1 00:00:03,990 --> 00:00:07,530 Sean Aylmer: Welcome to the FEAR & GREED Business Interview. I'm Sean Aylmer. We've talked a 2 00:00:07,530 --> 00:00:10,770 Sean Aylmer: lot recently about small cap stocks and how they've generally 3 00:00:10,770 --> 00:00:13,679 Sean Aylmer: underperformed in the past couple of years. So of course 4 00:00:13,679 --> 00:00:16,169 Sean Aylmer: as we go through reporting season, there's plenty of interest 5 00:00:16,170 --> 00:00:18,329 Sean Aylmer: in these companies, not just for their results, but of 6 00:00:18,360 --> 00:00:21,180 Sean Aylmer: course what lies ahead. I wanted to take a closer 7 00:00:21,180 --> 00:00:24,570 Sean Aylmer: look at small caps today, the opportunities, the risks, and 8 00:00:24,570 --> 00:00:27,150 Sean Aylmer: what to look for. Remember, this is general information only 9 00:00:27,540 --> 00:00:30,660 Sean Aylmer: and you should seek professional advice before making investment decisions. 10 00:00:30,870 --> 00:00:33,929 Sean Aylmer: Roger Montgomery is the founder and Chief Investment Officer of 11 00:00:33,929 --> 00:00:37,530 Sean Aylmer: Montgomery Investment Management, a great friend of us here at 12 00:00:37,530 --> 00:00:39,180 Sean Aylmer: FEAR & GREED. Roger, welcome back. 13 00:00:39,540 --> 00:00:41,519 Roger Montgomery: Thanks, Sean. Great to be with you again. So 14 00:00:41,519 --> 00:00:45,089 Sean Aylmer: Just get some context before we talk about earnings season and 15 00:00:45,090 --> 00:00:49,559 Sean Aylmer: looking ahead, just how poorly have small caps performed relative 16 00:00:49,620 --> 00:00:52,139 Sean Aylmer: to large and mid- size caps over the past couple 17 00:00:52,139 --> 00:00:53,460 Sean Aylmer: of years? What's the starting point? 18 00:00:54,300 --> 00:00:57,420 Roger Montgomery: Well, perhaps the best way to explain it is to 19 00:00:57,480 --> 00:01:03,420 Roger Montgomery: just point out that in 2022 and throughout 2023, the P/ 20 00:01:03,420 --> 00:01:08,548 Roger Montgomery: E ratio, for example, the S&P 600 small caps and the Russell 21 00:01:08,580 --> 00:01:13,080 Roger Montgomery: 2000 was as low as it had been in the 22 00:01:13,080 --> 00:01:18,420 Roger Montgomery: last 25 years. And in fact, the only time it 23 00:01:18,420 --> 00:01:22,110 Roger Montgomery: had been lower was during the very depths of the COVID 24 00:01:22,110 --> 00:01:26,490 Roger Montgomery: crisis just as it began and also during the GFC. 25 00:01:26,940 --> 00:01:30,780 Roger Montgomery: So it was really interesting. I found it interesting because 26 00:01:31,139 --> 00:01:33,060 Roger Montgomery: what we know through history, if you go back all 27 00:01:33,060 --> 00:01:36,569 Roger Montgomery: the way back to the 1970s, is that whenever you 28 00:01:36,569 --> 00:01:41,579 Roger Montgomery: get a combination of disinflation and positive economic growth, and 29 00:01:41,580 --> 00:01:44,639 Roger Montgomery: we've talked about this here on the program before, whenever 30 00:01:44,639 --> 00:01:49,140 Roger Montgomery: you get that combination, then without fail, innovative growth companies 31 00:01:49,140 --> 00:01:53,220 Roger Montgomery: with pricing power have done well. And so this time 32 00:01:53,280 --> 00:01:56,490 Roger Montgomery: last year, I said that it would be a good 33 00:01:56,490 --> 00:02:00,119 Roger Montgomery: year for stocks and particularly for innovative growth stocks of 34 00:02:00,120 --> 00:02:02,880 Roger Montgomery: which there are an ample number in the small cap 35 00:02:02,880 --> 00:02:06,870 Roger Montgomery: universe. What happened was, and part of the reason why 36 00:02:07,170 --> 00:02:08,580 Roger Montgomery: I thought it would be a good year was one, 37 00:02:08,580 --> 00:02:11,400 Roger Montgomery: because that backdrop existed, I didn't think we'd have