.
Speaker 3: And program trading at the time was in its infancy.
Speaker 3: There were no buffers built into the programs. That controls
Speaker 3: came after that, so the setting perpetuated setting exactly. It
Speaker 3: was like a rolling snowball and it just kept rolling.
Speaker 1: It's interesting with people off and ask about what were
Speaker 1: the causes of the eighty seven crash. And one of
Speaker 1: the things about it's almost like a sort of a
Speaker 1: mirror inmature of what were the causes of the First
Speaker 1: World War? There's the pilot causes. What were the causes
Speaker 1: of the eighty seven crash? Nothing in particular jumps out
Speaker 1: for the crash. One of the things was that not
Speaker 1: only did it so that was the day everybody listeners
Speaker 1: and I'm sure the vast majority of listeners don't remember.
Speaker 1: I may not even know about this. It fell twenty
Speaker 1: five percent on the day, and for what it's worth,
Speaker 1: it kept going and the next few months were worse,
Speaker 1: and in the end it fell forty percent. And the
Speaker 1: bottom at that time was about five or six months
Speaker 1: later in February eighty eight, and then it started to turn. Now,
Speaker 1: the most recent crash that we're familiar with wasn't so
Speaker 1: much a crash as a slow what did they call it,
Speaker 1: the slow motion train wreck, which is the GFC where
Speaker 1: because the authorities were trying again to stage manage how
Speaker 1: bad things were, shares fell fifty percent, but they took
Speaker 1: two years to four fifty percent from two oh seven
Speaker 1: to two nine.
Speaker 3: Now what I want to.
Speaker 1: Ask you, Alex is tell me about having been in
Speaker 1: the thick of things and you were credential profess in
Speaker 1: nineteen eighty seven, I was a junior reporter. I was
Speaker 1: just standing there with my mouth, just watching me and
Speaker 1: watching everybody. I remember someone saying to me, you should
Speaker 1: go around to the stock exchange, because there was a
Speaker 1: physical stock exchange on Corlett Street in the Melbourne and
Speaker 1: you could go and there was choveboards and all that.
Speaker 1: And I remember trying to go in, but the crowds,
Speaker 1: of course, had were around the doorways. You couldn't really
Speaker 1: get in. Normally there was no one in there apart
Speaker 1: of the traders and chokies and all that. But you
Speaker 1: couldn't get in because it was like sixty But I'll
Speaker 1: never forget it. But what I want to ask you
Speaker 1: is having witnessed, and professionally witnessed as an investor, the
Speaker 1: worst crash of our time being the Great Crash at
Speaker 1: nineteen eighty seven, did it change you did in the
Speaker 1: way that people say, Oh, I grew up in the
Speaker 1: Great Depression, my parents grew up with the Great Depression,
Speaker 1: and it characterized me. It formed me did it? What
Speaker 1: did it do to you as an investor? From then on?
Speaker 3: It was a real water change to see change for
Speaker 3: me James, and the word valuation took on a real
Speaker 3: new meaning. And when I transitioned from the bond market
Speaker 3: to the stock market twenty years ago, valuation became all important.
Speaker 3: And there's a number of companies now which people probably
Speaker 3: are watching the technology stocks going up and up, exceeding
Speaker 3: their realistic valuations. And there's a means of calculating your
Speaker 3: company's valuation and measuring it against its peers. And I
Speaker 3: think that's what drove it into me. So I became
Speaker 3: a value investor after that. And that goes for bonds
Speaker 3: as well as stocks. Buy when it's cheap, and so
Speaker 3: when it's expensive.
Speaker 1: Yes, it's hard to sell. When it's expenses. It's hard
Speaker 1: to sell when you've made a lot of money out
Speaker 1: of something, isn't it?
Speaker 3: You can always take some off the top, though. You
Speaker 3: can always take your capital out and let the the
Speaker 3: profit run.
Speaker 1: Are you listening, waste tech investors? Are you listening NEXTDC investors?
Speaker 1: My dear waist tech is selling off for you, so
Speaker 1: you don't have to worries. But are you listening, shall
Speaker 1: we say Nvidia Investors one of the most popular overseas
Speaker 1: stocks on the Australian market at the moment, and all
Speaker 1: the big tech stocks that are that our listeners love,
Speaker 1: the meta and alphabeta et cetera, et cetera, Facebook and Google. Okay,
Speaker 1: what we might do is take a short break and
Speaker 1: I want to going to do with the second part
Speaker 1: is I'm going to put the key question to Alex,
Speaker 1: which is all very interesting. But those were different days?
