WEBVTT - Could you handle a share market crash? 0:00:12.960 --> 0:00:15.960 Hello and welcome to The Australian's Money Puzzle podcast. I'm 0:00:16.040 --> 0:00:19.840 James Kirby, the Wealth editor at the Australian. Welcome aboard everybody. 0:00:20.320 --> 0:00:23.680 Now imagine, imagine as an investor, a share investor, how 0:00:23.720 --> 0:00:27.320 would you feel if this happened? You wake up tomorrow morning, 0:00:28.000 --> 0:00:31.240 you look at your phone of the television and you 0:00:31.360 --> 0:00:35.239 find out that the wars treat is down twenty three 0:00:35.280 --> 0:00:38.920 percent in the day overnight. You say, oh my god. 0:00:39.040 --> 0:00:42.280 You hope Australia when it opens will be better. Maybe 0:00:42.280 --> 0:00:44.760 there'll be a recovery, maybe there'd be some bargain hunting. 0:00:45.360 --> 0:00:49.720 The ax in a fashion which was established way back 0:00:49.760 --> 0:00:54.320 when and continues to this day, overdoes it and actually 0:00:54.360 --> 0:00:57.840 falls harder than the American market and it falls twenty 0:00:57.880 --> 0:01:00.960 five percent in a single session. Now, I wanted to 0:01:01.000 --> 0:01:04.280 keep this in mind at the moment. These days, we 0:01:04.319 --> 0:01:06.679 get terribly worried. If we have a bad day on 0:01:06.720 --> 0:01:10.000 the Essex. We have a three percent drop, it's a 0:01:10.000 --> 0:01:13.480 big deal. If we have a five percent drop, it's 0:01:13.959 --> 0:01:16.800 front page news. Its billions have been wiped off the 0:01:16.800 --> 0:01:19.840 stock exchanges to the londondumbers. The thing is that in 0:01:19.959 --> 0:01:23.440 nineteen eighty seven, we had a twenty five percent drop. 0:01:23.480 --> 0:01:26.160 It was the greatest stock market crash of our time. 0:01:26.240 --> 0:01:29.440 It was the biggest since nineteen twenty nine, the. 0:01:29.440 --> 0:01:33.520 Crash of eighty seven. Around the world, shear market pandemonium, 0:01:33.640 --> 0:01:36.840 good evening. The stock market sale of the century continued 0:01:36.880 --> 0:01:40.319 around the world today, with more than sixty billion dollars 0:01:40.400 --> 0:01:43.360 wiped off the value of Australian shares in the past 0:01:43.400 --> 0:01:45.440 thirty hours. At the end of and. 0:01:45.520 --> 0:01:49.720 It's worth knowing this, the previous worst day Essex before 0:01:49.760 --> 0:01:52.960 the twenty five percent drop was her four percent drop, 0:01:53.200 --> 0:01:57.360 So it was like five times six times anything that 0:01:57.520 --> 0:01:59.440 people had seen before. 0:02:00.000 --> 0:02:02.080 At the end of the day's trading on the Sydney 0:02:02.080 --> 0:02:06.560 Stock Exchange, the market's leading indicator, the All Ordinaries Index, 0:02:06.880 --> 0:02:10.440 had fallen five hundred and fifteen points. As the selling 0:02:10.480 --> 0:02:14.680 stampede continued around the world, some economists in now forecasting 0:02:14.760 --> 0:02:17.680 the start of a worldwide recession with. 0:02:17.720 --> 0:02:21.080 All Now, what's that line, the historic line, If you 0:02:21.120 --> 0:02:24.080 forget the past, you're condemned to repeat it. So I 0:02:24.160 --> 0:02:29.200 wanted to remind people that crash happened this week. In 0:02:29.280 --> 0:02:30.320 nineteen eighty seven. 0:02:30.200 --> 0:02:34.360 The Sydney Stock Exchange fifteen minutes before opening the cab 0:02:34.680 --> 0:02:38.280 before the collapse with history that no one wanted to 0:02:38.320 --> 0:02:42.680 make as Australian investors played a leader in a line 0:02:42.720 --> 0:02:43.200 that I. 0:02:43.360 --> 0:02:47.480 Was actually in the market, very junior, but I was 0:02:47.520 --> 0:02:49.720 in the market, and I can remember there was a 0:02:49.840 --> 0:02:53.560 lead up to the Spring Racing Carnival in Melbourne. There 0:02:53.600 --> 0:02:57.680 was a Melbourne cuff looming. I had just arrived in Australia. 