a 38 00:02:11,400 --> 00:02:15,599 Roger Montgomery: recession and we didn't. We'd have positive economic growth, albeit 39 00:02:15,599 --> 00:02:19,858 Roger Montgomery: anemic, but we would have disinflation and disinflation is distinct 40 00:02:19,860 --> 00:02:26,970 Roger Montgomery: from deflation. Disinflation isn't lower prices. Disinflation is successive lower 41 00:02:26,970 --> 00:02:30,900 Roger Montgomery: rates of inflation, so prices increasing at a slower rate, 42 00:02:31,410 --> 00:02:35,220 Roger Montgomery: and we had that. And so innovative small companies with 43 00:02:35,639 --> 00:02:40,320 Roger Montgomery: growth and pricing power should have done well. They didn't. 44 00:02:40,590 --> 00:02:44,010 Roger Montgomery: In fact, the only innovative companies with pricing power that 45 00:02:44,010 --> 00:02:47,370 Roger Montgomery: did well were the Magnificent Seven, and all the money 46 00:02:47,370 --> 00:02:50,580 Roger Montgomery: flowed into those at the expense of small caps. So 47 00:02:50,580 --> 00:02:54,899 Roger Montgomery: it really was a difficult year for small cap investors. 48 00:02:55,320 --> 00:02:58,350 Roger Montgomery: But I do think that the preconditions for them to 49 00:02:58,350 --> 00:03:02,340 Roger Montgomery: do well still exist. And so I think this year 50 00:03:02,340 --> 00:03:04,080 Roger Montgomery: could be a year where we see many of those 51 00:03:04,080 --> 00:03:08,160 Roger Montgomery: small caps catch up simply because those Magnificent Seven and 52 00:03:08,160 --> 00:03:11,910 Roger Montgomery: other large cap growers have become expensive potentially. 53 00:03:12,929 --> 00:03:16,320 Sean Aylmer: So we're starting at a valuation point which is lower 54 00:03:16,469 --> 00:03:18,720 Sean Aylmer: than what it might normally be, which is always a 55 00:03:18,720 --> 00:03:20,010 Sean Aylmer: good thing when you're an investor. 56 00:03:20,070 --> 00:03:20,459 Roger Montgomery: Indeed. 57 00:03:20,880 --> 00:03:25,169 Sean Aylmer: What about earning season so far? We've had a major 58 00:03:25,169 --> 00:03:27,900 Sean Aylmer: takeover from a company called LTM, which has been great, 59 00:03:27,900 --> 00:03:29,519 Sean Aylmer: but just parking that for a moment. 60 00:03:29,520 --> 00:03:30,750 Roger Montgomery: One that we own, I should say. 61 00:03:30,840 --> 00:03:33,569 Sean Aylmer: Ah, well done. Well done. Because paying like a 33% 62 00:03:33,570 --> 00:03:34,950 Sean Aylmer: premium or something or other on that one. 63 00:03:35,459 --> 00:03:37,350 Roger Montgomery: Which is unusual in the big cap space. 64 00:03:37,440 --> 00:03:42,330 Sean Aylmer: Yeah. Okay. So how has small caps gone so far? Looking 65 00:03:42,330 --> 00:03:44,760 Sean Aylmer: from afar, it looks like some of the small cap 66 00:03:44,760 --> 00:03:47,280 Sean Aylmer: retailers, for example, might've done a little bit better than 67 00:03:47,280 --> 00:03:49,349 Sean Aylmer: we thought. How are you reading it? How have they 68 00:03:49,349 --> 00:03:50,850 Sean Aylmer: gone so far across the sectors? 69 00:03:51,150 --> 00:03:53,849 Roger Montgomery: Yeah, well, we came into it with, well, analysts I 70 00:03:53,850 --> 00:03:57,630 Roger Montgomery: guess, or consensus came into reporting season for retailers with 71 00:03:57,630 --> 00:04:03,059 Roger Montgomery: a pretty bearish disposition, and that appears to have been 72 00:04:03,059 --> 00:04:06,150 Roger Montgomery: a mistake for some companies. Not all, of course, but 73 00:04:06,150 --> 00:04:08,849 Roger Montgomery: certainly the ones that we like and we've talked about 74 00:04:08,849 --> 00:04:11,190 Roger Montgomery: before, and the ones that we think are good quality. 