Speaker 1: Or were they different days? And could it all happen again?
Speaker 1: We'll be back in a moment. Hello and welcome back
Speaker 1: to the Australian's Money Puzzle podcast. I'm James Kirby talking
Speaker 1: to Alex Moffatt of Joseph Palmer and Sons. Alex is
Speaker 1: a veteran of the market. He also writes a newsletter
Speaker 1: for his clients which he very nicely a few years ago,
Speaker 1: put me on the Put me on the circle and
Speaker 1: I have a look at it every morning and it's
Speaker 1: very interesting and he has a historic perspective of the
Speaker 1: wider market which is invariably missing. Can I say from
Speaker 1: a lot of from a lot of commentations that we read,
Speaker 1: and it's really important to know what has happened in
Speaker 1: the past, Alex, you were going to I know you were,
Speaker 1: just I could see you were heading towards something there
Speaker 1: a minute ago before we talk about the prospects of
Speaker 1: it all happening against about the big companies, when in
Speaker 1: that at that time some of the biggest companies in
Speaker 1: Australia nineteen eighty seven, that was companies like specific dun
Speaker 1: Lopigon which was a giant company. Btr night X was
Speaker 1: a giant companies. There was the great the Buccaneers, the
Speaker 1: John Elliots with Elders, the Adnate Steamship Group for John
Speaker 1: Spalvin's Homes of Court and his various enterprises, and of
Speaker 1: course the iconic figure the one, the one that stands
Speaker 1: out to this day, Alan Bond and his empire. They're
Speaker 1: all gone and many of them were. That was the
Speaker 1: beginning of the end for them, wasn't it from any
Speaker 1: of them? The eighty seven craft Well, I think so
Speaker 1: different today.
Speaker 3: The difference, James, and you've highlighted a lot of them.
Speaker 3: Quintex is another one that comes to mind. Christopher Scayes,
Speaker 3: who I stood in front of his desk in Collins
Speaker 3: Street in Hardy House while he signed a mountain of
Speaker 3: bills exchange for me. You wouldn't let me sit down
Speaker 3: while he did them. But nonetheless, I think the difference
Speaker 3: between those days and these is there's one word missing
Speaker 3: in those days profit And a lot of those companies
Speaker 3: were going up on promises, expectation, sheer flow of investor money,
Speaker 3: but they weren't delivering profit or dividends. And certainly I
Speaker 3: remember that was the case in ad Steam Quintech's bond corporation.
Speaker 3: There was a lot of sharp practices and you may
Speaker 3: remember a practice which was called bottom of the harbor.
Speaker 1: The tax ski they were around when at that time,
Speaker 1: but I was only vaguely aware of really for result.
Speaker 3: They started in about the mid seventies and went through
Speaker 3: till the late eighties. And that's where entrepreneurs would come
Speaker 3: in by a company strip of its strip it of
Speaker 3: its assets and put some bogus directors in and then
Speaker 3: avoid any tax payments. And if you go back through
Speaker 3: your history books and there's James I'm a real fan
Speaker 3: of history, you learn a lot from it. The painters
Speaker 3: and dockers in Victoria were probably very helpful to some
Speaker 3: of these companies. In providing stand in directors for some
Speaker 3: of these shell companies that were stripped through the bottom
Speaker 3: of the harbor schemes. So profit is the answer.
Speaker 1: When things are really good, then the nature of scandals change,
Speaker 1: and I think people are not as worried. But it's
Speaker 1: a tough look on Chris Ellison and min As Miners,
Speaker 1: the big lithium player. They're holding it out as an
Speaker 1: example this morning both why not because there's an investigation
Speaker 1: going on now and Asika has come from. They're investigating
Speaker 1: how he's dealing with his with some sort of what
Speaker 1: would seemed to be an alleged tax arrangement that should
Speaker 1: not have happened at Minrais. But what I want to
Speaker 1: the point I want to make is not so much
Speaker 1: about him, But it seems to me that the scandals
Speaker 1: we get at the top of the market in a
Speaker 1: hoff market are scandals of greed, and that is at common.