0:02:57.800 --> 0:03:00.079 By that, I mean I was here a couple of 0:03:00.280 --> 0:03:03.680 weeks and I was a reporter on the Financial Review, 0:03:04.560 --> 0:03:08.520 and I can still remember how difficult it was for 0:03:08.600 --> 0:03:11.360 us to grasp this because we didn't have the communications 0:03:11.360 --> 0:03:13.600 we have now. We were basically standing around what they 0:03:13.600 --> 0:03:17.240 call a wire machine and I wanted to talk to 0:03:17.440 --> 0:03:19.640 someone in the market who would be good on this, 0:03:19.800 --> 0:03:24.360 who recalls it clearly. And my guest today was in 0:03:24.400 --> 0:03:26.240 the thick of it all at the time. He's an 0:03:26.240 --> 0:03:28.720 Australian who was in London at the time, but he 0:03:28.840 --> 0:03:32.000 was right across it. His name is Alex Moffatt. He's 0:03:31.760 --> 0:03:37.080 at the Joseph Palmer Group. Hi, Alix, how are you? 0:03:37.840 --> 0:03:40.120 Good morning, James, thank you for the invitation. It's good 0:03:40.120 --> 0:03:42.440 to speak to you with you. It's delightful to have 0:03:42.480 --> 0:03:42.880 you on. 0:03:43.400 --> 0:03:46.000 So it turns out, funnily enough, you're the Australian, but 0:03:46.080 --> 0:03:50.000 you're in London, and I was here on that day, 0:03:50.440 --> 0:03:54.120 which was a Monday in New York and a Tuesday 0:03:54.280 --> 0:03:58.000 in Australia, the last great crash we had. And I 0:03:58.040 --> 0:04:02.360 want to talk to our listeners today about this, because folks, 0:04:03.040 --> 0:04:05.960 there's got to be another crash. I don't know the 0:04:06.000 --> 0:04:09.240 skal of it, and I don't know when, but crashes 0:04:09.240 --> 0:04:13.040 are part of the market and we possibly as investors 0:04:13.760 --> 0:04:16.560 are having it's so good that we've probably forgotten just 0:04:16.680 --> 0:04:19.400 how scary it is. Where were you, Alex, and tell 0:04:19.400 --> 0:04:20.599 me about the d okay. 0:04:20.640 --> 0:04:23.600 I was in London. I was working in Irving Trust 0:04:23.640 --> 0:04:27.200 Companies dealing room in Abchurch Lane in London, and for 0:04:27.240 --> 0:04:30.960 those who know London well, Abchurch Lane is just up 0:04:31.000 --> 0:04:34.320 the road from the Cannon Street railway station. Living Trust 0:04:34.320 --> 0:04:37.160 Company was not a stockbroker. They were an American bank 0:04:37.160 --> 0:04:40.640 that was running their global bond dealing operation from London. 0:04:41.080 --> 0:04:44.040 New York at the time was the secondary operation because London, 0:04:44.080 --> 0:04:47.000 of course at the time was the center of the universe. 0:04:47.880 --> 0:04:49.919 The Australian firm that sent me. There was one of 0:04:49.920 --> 0:04:53.960 the discount houses at the time in Australia, trans City Discount, 0:04:54.480 --> 0:04:57.880 and I was running the Australian bond operation for trans 0:04:57.880 --> 0:05:01.440 City Discount through irving trust officers in London. 0:05:02.320 --> 0:05:05.440 What was the atmosphere like, well, how do people react 0:05:05.480 --> 0:05:07.560 with the cell of the orphant news? So James, there 0:05:07.640 --> 0:05:11.000 was You were right in your earlier comments the week before. 0:05:11.480 --> 0:05:13.400 If I can just paint a little bit of a 0:05:13.440 --> 0:05:17.719 picture the week before the Obviously, as a bond dealer, 0:05:17.880 --> 0:05:19.880 you look at all the markets around you and we 0:05:20.000 --> 0:05:21.800 keep half an eye on the stock market. 0:05:22.000 --> 0:05:25.640 The bond market globally is about double the size of 0:05:25.960 --> 0:05:29.680 the total of the world's stock markets, but you do 0:05:29.760 --> 0:05:31.560 keep an eye on it. But it's important a lot 0:05:31.560 --> 0:05:34.920 of investment dollars go there. In the week prior to 0:05:35.600 --> 0:05:40.480 the Friday night, the sixteenth of October in London, the 0:05:41.120 --> 0:05:43.919 S and P five hundred dropped about ten percent, not 0:05:44.040 --> 0:05:45.920 in one day, but over the course of that week, 0:05:45.960 --> 0:05:48.760 and you alluded to that in your