75 00:04:11,670 --> 00:04:15,030 Roger Montgomery: So if we look at companies like the online retailers, 76 00:04:15,030 --> 00:04:19,680 Roger Montgomery: Temple & Webster and Satire, they've really hit the ball out 77 00:04:19,680 --> 00:04:22,710 Roger Montgomery: of the park. And what's more important is that not 78 00:04:22,710 --> 00:04:26,670 Roger Montgomery: only have their numbers been robust and accelerated, their revenue 79 00:04:27,240 --> 00:04:31,349 Roger Montgomery: and EBITDA accelerated in the end of last quarter, so 80 00:04:31,350 --> 00:04:35,190 Roger Montgomery: into November and December. But their outlook statements are really 81 00:04:35,190 --> 00:04:37,950 Roger Montgomery: encouraging as well. And in fact, their trading updates for 82 00:04:37,950 --> 00:04:42,029 Roger Montgomery: January have also been more robust than analysts have thought. 83 00:04:42,450 --> 00:04:44,879 Roger Montgomery: And then if we move away from the online or 84 00:04:44,880 --> 00:04:48,510 Roger Montgomery: the digital retailers into some of the more traditional retailers, 85 00:04:48,540 --> 00:04:53,940 Roger Montgomery: for example, like Nick Scali, they've also done extremely well. 86 00:04:54,270 --> 00:04:56,308 Roger Montgomery: And part of the reason for that, of course, is 87 00:04:56,309 --> 00:04:59,250 Roger Montgomery: that Nick Scali bought Plush, and what's happened is some 88 00:04:59,250 --> 00:05:03,389 Roger Montgomery: of the synergies and scale buying benefits that they said would 89 00:05:03,389 --> 00:05:06,960 Roger Montgomery: come from the purchase of the Plush network have occurred. 90 00:05:06,960 --> 00:05:10,229 Roger Montgomery: And so that's helped with margins. But all in all, 91 00:05:10,230 --> 00:05:13,470 Roger Montgomery: it's actually been a better reporting season, I think, than 92 00:05:13,470 --> 00:05:14,640 Roger Montgomery: what analysts expected. 93 00:05:15,210 --> 00:05:17,279 Sean Aylmer: Okay. I'll move away from the retailers, but just very 94 00:05:17,279 --> 00:05:19,859 Sean Aylmer: quickly, the Nick Scali purchase of Plush, and you said 95 00:05:19,860 --> 00:05:22,440 Sean Aylmer: that they found the synergies. That actually says something for 96 00:05:22,440 --> 00:05:25,799 Sean Aylmer: management because many takeovers you hear about synergies, but they 97 00:05:25,800 --> 00:05:26,790 Sean Aylmer: don't eventuate. 98 00:05:27,360 --> 00:05:31,440 Roger Montgomery: Yeah, that's exactly right. Anthony Scali is without doubt an 99 00:05:31,440 --> 00:05:33,869 Roger Montgomery: excellent merchant. You need a really good merchant in the 100 00:05:33,870 --> 00:05:37,620 Roger Montgomery: retail space, and he's that. And let's not forget, Nick 101 00:05:37,620 --> 00:05:43,260 Roger Montgomery: Scali is the furniture retailer that created a new way 102 00:05:43,260 --> 00:05:46,860 Roger Montgomery: of doing business for furniture retailers in Australia. So it 103 00:05:46,860 --> 00:05:50,370 Roger Montgomery: used to be that you walked into a retail store, 104 00:05:50,910 --> 00:05:53,670 Roger Montgomery: pointed to a sofa or a couch back then, and 105 00:05:53,670 --> 00:05:56,400 Roger Montgomery: then you pick that one up and they take that 106 00:05:56,400 --> 00:05:59,128 Roger Montgomery: off the floor and deliver it right away. And now 107 00:05:59,129 --> 00:06:02,700 Roger Montgomery: it's not unusual, and it's in fact, entirely acceptable to 108 00:06:02,730 --> 00:06:06,030 Roger Montgomery: order a piece of furniture and to wait 6, 12 109 00:06:06,570 --> 00:06:10,620 Roger Montgomery: weeks, even 6 months in some cases. And so he 110 00:06:10,620 --> 00:06:13,169 Roger Montgomery: brought that idea, that just in time inventory system, if 111 00:06:13,170 --> 00:06:15,719 Roger Montgomery: you like, or not even just in time, you'll wait 112 00:06:15,719 --> 00:06:18,448 Roger Montgomery: six months for it. He brought that to Australia, and 113 00:06:18,450 --> 00:06:21,210 Roger Montgomery: that of course meant that they could bring down the 114 00:06:21,210 --> 00:06:24,960 Roger Montgomery: inventory requirements, they could bring down warehousing costs, and it 115 00:06:24,960 --> 00:06:29,340 Roger Montgomery: made the business much more efficient and a more profitable business. 