Speaker 1: That was a common theme in terms of how people
Speaker 1: were dealing in around that time. In the later he said,
Speaker 1: we had a terrible crash, and we had the Harlan
Speaker 1: scheme if you remember at Elders, and we had various
Speaker 1: issues at quintechs, not to mention the sort of mind
Speaker 1: bending stuff that was going on at Bond and we
Speaker 1: have something this week now at Minrais where there is
Speaker 1: again a see you under suspicion for trying to make
Speaker 1: even more money than they're already making. And I just wondered,
Speaker 1: do you detect in the bull market that we have now,
Speaker 1: do you detect some sort of tremors or signals that
Speaker 1: would lead us to a reprise of eighty seven?
Speaker 3: The only things I can detect James and stewardship, And
Speaker 3: you very rightly raise that is very important. Certainly, stewardship
Speaker 3: in our company analysis through our own business is a
Speaker 3: key factor of our due diligence process before we invest
Speaker 3: a penny of our clients' funds into any company. You're
Speaker 3: quite right in raising that it's just simply appalling, and
Speaker 3: he has put his hand up astic of course will
Speaker 3: go in and do what they do, But have my
Speaker 3: own opinions of Chris Ellison, and I certainly won't share them.
Speaker 3: Hear it, But it's not a stock that I would
Speaker 3: happily buy into. To me, the I think paul Ford
Speaker 3: Australia has come a long way since nineteen eighty seven
Speaker 3: and you look at company CEOs and boards, and there
Speaker 3: is a very high degree of probity amongst those boards.
Speaker 3: And see to the second part of the question. I'm
Speaker 3: looking also at the overall market valuations, and your observation
Speaker 3: is quite right. Our market at the moment is the
Speaker 3: A six two hundred is valued at about twenty one
Speaker 3: times historic earnings. The long term average long term is
Speaker 3: twenty years. It's a fair measure is about just under
Speaker 3: fifteen times. So our market's expensive at the moment, and
Speaker 3: it is being driven by weight of money. And you
Speaker 3: would be very well aware that superannuation contributions assist that
Speaker 3: weight of money going in. It's yes, the mandatory wit
Speaker 3: of money correct, exactly right. And a lot of that
Speaker 3: weight of money is going into two very large Australian superfunds,
Speaker 3: Australian Super being one of them, and so that money
Speaker 3: has to be invested, and it's invested at the time.
Speaker 3: So our market is trading expensively. I think it goes
Speaker 3: back to what I mentioned before. It's very hard finding
Speaker 3: value in the current market, and I think investors have
Speaker 3: every right to be cautious, and in being cautious, you
Speaker 3: spend more time doing your due dilsions before buying.
Speaker 1: Okay, Now, one of the things about all our crashes,
Speaker 1: I don't know much about what happened in nineteen twenty
Speaker 1: nine here, except that obviously there was a perfect reflection
Speaker 1: of that crash, and the perfect reflection of the later depression,
Speaker 1: the Great Depression in eighty seven, there was a mirror
Speaker 1: image of the crash. In the two thousand dot Com crash,
Speaker 1: there was a mirror image of the crash. So we
Speaker 1: tend to mirror Wall Street, and when they have a crash,
Speaker 1: for all our conservatism, this is recent counteratism. And for
Speaker 1: all our emphasis on dividends, for instance, so it's less
Speaker 1: the less our share market gives better dividends, but it
Speaker 1: doesn't give as good price appreciation as the US market.
Speaker 1: But for all that, when things go bad, we fall
Speaker 1: with them just as just as much, if not more worth.
Speaker 1: If the US has the shaft downturn, and no one
Speaker 1: knows why it would happen, but a black Swan event, okay,
Speaker 1: so we just can't see what it is. But something
Speaker 1: happens that no one thought was going to happen, and
Speaker 1: everyone loses a nerve and there's a big fall on
Speaker 1: War Street. Will we fall with them like we always do.
Speaker 3: We definitely will, James. And the analogy is the end
Speaker 3: of the tail on the dog. The dog wags his
Speaker 3: tail in Australia can be right at the end of
Speaker 3: the tails. Yes, we always overreact and then the recovery
Speaker 3: is slow. As you've pointed out.