comments. You could 0:05:48.800 --> 0:05:51.200 tell that there was something wrong. We went home on 0:05:51.240 --> 0:05:55.520 the Friday night and it just didn't feel right. Now, 0:05:55.560 --> 0:06:00.560 when the stock market has issues, credit spreads also start 0:06:00.600 --> 0:06:03.880 to widen against the risk crew rate, against government bond yields, 0:06:04.200 --> 0:06:06.719 and so the pressure was being felt in credit spreads, 0:06:06.760 --> 0:06:09.200 which is the market that I dealt in, as well 0:06:09.200 --> 0:06:12.160 as in the stock market. Now in adding it a 0:06:12.200 --> 0:06:14.960 little bit of further color, and some of your listeners 0:06:15.000 --> 0:06:19.800 may be very young. On Sunday night, the eighteenth of October, 0:06:20.000 --> 0:06:24.679 a wild hurricane hit London and decimated a very large 0:06:24.800 --> 0:06:27.560 part of certainly Hyde Park, which was near where I 0:06:27.640 --> 0:06:30.400 was living. To the end that when I got a 0:06:30.400 --> 0:06:33.200 phone call very early on Monday morning, the nineteenth of 0:06:33.200 --> 0:06:37.960 October and someone said, Mop, look out your window and 0:06:38.560 --> 0:06:41.520 tell me what you see. We were living in devere 0:06:41.560 --> 0:06:46.159 cottages in Kensington at the time, and out on Kensington 0:06:46.240 --> 0:06:48.400 High Street I could see a double decker bus on 0:06:48.440 --> 0:06:51.240 its side. I walked to work that day. 0:06:51.920 --> 0:06:54.680 There was a sense of doom in the airport. There 0:06:54.880 --> 0:06:58.640 was separate to the markets. There were a lot of 0:06:58.680 --> 0:07:00.160 trees down in Hyde Park. 0:07:00.320 --> 0:07:03.400 I walked to work and in the city of London 0:07:03.400 --> 0:07:06.800 in at Church Lane, and the morning was it just 0:07:06.920 --> 0:07:09.960 you could feel the black clouds around the dealing room. 0:07:10.520 --> 0:07:14.679 The American Central Bank had been holding monetary policy fairly tight. 0:07:14.760 --> 0:07:18.200 Alan Greenspan was the new president of the Federal Reserve. 0:07:18.840 --> 0:07:21.920 It just it was a surreal day. And then when 0:07:22.040 --> 0:07:27.200 the Dow jones components, and for your listener's information, the 0:07:27.240 --> 0:07:31.400 Dow comprises the thirty largest stocks in the US, and 0:07:31.440 --> 0:07:34.640 when they open those thirty stocks, they opened one stock 0:07:34.760 --> 0:07:38.720 every minute for half an hour. They started about one o'clock, 0:07:38.840 --> 0:07:43.280 and by ten quarter past one, the Dow was down 0:07:43.520 --> 0:07:46.120 very hard, indeed down probably ten days. Were they're trying 0:07:46.160 --> 0:07:51.320 to stage manage such a crash that then do was happening. 0:07:51.880 --> 0:07:54.760 That's a really good question, James, And at the time 0:07:55.000 --> 0:07:58.480 there were. It was basically the start of program trading 0:07:58.920 --> 0:08:02.880 and ground trading is probably was the lead into the 0:08:03.480 --> 0:08:07.360 I guess the artificial intelligence inspired program trading that we 0:08:07.440 --> 0:08:09.760 have now. But there are an awful lot of cell 0:08:09.920 --> 0:08:13.320 orders going into the stock market, which was why the 0:08:13.320 --> 0:08:15.960 market was going down at a rapid rate. And this 0:08:16.080 --> 0:08:19.240 was impacting credit spreads. As I said, people started selling 0:08:19.520 --> 0:08:23.200 just to cover risk positions, So people were selling good 0:08:23.200 --> 0:08:26.320 assets like bonds to cover their bad assets like stocks. 0:08:26.320 --> 0:08:29.440 At the time, the downdrop twenty percent on that day 0:08:29.480 --> 0:08:31.960 as the S and P was down twenty percent. It's 0:08:32.000 --> 0:08:35.319 probably the worst day since the nineteen twenty nine crash, 0:08:35.360 --> 0:08:38.040 the anniversary of which is coming up very shortly. 