116 00:06:30,000 --> 00:06:31,770 Sean Aylmer: Stay with me, Roger. We'll be back in a minute. 117 00:06:37,890 --> 00:06:40,529 Sean Aylmer: My guest this morning is Roger Montgomery, founder and the 118 00:06:40,529 --> 00:06:45,750 Sean Aylmer: Chief Investment Officer of Montgomery Investment Management. So let's move 119 00:06:45,750 --> 00:06:48,928 Sean Aylmer: away from retailers in the small cap space. Some of 120 00:06:48,928 --> 00:06:51,990 Sean Aylmer: the miners perhaps haven't been so well, particularly the battery 121 00:06:51,990 --> 00:06:53,250 Sean Aylmer: metals companies. 122 00:06:53,880 --> 00:06:57,270 Roger Montgomery: So we don't like to talk about it too much, 123 00:06:57,270 --> 00:07:01,530 Roger Montgomery: but the reality is that there is some pushback now 124 00:07:02,220 --> 00:07:06,809 Roger Montgomery: in the EV space, and while we think that EVs will 125 00:07:06,809 --> 00:07:11,100 Roger Montgomery: ultimately dominate global car fleets, that's not a universal view. 126 00:07:11,789 --> 00:07:14,790 Roger Montgomery: And in fact, the CEO of Toyota, for example, said 127 00:07:14,790 --> 00:07:18,000 Roger Montgomery: that the best that we'll get to is about 30% 128 00:07:18,360 --> 00:07:21,690 Roger Montgomery: of the global fleet being electric. And that's because there's 129 00:07:21,690 --> 00:07:25,860 Roger Montgomery: many places around the world where access to fast charging 130 00:07:25,860 --> 00:07:30,600 Roger Montgomery: stations simply doesn't exist. We've also seen police forces in 131 00:07:30,600 --> 00:07:34,080 Roger Montgomery: colder climates pull back on their purchase of EVs simply 132 00:07:34,080 --> 00:07:38,160 Roger Montgomery: because they're finding them not as reliable in cold temperatures. 133 00:07:38,820 --> 00:07:41,880 Roger Montgomery: And also there's the big news that Hertz, for example, 134 00:07:42,179 --> 00:07:45,599 Roger Montgomery: isn't able to sell it's used car fleet of EVs 135 00:07:45,599 --> 00:07:50,130 Roger Montgomery: and so have canceled very large orders of EV vehicles. 136 00:07:50,520 --> 00:07:53,670 Roger Montgomery: And so that has meant there's some questions that have 137 00:07:53,670 --> 00:07:58,620 Roger Montgomery: arisen amongst investors about how much lithium will be required, 138 00:07:58,620 --> 00:08:02,009 Roger Montgomery: and maybe they're reassessing some of their expectations. But the 139 00:08:02,009 --> 00:08:03,989 Roger Montgomery: good news is that what it means is that the 140 00:08:03,990 --> 00:08:07,740 Roger Montgomery: lithium price drops, stocks in the space sometimes get hammered, 141 00:08:08,280 --> 00:08:11,220 Roger Montgomery: then sometimes that can be an overreaction to the negative 142 00:08:11,220 --> 00:08:14,610 Roger Montgomery: developments, which means that there could still be upside. And the 143 00:08:14,610 --> 00:08:16,590 Roger Montgomery: other news in the resource space, of course, is that 144 00:08:16,920 --> 00:08:20,309 Roger Montgomery: China has slowed down a lot. In fact, there are 145 00:08:20,309 --> 00:08:23,430 Roger Montgomery: some economists who are saying they're in a deflation trap. 146 00:08:23,940 --> 00:08:26,400 Roger Montgomery: And what we do know, for example, is that housing 147 00:08:26,400 --> 00:08:31,140 Roger Montgomery: starts and construction has plunged. We know that local government 148 00:08:31,140 --> 00:08:35,819 Roger Montgomery: funding has plunged as well, and retail is struggling there. 