Speaker 1: If we're at twenty one times and the average is fifteen,
Speaker 1: is there a number of foot qu get seriously scared
Speaker 1: and say this has to Tom Belova. Look, I thought
Speaker 1: when the market fell over in two thousand and twenty
Speaker 1: with Covid our market Sorry edition p. Five hundred dropped
Speaker 1: about thirty five percent. That was a very fast drop,
Speaker 1: but recovered very quickly. You mentioned before the downturn in
Speaker 1: two thousand and seven eight, and you mentioned how long
Speaker 1: it took to fall that. I think it went down
Speaker 1: eventually about sixty odd percent. It took until twenty twelve
Speaker 1: to recover. I've noticed too that through the clients who
Speaker 1: we act for, we haven't had a single instance of
Speaker 1: anyone panicking. So it's been people have held their nerve
Speaker 1: generally and recognized the downturns for what they are, typically
Speaker 1: an overreaction to an event, whether it be COVID or
Speaker 1: a housing crisis in the US, or lack of corporate
Speaker 1: profitability and bottom of the harbor in nineteen eighty seven.
Speaker 1: The markets will eventually right themselves.
Speaker 3: And if you look at a chart of say the
Speaker 3: S and P five hundred or the Dow or the
Speaker 3: Australian All Ordinaries Index over the last fifty years, it's
Speaker 3: a very gentle, upwardly sloping line. Yes, there are bumps
Speaker 3: and ticks, but if you go back and look at
Speaker 3: that fifty year chart of the S and P five hundred,
Speaker 3: the crash in nineteen eighty seven is a minuscule move.
Speaker 3: And time in the market.
Speaker 1: Is very important. Yeah, time heels all wounds exactly, including
Speaker 1: twenty five percent sell offs. I I just before one,
Speaker 1: I think before we go to the break, talked about
Speaker 1: how it was five years for the market to come back,
Speaker 1: and it was only six months actually six months to
Speaker 1: get to the bottom in eighty seven, two years to
Speaker 1: get to the bottom in two oh seven, and the
Speaker 1: COVID crash very quick, that is. But that a short,
Speaker 1: sharp crash with a short sharp rebound, which is what
Speaker 1: everyone would prefer. Nothing is worse than the sort of
Speaker 1: death of a thousand cuts where you have this long,
Speaker 1: slow decline which you had in the GFC. But what
Speaker 1: I want to ask you is this, there's a theory
Speaker 1: that there's an acceleration of everything, an acceleration of speed,
Speaker 1: acceleration of trading, acceleration of all business cycles. Would that
Speaker 1: mean that if we had a crash that it probably
Speaker 1: would rebound faster than historically.
Speaker 3: It probably would. And they mentioned before the program trading
Speaker 3: was was aligned large part of the cause of the
Speaker 3: eighty seven crash. The authorities after that put it measures
Speaker 3: in place so that when the market drops a certain percentage,
Speaker 3: they stop trading for ten minutes, so people can never
Speaker 3: think about it. So those buffers are brought in to
Speaker 3: try to slow a disaster. Now it doesn't happen on
Speaker 3: the up side, it happens on the downside, and it's
Speaker 3: a protection mechanism. It's to stop a total meltdown. So, yes,
Speaker 3: it will happen again. I have no doubt it will
Speaker 3: happen again. I don't know what's going to cause it.
Speaker 3: You use the term black swan. I think that's exactly right, James.
Speaker 3: But we know there are there cushions put in place
Speaker 3: to ease the falls when they happen, and allow people
Speaker 3: time to think and take stock with thieves about the
Speaker 3: earth cushions when it comes that is inevitably will folks,
Speaker 3: and I just say that, and I meal for the
Speaker 3: blow of my heart too, who was relatively new to
Speaker 3: the markers, particularly for instance, if you came in just
Speaker 3: after the COVID period and you've had nothing but uphill
Speaker 3: enough upheld. But if you've had nothing but and upswing
Speaker 3: basically since the day you started, just be careful that
Speaker 3: it's not as easy as it seems. And in the end,
Speaker 3: the value investing dry though it is, is very.