0:08:38.440 --> 0:08:41.679 Yes, it's interesting, isn't it. The big crushes are this 0:08:41.760 --> 0:08:45.920 time of year. They are so what Stutterbolt, do you 0:08:45.960 --> 0:08:48.760 think I have my own theory on that. 0:08:49.120 --> 0:08:53.640 We in the Southern Hemisphere have our holidays around Christmas time, 0:08:53.800 --> 0:08:56.880 But in the Northern Hemisphere school breaks up for summer 0:08:57.160 --> 0:08:59.600 in late journe and a lot of the big fund 0:08:59.600 --> 0:09:02.840 manager and captains of industry go away to their summer 0:09:02.880 --> 0:09:06.559 houses in Spain or wherever for a long summer break, 0:09:06.600 --> 0:09:08.840 take the children with them, and they leave the juniors 0:09:08.880 --> 0:09:11.160 on the desk, go to the summer period. Oh yeah, 0:09:11.320 --> 0:09:15.240 when they come back in September, late August, September and 0:09:15.280 --> 0:09:20.240 school resumes, university goes back, They have investment committee meetings 0:09:20.360 --> 0:09:24.880 and they readjust their risk settings, their investment parameters, et cetera. 0:09:25.679 --> 0:09:30.199 And program trading at the time was in its infancy. 0:09:30.520 --> 0:09:34.079 There were no buffers built into the programs. That controls 0:09:34.120 --> 0:09:38.280 came after that, so the setting perpetuated setting exactly. It 0:09:38.320 --> 0:09:41.720 was like a rolling snowball and it just kept rolling. 0:09:42.000 --> 0:09:44.080 It's interesting with people off and ask about what were 0:09:44.080 --> 0:09:46.120 the causes of the eighty seven crash. And one of 0:09:46.160 --> 0:09:49.120 the things about it's almost like a sort of a 0:09:49.160 --> 0:09:51.040 mirror inmature of what were the causes of the First 0:09:51.040 --> 0:09:53.679 World War? There's the pilot causes. What were the causes 0:09:53.679 --> 0:09:58.160 of the eighty seven crash? Nothing in particular jumps out 0:09:58.320 --> 0:10:02.320 for the crash. One of the things was that not 0:10:02.360 --> 0:10:05.360 only did it so that was the day everybody listeners 0:10:05.360 --> 0:10:07.800 and I'm sure the vast majority of listeners don't remember. 0:10:08.120 --> 0:10:11.959 I may not even know about this. It fell twenty 0:10:11.960 --> 0:10:14.720 five percent on the day, and for what it's worth, 0:10:14.760 --> 0:10:17.160 it kept going and the next few months were worse, 0:10:17.200 --> 0:10:20.000 and in the end it fell forty percent. And the 0:10:20.040 --> 0:10:23.760 bottom at that time was about five or six months 0:10:23.840 --> 0:10:28.240 later in February eighty eight, and then it started to turn. Now, 0:10:28.520 --> 0:10:31.320 the most recent crash that we're familiar with wasn't so 0:10:31.440 --> 0:10:33.840 much a crash as a slow what did they call it, 0:10:33.880 --> 0:10:37.520 the slow motion train wreck, which is the GFC where 0:10:37.679 --> 0:10:41.480 because the authorities were trying again to stage manage how 0:10:41.520 --> 0:10:45.920 bad things were, shares fell fifty percent, but they took 0:10:46.040 --> 0:10:49.920 two years to four fifty percent from two oh seven 0:10:50.080 --> 0:10:51.000 to two nine. 0:10:51.320 --> 0:10:52.400 Now what I want to. 0:10:52.400 --> 0:10:57.920 Ask you, Alex is tell me about having been in 0:10:57.920 --> 0:11:03.160 the thick of things and you were credential profess in 0:11:03.240 --> 0:11:06.920 nineteen eighty seven, I was a junior reporter. I was 0:11:07.000 --> 0:11:10.160 just standing there with my mouth, just watching me and 0:11:10.360 --> 0:11:13.640 watching everybody. I remember someone saying to me, you should 0:11:13.640 --> 0:11:15.840 go around to the stock exchange, because there was a 0:11:15.840 --> 0:11:18.600 physical stock exchange on Corlett Street in the Melbourne and 0:11:18.600 --> 0:11:20.480 you could go and there was choveboards and all that. 0:11:20.520 --> 0:11:23.480 And I remember trying to go in, but the crowds, 0:11:23.520 --> 0:11:26.439 of course, had were around the doorways. You couldn't really 0:11:26.440 --> 0:11:28.679 get in. Normally there was no one in there apart 0:11:28.720 --> 0:11:30.400 of the