149 00:08:36,090 --> 00:08:40,289 Roger Montgomery: And so the growth expectations for China have been reassessed 150 00:08:40,289 --> 00:08:43,708 Roger Montgomery: lower, and that means that demand for many of our 151 00:08:43,710 --> 00:08:45,300 Roger Montgomery: raw materials has dropped as well. 152 00:08:45,809 --> 00:08:48,090 Sean Aylmer: Okay. Let's move into the ... Am I allowed to put 153 00:08:48,090 --> 00:08:50,549 Sean Aylmer: telcos and utilities together? I'm going to, whether I'm allowed 154 00:08:50,550 --> 00:08:53,160 Sean Aylmer: to or not. Aussie Broadband is the one that you 155 00:08:53,250 --> 00:08:54,149 Sean Aylmer: quite like, isn't it? 156 00:08:54,780 --> 00:08:58,289 Roger Montgomery: Well, we like a lot of the businesses in communications 157 00:08:58,289 --> 00:09:02,610 Roger Montgomery: and in cloud storage, so we've been big fans of 158 00:09:02,610 --> 00:09:04,679 Roger Montgomery: that theme for a long time. Our small cap team, 159 00:09:04,679 --> 00:09:07,708 Roger Montgomery: Gary Rollo and Dominic Rose, that really has been a 160 00:09:07,710 --> 00:09:10,588 Roger Montgomery: day one theme for the Montgomery Small Companies Fund when 161 00:09:10,590 --> 00:09:14,549 Roger Montgomery: they launched that. And we're seeing some good news in 162 00:09:14,549 --> 00:09:18,780 Roger Montgomery: that space. So Megaport for example, it's a business that provides, if 163 00:09:18,780 --> 00:09:23,819 Roger Montgomery: you like, the connections between data centers. So if you've 164 00:09:23,820 --> 00:09:26,880 Roger Montgomery: got a global business, you're a legal firm for example, 165 00:09:26,880 --> 00:09:28,620 Roger Montgomery: or any other business for that matter, and you've got 166 00:09:29,010 --> 00:09:33,389 Roger Montgomery: head offices all around the world, but you've got one 167 00:09:33,389 --> 00:09:35,849 Roger Montgomery: network that you're trying to connect to or one system 168 00:09:35,850 --> 00:09:38,760 Roger Montgomery: of data and documents that you're trying to all connect 169 00:09:38,760 --> 00:09:42,300 Roger Montgomery: to, to have the fastest access, you really need to 170 00:09:42,300 --> 00:09:45,150 Roger Montgomery: use a data center that's very close to your offices. 171 00:09:45,780 --> 00:09:48,179 Roger Montgomery: But how do you connect them all together? And the 172 00:09:48,179 --> 00:09:52,289 Roger Montgomery: infrastructure that connects those together as provided by Megaport. So 173 00:09:52,289 --> 00:09:54,718 Roger Montgomery: we've really liked that business for a very long time, 174 00:09:55,080 --> 00:09:58,140 Roger Montgomery: and it surprised the market with some very good news 175 00:09:58,140 --> 00:10:00,660 Roger Montgomery: and share price shot up. I think in one day 176 00:10:00,660 --> 00:10:02,880 Roger Montgomery: it was up at one point, about 30% in a 177 00:10:02,880 --> 00:10:07,858 Roger Montgomery: day. And then another one that we like is Macquarie Technology, used 178 00:10:07,860 --> 00:10:11,519 Roger Montgomery: to be Macquarie Telecoms Group. They have a data center 179 00:10:12,119 --> 00:10:15,449 Roger Montgomery: in the Epping area or Macquarie Park area of Sydney, 180 00:10:15,900 --> 00:10:18,809 Roger Montgomery: and they've been expanding that and filling it very, very 181 00:10:18,809 --> 00:10:23,729 Roger Montgomery: quickly with tier one, real tier, one mega sized technology 182 00:10:23,730 --> 00:10:26,609 Roger Montgomery: businesses as well as the Government Defense Force, the Australian 183 00:10:26,610 --> 00:10:29,850 Roger Montgomery: Taxation Office, and so on. So very high quality business, 184 00:10:29,850 --> 00:10:32,670 Roger Montgomery: and I think people are starting to understand that these 185 00:10:32,670 --> 00:10:36,570 Roger Montgomery: businesses are indeed very high quality with a great tailwind 186 00:10:36,570 --> 00:10:37,050 Roger Montgomery: behind them. 187 00:10:37,800 --> 00:10:40,439 Sean Aylmer: When you're thinking about companies like that, Macquarie Technology is 188 00:10:40,440 --> 00:10:44,760 Sean Aylmer: an example that's had a CEO that's been there for a long, long time. 189 00:10:45,240 --> 00:10:47,429 Sean Aylmer: How much does that matter? The fact that they've got ... 