Speaker 1: Strong approach to the market. Okay, we take a break
Speaker 1: with customer, really good questions. Hello, welcome back to the
Speaker 1: Australian's Money Puzzle James Kirvely with Alex Moffatt. Today we're
Speaker 1: talking on the week that is the adversary of the
Speaker 1: Great Crash of nineteen eighty seven. Now, interesting, really appropriate
Speaker 1: question from Paul. Are the Australian US and other markets
Speaker 1: approaching long term pe value peaks? Don't they tend to
Speaker 1: correct at this point? What does history tell us you
Speaker 1: would think of, Paul that you trigger the whole show
Speaker 1: which is just a useful coincidence. It's there a point
Speaker 1: of which I was saying that to you. You said
Speaker 1: the long term average is fifty. Then you said that
Speaker 1: it we're currently trading at twenty one, right, folks, that's
Speaker 1: twenty one times price earnings value ratio, which is still
Speaker 1: the metric that people use in terms of the value
Speaker 1: of a stock. How much is it worth, in other words,
Speaker 1: for the amount of money you put in the amount
Speaker 1: of getting back, how is its value? But the US
Speaker 1: stocks often go into the thirties. So we've had stocks
Speaker 1: that go into those stratosphere and they can be justified
Speaker 1: because they've got extraordinary earnings growth or whatever is it.
Speaker 1: But can it ever be justified with the market getting
Speaker 1: up to that? Does it have to go back to that?
Speaker 1: Does it have to return to the mean as such
Speaker 1: the fifteen times?
Speaker 3: I didn't think so, James. In fact, I was looking
Speaker 3: at some data only last night in preparation for this discussion,
Speaker 3: and I note that China, the current average market pee
Speaker 3: there is trading below it's long term average. You're trading
Speaker 3: currently at ten point six times long term average is
Speaker 3: about twelve times. Australia, I mentioned where we're above, but
Speaker 3: we're nowhere near the top of the twenty year range.
Speaker 3: India is the most expensive market at the moment, at
Speaker 3: about twenty five and a half times it's earnings with
Speaker 3: the long term average. The US is expensive. Japan is
Speaker 3: probably the cheapest at the moment, trading at about fourteen
Speaker 3: and a half times against a long term average of
Speaker 3: about sixteen times. So I think it's horses for courses.
Speaker 3: And this is and parcel of choosing not blindly just
Speaker 3: to invest in the US, but selecting the market that
Speaker 3: you want to invest in and going for the value
Speaker 3: in that market. So what currency do you want to
Speaker 3: be in, which geopolitical area, which sector of market do
Speaker 3: you want to be in? Because I know a rising
Speaker 3: tide floats all boats, but some boats float higher than others.
Speaker 1: Yes, what was our what's our high than we said
Speaker 1: it don't come averages fifteen. We're at twenty.
Speaker 3: One, okay, our high point our in Australia the twenty
Speaker 3: year this is average, mind you, for the whole market,
Speaker 3: not just single stock, is about twenty one times, so
Speaker 3: we're close to it. So we're pretty close to the
Speaker 3: high point at the moment.
Speaker 1: If you had an ETF know that, folks, because that's
Speaker 1: what ETFs reflect. Okay, the entire average market. All right,
Speaker 1: great question. Hope that was useful to you, paulled Lewis.
Speaker 1: I would like to get some observations, not advice, but
Speaker 1: sage wisdom. Thank you for reminding me to us this
Speaker 1: is never advice. These information folks on next DC, as
Speaker 1: a current shareholder with the company next DC, have recently
Speaker 1: receives another announcer of the share purchase plan which has
Speaker 1: been completed, etc. Yes, indeed they are always raising money.
Speaker 1: My question is are these guys burning cash too quickly?
Speaker 1: There is no target CAF at the raising with shareholders
Speaker 1: cafter thirty thousand pound investors this time around. Is there
Speaker 1: something fishy here? Okay, I don't We would hope there's
Speaker 1: nothing fishy at all at next DC. It's a certain
Speaker 1: type of common beney folks. I have mentioned it the show.
Speaker 1: I've actually mentioned the fact that it's in my own
Speaker 1: SMSF thankfully, very happy to say it is, and it's
Speaker 1: one of the biggest holdings I have. I didn't choose that.