traders and chokies and all that. But you 0:11:30.400 --> 0:11:33.079 couldn't get in because it was like sixty But I'll 0:11:33.120 --> 0:11:35.000 never forget it. But what I want to ask you 0:11:35.120 --> 0:11:40.920 is having witnessed, and professionally witnessed as an investor, the 0:11:41.000 --> 0:11:44.160 worst crash of our time being the Great Crash at 0:11:44.200 --> 0:11:47.760 nineteen eighty seven, did it change you did in the 0:11:47.800 --> 0:11:49.280 way that people say, Oh, I grew up in the 0:11:49.280 --> 0:11:51.520 Great Depression, my parents grew up with the Great Depression, 0:11:51.520 --> 0:11:56.720 and it characterized me. It formed me did it? What 0:11:56.760 --> 0:11:59.880 did it do to you as an investor? From then on? 0:12:00.640 --> 0:12:02.800 It was a real water change to see change for 0:12:02.920 --> 0:12:06.439 me James, and the word valuation took on a real 0:12:06.559 --> 0:12:10.440 new meaning. And when I transitioned from the bond market 0:12:10.480 --> 0:12:14.240 to the stock market twenty years ago, valuation became all important. 0:12:14.520 --> 0:12:18.240 And there's a number of companies now which people probably 0:12:18.640 --> 0:12:22.160 are watching the technology stocks going up and up, exceeding 0:12:22.360 --> 0:12:26.719 their realistic valuations. And there's a means of calculating your 0:12:26.720 --> 0:12:30.800 company's valuation and measuring it against its peers. And I 0:12:30.840 --> 0:12:33.320 think that's what drove it into me. So I became 0:12:33.360 --> 0:12:36.199 a value investor after that. And that goes for bonds 0:12:36.240 --> 0:12:39.120 as well as stocks. Buy when it's cheap, and so 0:12:39.280 --> 0:12:40.600 when it's expensive. 0:12:40.720 --> 0:12:43.800 Yes, it's hard to sell. When it's expenses. It's hard 0:12:43.840 --> 0:12:45.360 to sell when you've made a lot of money out 0:12:45.360 --> 0:12:46.240 of something, isn't it? 0:12:47.080 --> 0:12:48.839 You can always take some off the top, though. You 0:12:48.880 --> 0:12:51.079 can always take your capital out and let the the 0:12:51.120 --> 0:12:51.720 profit run. 0:12:52.280 --> 0:12:56.880 Are you listening, waste tech investors? Are you listening NEXTDC investors? 0:12:57.200 --> 0:12:58.920 My dear waist tech is selling off for you, so 0:12:58.960 --> 0:13:01.600 you don't have to worries. But are you listening, shall 0:13:01.679 --> 0:13:05.120 we say Nvidia Investors one of the most popular overseas 0:13:05.120 --> 0:13:07.559 stocks on the Australian market at the moment, and all 0:13:07.640 --> 0:13:09.960 the big tech stocks that are that our listeners love, 0:13:10.200 --> 0:13:15.280 the meta and alphabeta et cetera, et cetera, Facebook and Google. Okay, 0:13:15.440 --> 0:13:17.640 what we might do is take a short break and 0:13:17.679 --> 0:13:19.320 I want to going to do with the second part 0:13:19.440 --> 0:13:23.520 is I'm going to put the key question to Alex, 0:13:23.559 --> 0:13:27.920 which is all very interesting. But those were different days? 0:13:28.280 --> 0:13:30.640 Or were they different days? And could it all happen again? 0:13:30.679 --> 0:13:40.559 We'll be back in a moment. Hello and welcome back 0:13:40.559 --> 0:13:43.920 to the Australian's Money Puzzle podcast. I'm James Kirby talking 0:13:43.920 --> 0:13:48.440 to Alex Moffatt of Joseph Palmer and Sons. Alex is 0:13:48.559 --> 0:13:51.560 a veteran of the market. He also writes a newsletter 0:13:51.600 --> 0:13:53.760 for his clients which he very nicely a few years ago, 0:13:53.800 --> 0:13:56.880 put me on the Put me on the circle and 0:13:57.360 --> 0:13:59.120 I have a look at it every morning and it's 0:13:59.240 --> 0:14:03.640 very interesting and he has a historic perspective of the 0:14:03.679 --> 0:14:07.679 wider market which is invariably missing. Can I say from 0:14:07.720 --> 0:14:10.320 a lot of from a lot of commentations that we read, 0:14:10.840 --> 0:14:14.640 and it's really important to know what has happened in 0:14:14.679 --> 0:14:17.920 