190 00:10:47,580 --> 00:10:50,578 Sean Aylmer: I mean, Richard White's the obvious large cap example with 191 00:10:50,580 --> 00:10:53,490 Sean Aylmer: WiseTech, but how much does it matter that you've got 192 00:10:53,490 --> 00:10:55,320 Sean Aylmer: a person who's got a lot of skin in the 193 00:10:55,320 --> 00:10:57,540 Sean Aylmer: game and experience? 194 00:10:58,440 --> 00:11:00,958 Roger Montgomery: Well, the fact that they're not diversifying away from their 195 00:11:00,960 --> 00:11:03,780 Roger Montgomery: businesses, they're saying, " You know what? The most money that I can 196 00:11:03,780 --> 00:11:06,480 Roger Montgomery: make is to have the bulk of my wealth in 197 00:11:06,480 --> 00:11:08,728 Roger Montgomery: this company that I'm in charge of and I'm running." 198 00:11:08,730 --> 00:11:11,550 Roger Montgomery: And by the way, the thematic is really good. I 199 00:11:11,550 --> 00:11:13,710 Roger Montgomery: can see the business doing well. I can see that 200 00:11:14,309 --> 00:11:16,978 Roger Montgomery: customers are signing up. I can see that when we 201 00:11:17,370 --> 00:11:19,620 Roger Montgomery: run out of space, we'll be able to charge more 202 00:11:19,620 --> 00:11:23,250 Roger Montgomery: as well and raise our prices. That's testament not only 203 00:11:23,250 --> 00:11:27,180 Roger Montgomery: to our thesis, but also to their belief in themselves. 204 00:11:27,600 --> 00:11:31,410 Sean Aylmer: Yeah. Okay, we're out of time. Any other particular small 205 00:11:31,410 --> 00:11:33,270 Sean Aylmer: cap that's worth a mention to keep an eye on 206 00:11:33,510 --> 00:11:35,820 Sean Aylmer: in the next 6 months, 12 months post earnings season? 207 00:11:36,450 --> 00:11:42,150 Roger Montgomery: Look, I think one definitely off pieced opportunity that might 208 00:11:42,150 --> 00:11:44,340 Roger Montgomery: be worth watching this year, don't go out and buy 209 00:11:44,340 --> 00:11:47,100 Roger Montgomery: it because who knows how it's going to go, but 210 00:11:47,100 --> 00:11:50,010 Roger Montgomery: it's a theme that's worth watching in January this year, 211 00:11:50,010 --> 00:11:53,250 Roger Montgomery: and it's a global idea. But in January this year, 212 00:11:53,250 --> 00:11:57,088 Roger Montgomery: what we saw as the SEC in the United States approve 213 00:11:57,750 --> 00:12:02,550 Roger Montgomery: the listing of ETFs that are backed by Spot Bitcoin. 214 00:12:03,000 --> 00:12:05,610 Roger Montgomery: Now, you might think, " Oh my gosh, this is ridiculous. 215 00:12:05,610 --> 00:12:07,410 Roger Montgomery: What on earth is Roger talking about? Isn't he a 216 00:12:07,410 --> 00:12:12,870 Roger Montgomery: quality value investor?" That is true. And I'm not saying 217 00:12:12,870 --> 00:12:15,389 Roger Montgomery: that Bitcoin has a fundamental value. I don't think it's 218 00:12:15,389 --> 00:12:17,758 Roger Montgomery: a store of value, it doesn't have an industrial use, 219 00:12:17,760 --> 00:12:19,108 Roger Montgomery: and I don't think it's going to ever be a 220 00:12:19,110 --> 00:12:23,820 Roger Montgomery: reserve currency. But here's the interesting thesis. Once the SEC 221 00:12:24,270 --> 00:12:29,459 Roger Montgomery: approved those ETFs, what immediately happened is 10 have or 222 00:12:29,460 --> 00:12:31,770 Roger Montgomery: 11 have now listed just in the last 4 weeks. 