Speaker 1: It just swelled on me where it's gone up to
Speaker 1: about eighteen dollars at the moment. It's got a couple
Speaker 1: of issues. It's a data center company. The two outstanding issues.
Speaker 1: One is it's become the share market proxy along with
Speaker 1: Macquarie Technology for AI in our market, though it isn't AI, okay.
Speaker 1: It's actually a freely conservative semi property type of company
Speaker 1: that fills data centers. It is very well regarded. And
Speaker 1: I don't want to say what I think about is,
Speaker 1: but I'll just quote, and this is some public record
Speaker 1: from a fund manager, Andrew Mitchell of o Fair Asset Management,
Speaker 1: who was in others, who has had them for a while,
Speaker 1: even longer than I have, and of course loves them
Speaker 1: as you would when you've done very well out of them.
Speaker 1: But it's just quoting from a report he recently said.
Speaker 1: Makes this He has been the most successful operator in
Speaker 1: the space, reporting a solid full year result with revenues
Speaker 1: growing thirty percent on the prior year and EBITDA plus
Speaker 1: twenty eight. And he basically spells out what he likes
Speaker 1: about them, that they have lots of tenants if they're
Speaker 1: very well positioned, and there remains over fifteen hundred multi
Speaker 1: tenant data center providers globally. The top ten now account
Speaker 1: for more than half of the industry's revenue, and we
Speaker 1: would expect that portion to grow as further consolidation plays out.
Speaker 1: So fun I just like them. I don't like the
Speaker 1: fact that they continually raise money, and I didn't go
Speaker 1: into the last raising. But I'm an individual investor, I'm
Speaker 1: not an institution. There was no discount whatsoever. I thought
Speaker 1: on that, so I didn't Why would you go in
Speaker 1: you goodbye any days for the more or less the
Speaker 1: same price that That's why I held off on that one.
Speaker 1: There was one other point I wanted to make. Yes,
Speaker 1: air Trunk of course sold for inextraordinary multiple recently, and
Speaker 1: they're in the same business. Everything's going their way at
Speaker 1: the moment. That might be a problem for someone like
Speaker 1: Alex who's a value investor. Have you looked at the
Speaker 1: AICNE Have you looked at next DC? Alex?
Speaker 3: I have, and I like the business. I like the
Speaker 3: data center business. Another one that is starting to move
Speaker 3: into that area is the Goodman Group, and I think
Speaker 3: certainly they're worthy of investor intention, but I'd look closely
Speaker 3: next to DC.
Speaker 1: It's just too.
Speaker 3: Expensive for me to buy James. I think he's trading
Speaker 3: at about nearly fifteen twenty percent above what a fair value,
Speaker 3: but certainly keep an eye on it. I think hYP
Speaker 3: to reserate. I like the business, it's what.
Speaker 1: Do you do with these companies never come into value
Speaker 1: what I often see value investor seeing it's fallen six percent,
Speaker 1: it's nearly there another three it will be in our ends,
Speaker 1: but it never comes down that little really good companies.
Speaker 3: When did Goodman ever come in to value? It's a
Speaker 3: really good point, James. For my own self managed superfund.
Speaker 3: If I really like a company and I own next DC,
Speaker 3: I'll buy a small amount and put a toe in
Speaker 3: the water and then use when there's a major drop.
Speaker 3: Like Wise, texts happened, assess the situation, what is the
Speaker 3: reason for the drop? Watch the nature of the change
Speaker 3: of the business. Is rich and White going to be
Speaker 3: the MD forever? And then adds that position or leave
Speaker 3: it alone? Yeah, certainly a toe in the water. It
Speaker 3: doesn't hurt.
Speaker 1: Yeah, okay, just on that key person risk. It's an issue,
Speaker 1: isn't it? Richard at Ways Tech, Chris Ellison at Menrez.
Speaker 1: As a value investor must be really hard to assess that.
Speaker 1: If you've got someone like Jerry Harvey at Harvey Norman.
Speaker 1: I'm not talking now, I'm talking twenty years ago. If
Speaker 1: you were looking at you see this company is completely
Speaker 1: dominated by the sky. It's called Harvey Normous Jerry Harvey
Speaker 1: as a value investor. Can you put that to one side?