the past, Alex, you were going to I know you were, 0:14:18.000 --> 0:14:19.920 just I could see you were heading towards something there 0:14:19.920 --> 0:14:22.080 a minute ago before we talk about the prospects of 0:14:22.120 --> 0:14:25.840 it all happening against about the big companies, when in 0:14:25.920 --> 0:14:30.120 that at that time some of the biggest companies in 0:14:30.160 --> 0:14:33.320 Australia nineteen eighty seven, that was companies like specific dun 0:14:33.400 --> 0:14:37.520 Lopigon which was a giant company. Btr night X was 0:14:37.560 --> 0:14:40.920 a giant companies. There was the great the Buccaneers, the 0:14:41.720 --> 0:14:45.600 John Elliots with Elders, the Adnate Steamship Group for John 0:14:45.680 --> 0:14:50.560 Spalvin's Homes of Court and his various enterprises, and of 0:14:50.560 --> 0:14:53.440 course the iconic figure the one, the one that stands 0:14:53.440 --> 0:14:58.200 out to this day, Alan Bond and his empire. They're 0:14:58.240 --> 0:15:02.320 all gone and many of them were. That was the 0:15:02.320 --> 0:15:04.560 beginning of the end for them, wasn't it from any 0:15:04.680 --> 0:15:09.000 of them? The eighty seven craft Well, I think so 0:15:09.080 --> 0:15:12.600 different today. 0:15:11.400 --> 0:15:14.640 The difference, James, and you've highlighted a lot of them. 0:15:14.920 --> 0:15:18.280 Quintex is another one that comes to mind. Christopher Scayes, 0:15:18.400 --> 0:15:21.280 who I stood in front of his desk in Collins 0:15:21.320 --> 0:15:24.680 Street in Hardy House while he signed a mountain of 0:15:24.720 --> 0:15:26.880 bills exchange for me. You wouldn't let me sit down 0:15:26.920 --> 0:15:29.080 while he did them. But nonetheless, I think the difference 0:15:29.280 --> 0:15:33.000 between those days and these is there's one word missing 0:15:33.000 --> 0:15:36.520 in those days profit And a lot of those companies 0:15:36.640 --> 0:15:42.200 were going up on promises, expectation, sheer flow of investor money, 0:15:42.360 --> 0:15:45.760 but they weren't delivering profit or dividends. And certainly I 0:15:45.760 --> 0:15:49.880 remember that was the case in ad Steam Quintech's bond corporation. 0:15:50.640 --> 0:15:54.320 There was a lot of sharp practices and you may 0:15:54.480 --> 0:15:58.800 remember a practice which was called bottom of the harbor. 0:15:59.320 --> 0:16:02.680 The tax ski they were around when at that time, 0:16:02.720 --> 0:16:05.360 but I was only vaguely aware of really for result. 0:16:05.480 --> 0:16:07.800 They started in about the mid seventies and went through 0:16:07.840 --> 0:16:10.800 till the late eighties. And that's where entrepreneurs would come 0:16:10.840 --> 0:16:13.960 in by a company strip of its strip it of 0:16:14.040 --> 0:16:17.960 its assets and put some bogus directors in and then 0:16:18.160 --> 0:16:21.640 avoid any tax payments. And if you go back through 0:16:21.680 --> 0:16:23.800 your history books and there's James I'm a real fan 0:16:23.840 --> 0:16:26.960 of history, you learn a lot from it. The painters 0:16:27.000 --> 0:16:32.200 and dockers in Victoria were probably very helpful to some 0:16:32.280 --> 0:16:35.400 of these companies. In providing stand in directors for some 0:16:35.480 --> 0:16:38.320 of these shell companies that were stripped through the bottom 0:16:38.320 --> 0:16:42.240 of the harbor schemes. So profit is the answer. 0:16:42.680 --> 0:16:47.480 When things are really good, then the nature of scandals change, 0:16:48.000 --> 0:16:51.120 and I think people are not as worried. But it's 0:16:51.160 --> 0:16:54.240 a tough look on Chris Ellison and min As Miners, 0:16:54.280 --> 0:16:56.720 the big lithium player. They're holding it out as an 0:16:56.720 --> 0:16:59.920 example this morning both why not because there's an investigation 0:17:00.160 --> 0:17:02.680 going on now and Asika has come from. They're investigating 0:17:02.680 --> 0:17:05.720 how he's dealing with his with some sort of what 0:17:05.720 --> 0:17:10.000 would seemed to be an alleged tax arrangement that should 0:17:10.000 --> 0:17:13.320 not have happened at Minrais. But what I want to 0:17:13.359 --> 0:17:14.800 the point I want to make is not so much 0:17:14.800 --> 0:17:17.639 about him, But it seems to me that the scandals 0:17:17.680 --> 0:17:19.320 we get at the top of the market in a 0:17:19.440 --> 0:17:25.479 hoff market are scandals of greed, and that is at common. 