223 00:12:32,190 --> 00:12:36,750 Roger Montgomery: And the biggest of the new lot is a BlackRock 224 00:12:36,958 --> 00:12:40,559 Roger Montgomery: Bitcoin backed ETF. Now, what's happening is billions of dollars 225 00:12:40,559 --> 00:12:43,228 Roger Montgomery: are flowing into these, and in fact, about a billion 226 00:12:43,230 --> 00:12:45,690 Roger Montgomery: dollars a week of net inflows are going into these 227 00:12:46,349 --> 00:12:50,250 Roger Montgomery: ETFs. And when money flows into those ETFs, they have 228 00:12:50,250 --> 00:12:52,139 Roger Montgomery: to do something. And what they have to do is 229 00:12:52,139 --> 00:12:55,650 Roger Montgomery: they have to buy Bitcoin. So you find money's flowing 230 00:12:55,650 --> 00:12:59,880 Roger Montgomery: into the ETF, they're forced to buy Bitcoin, Bitcoin goes up, and guess what? More money 231 00:12:59,880 --> 00:13:02,848 Roger Montgomery: flows into the ETF because Bitcoin is going up. Now, 232 00:13:02,849 --> 00:13:04,530 Roger Montgomery: I don't know where this ends and I don't know 233 00:13:04,530 --> 00:13:06,270 Roger Montgomery: how long it goes for, but what I do know 234 00:13:06,270 --> 00:13:11,369 Roger Montgomery: is this is precisely how bubbles are formed, and so I think FOMO, 235 00:13:11,910 --> 00:13:14,220 Roger Montgomery: the fear of missing out will eventually take over again. 236 00:13:14,220 --> 00:13:17,370 Roger Montgomery: We could see a bubble form in these ETFs and 237 00:13:17,370 --> 00:13:23,429 Roger Montgomery: in the price of Bitcoin. And so it's a highly speculative, highly risky idea, but 238 00:13:23,429 --> 00:13:25,860 Roger Montgomery: it's an idea that at the moment is small cap 239 00:13:25,860 --> 00:13:29,429 Roger Montgomery: or micro cap and global, and an interesting one to watch. 240 00:13:30,359 --> 00:13:33,090 Sean Aylmer: Yes. Wasn't it Warren Buffet or someone who lives by 241 00:13:33,090 --> 00:13:35,400 Sean Aylmer: the theory, " You only invest in stuff that you understand." 242 00:13:35,400 --> 00:13:37,290 Sean Aylmer: And I'm afraid I don't understand cryptos. 243 00:13:37,410 --> 00:13:41,910 Roger Montgomery: No. Look, I think the blockchain is something that will be transformative, 244 00:13:41,910 --> 00:13:44,400 Roger Montgomery: and I just think it's a mistake to ... I think 245 00:13:44,849 --> 00:13:48,419 Roger Montgomery: it's distracting that people are trading these currencies, but nevertheless, 246 00:13:48,420 --> 00:13:51,300 Roger Montgomery: the money that will flow into these ETFs as more 247 00:13:51,300 --> 00:13:54,480 Roger Montgomery: and more people realize they exist will probably push the 248 00:13:54,480 --> 00:13:55,380 Roger Montgomery: Bitcoin price up. 249 00:13:56,070 --> 00:13:57,839 Sean Aylmer: Roger, thank you for talking to FEAR & GREED. 250 00:13:58,230 --> 00:13:59,790 Roger Montgomery: Always a pleasure. Good to talk with you, Sean. 251 00:14:00,210 --> 00:14:03,059 Sean Aylmer: That was Roger Montgomery, founder and Chief Investment Officer of 252 00:14:03,059 --> 00:14:10,920 Sean Aylmer: Montgomery Investment Management. For more information, visit montinvest. com. That's M- O- N- T- I- N- V- E- S- 253 00:14:10,920 --> 00:14:15,240 Sean Aylmer: T, montinvest. com. This is the FEAR & GREED Business Interview. 254 00:14:15,240 --> 00:14:18,120 Sean Aylmer: Remember, this is general information only, and you should always 255 00:14:18,120 --> 00:14:21,240 Sean Aylmer: seek professional advice before making investment decisions. Join us every 256 00:14:21,240 --> 00:14:24,299 Sean Aylmer: morning for the full episode of FEAR & GREED, Australia's best 257 00:14:24,300 --> 00:14:27,180 Sean Aylmer: business podcast. I'm Sean Aylmer. Have a great day.