Speaker 1: Kerry Packet publishing, in broadcasting in un Musque. The companies
Speaker 1: I simply won't invest in, just simply will not invest in. Okay,
Speaker 1: to me, the principal risk is too great. It's all right,
Speaker 1: just because because it's personality exactly dominant personality. Okay, very interesting,
Speaker 1: very interesting, Okay, terrific. Folks just were not saying we
Speaker 1: had someone had come in talking about revolution. Disappointed I had.
Speaker 1: I had recently done a lot of the said something
Speaker 1: and written quite enthusiastically about revolution. Which is of course
Speaker 1: the big card services provider that I think is really
Speaker 1: impressive in how they operate and will give our banks
Speaker 1: a real run for their money when they really take
Speaker 1: off here. They've got some remarkable features to their to
Speaker 1: their cards which I think will challenge the banks in
Speaker 1: a big ways in Europe. You can keep your money
Speaker 1: on deposit with them, of course, which I would really
Speaker 1: frighten our banks if you could do that. Here and
Speaker 1: they have this extraordinary credit card not credit card, but
Speaker 1: card arrangement where everyone's worried about the security of their
Speaker 1: cards when they use it, particularly overseas, but they've come
Speaker 1: up with this thing where you've once off disposable numbers,
Speaker 1: so if you don't trust who you're dealing with, you
Speaker 1: can just use your card and you can have a
Speaker 1: once off number of which evaporates basically after you've finished it.
Speaker 1: I thought it was brilliant actually as a financial innovation.
Speaker 1: Now the list made the point that Revoluta has had
Speaker 1: UK National Reporting Center for Fraud received ten thousand reports
Speaker 1: in relation to Revolute and was disappointed that I didn't
Speaker 1: make more of this fair enough. The only thing I
Speaker 1: would say is that, yes, that all did happen, and
Speaker 1: after that happened, the Bank of England signed them off
Speaker 1: and give them a license. And I did make the
Speaker 1: point in the piece I wrote that it took them
Speaker 1: three years to sign it off. Normally they take a
Speaker 1: year to sign these things off, so they did very
Speaker 1: thoughly go through. Left just thought we keer off on that, okay,
Speaker 1: Alex Moffat Joseph Parmer and sons, thank you very much.
Speaker 1: That was really good. I knew it would be. It
Speaker 1: was really interesting. I hope our listeners learned something from
Speaker 1: that pretty scary story, which is not that long ago,
Speaker 1: and in the same market that we offer it. And
Speaker 1: we are in a pretty hot market right now. And
Speaker 1: it's the hot markets that boil over as oppose to
Speaker 1: the cool ones. Let just keep them.
Speaker 3: Hint every money can I leave you with one thought
Speaker 3: you can on my wall in my study here, I
Speaker 3: have a certificate a share I'm sorry, A bond certificate,
Speaker 3: a bond statement which I got framed. The bond was
Speaker 3: brought by Bond Corporation on the sixteenth of October nineteen
Speaker 3: eighty seven. That was a Friday. The lead manager was
Speaker 3: Meryl Lynch. It was an eighteen million pound issue paying
Speaker 3: six and a half percent interest. It was very successfully
Speaker 3: delve into the market by Meryl Lynch, and by one
Speaker 3: o'clock on Monday, the nineteenth of October, it was worth zero.
Speaker 3: It went from one hundred pounds per unit per bond
Speaker 3: eighty million pounds turned to zero by one o'clock Monday.
Speaker 3: I have one on my study wall.
Speaker 1: I tell you it has us two things, not just
Speaker 1: about but it tells you that the biggest institutions in
Speaker 1: the world get involved in these things, and just because
Speaker 1: marilynch or anybody else is involved. Don't think that's actually
Speaker 1: some sort of guarantee, folks.
Speaker 3: Exactly wrong.
Speaker 1: Okay, Hey, thank you Alex. Great to talk to you.
Speaker 1: Thank you, and thanks for listening. Everybody, do mention us
Speaker 1: to your friends and mentioned the show. We'd really appreciate that.
Speaker 1: We have an email. We'd like to get some more
Speaker 1: questions in. They were very good today. I really enjoyed them.
Speaker 1: Thank you. Their money puzzle at the Australian dot com
Speaker 1: dot au is the email. Thank you very much. We'd
Speaker 1: talk to you soon.