0:17:25.520 --> 0:17:28.679 That was a common theme in terms of how people 0:17:28.800 --> 0:17:32.160 were dealing in around that time. In the later he said, 0:17:32.200 --> 0:17:35.040 we had a terrible crash, and we had the Harlan 0:17:35.400 --> 0:17:39.200 scheme if you remember at Elders, and we had various 0:17:39.240 --> 0:17:41.560 issues at quintechs, not to mention the sort of mind 0:17:41.600 --> 0:17:44.000 bending stuff that was going on at Bond and we 0:17:44.080 --> 0:17:47.800 have something this week now at Minrais where there is 0:17:47.880 --> 0:17:52.680 again a see you under suspicion for trying to make 0:17:52.840 --> 0:17:56.600 even more money than they're already making. And I just wondered, 0:17:56.720 --> 0:18:00.600 do you detect in the bull market that we have now, 0:18:00.840 --> 0:18:06.119 do you detect some sort of tremors or signals that 0:18:06.440 --> 0:18:11.520 would lead us to a reprise of eighty seven? 0:18:12.080 --> 0:18:14.959 The only things I can detect James and stewardship, And 0:18:15.000 --> 0:18:18.520 you very rightly raise that is very important. Certainly, stewardship 0:18:18.800 --> 0:18:22.280 in our company analysis through our own business is a 0:18:22.359 --> 0:18:25.280 key factor of our due diligence process before we invest 0:18:25.280 --> 0:18:28.600 a penny of our clients' funds into any company. You're 0:18:28.680 --> 0:18:32.080 quite right in raising that it's just simply appalling, and 0:18:32.320 --> 0:18:35.080 he has put his hand up astic of course will 0:18:35.119 --> 0:18:37.359 go in and do what they do, But have my 0:18:37.440 --> 0:18:41.919 own opinions of Chris Ellison, and I certainly won't share them. 0:18:41.960 --> 0:18:44.399 Hear it, But it's not a stock that I would 0:18:44.600 --> 0:18:48.000 happily buy into. To me, the I think paul Ford 0:18:48.040 --> 0:18:51.280 Australia has come a long way since nineteen eighty seven 0:18:51.560 --> 0:18:55.600 and you look at company CEOs and boards, and there 0:18:55.680 --> 0:18:59.560 is a very high degree of probity amongst those boards. 0:18:59.560 --> 0:19:03.560 And see to the second part of the question. I'm 0:19:03.600 --> 0:19:09.359 looking also at the overall market valuations, and your observation 0:19:09.520 --> 0:19:12.280 is quite right. Our market at the moment is the 0:19:12.359 --> 0:19:15.320 A six two hundred is valued at about twenty one 0:19:15.400 --> 0:19:19.560 times historic earnings. The long term average long term is 0:19:19.600 --> 0:19:22.680 twenty years. It's a fair measure is about just under 0:19:22.720 --> 0:19:26.280 fifteen times. So our market's expensive at the moment, and 0:19:26.480 --> 0:19:29.479 it is being driven by weight of money. And you 0:19:29.560 --> 0:19:33.439 would be very well aware that superannuation contributions assist that 0:19:33.480 --> 0:19:36.840 weight of money going in. It's yes, the mandatory wit 0:19:36.880 --> 0:19:40.600 of money correct, exactly right. And a lot of that 0:19:40.920 --> 0:19:45.119 weight of money is going into two very large Australian superfunds, 0:19:45.119 --> 0:19:48.080 Australian Super being one of them, and so that money 0:19:48.119 --> 0:19:50.200 has to be invested, and it's invested at the time. 0:19:50.320 --> 0:19:53.920 So our market is trading expensively. I think it goes 0:19:53.960 --> 0:19:57.159 back to what I mentioned before. It's very hard finding 0:19:57.280 --> 0:20:01.000 value in the current market, and I think investors have 0:20:01.080 --> 0:20:05.439 every right to be cautious, and in being cautious, you 0:20:05.520 --> 0:20:08.159 spend more time doing your due dilsions before buying. 0:20:08.720 --> 0:20:11.960 Okay, Now, one of the things about all our crashes, 0:20:12.880 --> 0:20:14.880 I don't know much about what happened in nineteen twenty 0:20:15.000 --> 0:20:18.840 nine here, except that obviously there was a perfect reflection 0:20:18.960 --> 0:20:22.200 of that crash, and the perfect reflection of the later depression, 0:20:22.840 --> 0:20:25.680 the Great Depression in eighty seven, there was a mirror 0:20:25.760 --> 0:20:29.399 image of the crash. In the two thousand dot Com crash, 0:20:29.440 --> 0:20:31.679 there was a mirror image of the crash. So we 0:20:31.760 --> 0:20:34.720 tend to mirror Wall Street, and when they have a crash, 0:20:35.359 --> 0:20:39.959 for all our conservatism, this is recent counteratism. And for 0:20:40.000 --> 0:20:43.160 all our emphasis on dividends, for instance, so it's less 0:20:43.840 --> 0:20:49.199 the less our share market gives better dividends, but it 0:20:49.200 --> 0:20:52.439 doesn't give as good price appreciation as the US market. 0:20:52.480 --> 0:20:55.680 But for all that, when things go bad, we fall 0:20:55.760 --> 0:20:58.920 with them just as just as much, if not more worth. 0:20:59.400 --> 0:21:03.920 If the US has the shaft downturn, and no one 0:21:03.960 --> 0:21:06.840 knows why it would happen, but a black Swan event, okay, 0:21:06.920 --> 0:21:08.760 so we just can't see what it is. But something 0:21:08.840 --> 0:21:11.359 happens that no one thought was going to happen, and 0:21:11.600 --> 0:21:14.520 everyone loses a nerve and there's a big fall on 0:21:14.600 --> 0:21:17.240 War Street. Will we fall with them like we always do. 0:21:18.240 --> 0:21:21.639 We definitely will, James. And the analogy is the end 0:21:21.720 --> 0:21:23.920 of the tail on the dog. The dog wags his 0:21:24.040 --> 0:21:26.119 tail in Australia can be right at the end of 0:21:26.160 --> 0:21:30.280 the tails. Yes, we always overreact and then the recovery 0:21:30.400 --> 0:21:31.880 is slow. As you've pointed out. 0:21:32.600 --> 0:21:35.560 If we're at twenty one times and the average is fifteen, 0:21:36.000 --> 0:21:38.840 is there a number of foot qu get seriously scared 0:21:38.880 --> 0:21:42.120 and say this has to Tom Belova. Look, I thought 0:21:42.160 --> 0:21:46.360 when the market fell over in two thousand and twenty 0:21:46.640 --> 0:21:49.920 with Covid our market Sorry edition p. Five hundred dropped 0:21:49.920 --> 0:21:52.840 about thirty five percent. That was a very fast drop, 0:21:53.119 --> 0:21:57.359 but recovered very quickly. You mentioned before the downturn in 0:21:57.400 --> 0:22:00.000 two thousand and seven eight, and you mentioned how long 0:22:00.160 --> 0:22:02.760 it took to fall that. I think it went down 0:22:02.800 --> 0:22:06.760 eventually about sixty odd percent. It took until twenty twelve 0:22:06.800 --> 0:22:11.480 to recover. I've noticed too that through the clients who 0:22:11.520 --> 0:22:15.240 we act for, we haven't had a single instance of 0:22:15.320 --> 0:22:19.600 anyone panicking. So it's been people have held their nerve 0:22:19.760 --> 0:22:23.800 generally and recognized the downturns for what they are, typically 0:22:23.920 --> 0:22:29.840 an overreaction to an event, whether it be COVID or 0:22:30.119 --> 0:22:33.840 a housing crisis in the US, or lack of corporate 0:22:33.880 --> 0:22:37.040 profitability and bottom of the harbor in nineteen eighty seven. 0:22:37.640 --> 0:22:39.720 The markets will eventually right themselves. 0:22:39.720 --> 0:22:41.800 And if you look at a chart of say the 0:22:41.880 --> 0:22:43.800 S and P five hundred or the Dow or the 0:22:44.160 --> 0:22:48.560 Australian All Ordinaries Index over the last fifty years, it's 0:22:48.600 --> 0:22:52.680 a very gentle, upwardly sloping line. Yes, there are bumps 0:22:52.680 --> 0:22:55.360 and ticks, but if you go back and look at 0:22:55.359 --> 0:22:58.359 that fifty year chart of the S and P five hundred, 0:22:58.760 --> 0:23:01.800