1 00:00:06,080 --> 00:00:08,280 Speaker 1: Welcome to Fear and Greed Q and A, where we 2 00:00:08,320 --> 00:00:12,039 Speaker 1: ask and answer questions about business, investing, economics, politics and more. 3 00:00:12,119 --> 00:00:14,560 Speaker 1: I'm Michael Thompson, and good morning Sean Aylmer. 4 00:00:14,880 --> 00:00:15,960 Speaker 2: Good morning Michael. 5 00:00:16,600 --> 00:00:20,840 Speaker 1: Yesterday Sean Commonwealth Bank was sold off big time. It 6 00:00:20,960 --> 00:00:23,560 Speaker 1: tumbled I think was six point six percent in the end, 7 00:00:23,720 --> 00:00:26,800 Speaker 1: despite making two point six billion dollars in the first 8 00:00:26,840 --> 00:00:29,760 Speaker 1: three months of this financial year. It grew its home lending, 9 00:00:30,440 --> 00:00:34,120 Speaker 1: it grew its household deposits, but it was still hammered 10 00:00:34,400 --> 00:00:38,960 Speaker 1: by investors. Now, we've talked for a very long time 11 00:00:39,360 --> 00:00:43,839 Speaker 1: about Commonwealth Bank being very, very expensive, and this is 12 00:00:43,880 --> 00:00:46,760 Speaker 1: not investment advice. This is just me being curious about 13 00:00:46,800 --> 00:00:48,720 Speaker 1: kind of the reasons why people do this. And you 14 00:00:48,720 --> 00:00:51,960 Speaker 1: should speak to a professional before you get investment, to 15 00:00:52,000 --> 00:00:54,720 Speaker 1: get investment advice, before we make decisions. But my question 16 00:00:54,760 --> 00:00:58,320 Speaker 1: for you today, Sean, is we had been talking about 17 00:00:58,360 --> 00:01:00,600 Speaker 1: this for a long time. Was this sell off in 18 00:01:00,640 --> 00:01:02,320 Speaker 1: Commonwealth Bank inevitable? 19 00:01:03,440 --> 00:01:08,200 Speaker 2: Well, it is certainly the most expensive bank. At the 20 00:01:08,319 --> 00:01:11,960 Speaker 2: risk of boring you, Michael, a little finance listen, I'm 21 00:01:12,000 --> 00:01:15,160 Speaker 2: going to try and turn finance into English, Okay, go on, 22 00:01:15,640 --> 00:01:20,240 Speaker 2: So a way of measuring whether a company is expensive 23 00:01:20,400 --> 00:01:24,000 Speaker 2: or not is to look at its price to earnings ratio, 24 00:01:25,080 --> 00:01:27,320 Speaker 2: so it's a measure of the value of the company's shares. 25 00:01:29,240 --> 00:01:32,920 Speaker 2: You calculate the price to earnings or PE ratio by 26 00:01:32,920 --> 00:01:37,160 Speaker 2: dividing the share price of a company by its earnings 27 00:01:37,319 --> 00:01:40,800 Speaker 2: per share, So that's it's total earnings divided by all 28 00:01:40,840 --> 00:01:43,840 Speaker 2: those shares on issue. So if a company is, you know, 29 00:01:44,000 --> 00:01:48,760 Speaker 2: fourteen bucks earnings per share dollar twelve have the last 30 00:01:48,760 --> 00:01:52,720 Speaker 2: twelve months, let's say the PE ratio for that is 31 00:01:52,760 --> 00:01:57,320 Speaker 2: fourteen dollars on a dollar twelve twelve point five, So 32 00:01:57,440 --> 00:02:03,680 Speaker 2: that's the background. Commonwealth Bank its PE ratio is twenty 33 00:02:03,720 --> 00:02:08,880 Speaker 2: eight twenty nine times earnings. Wow, A and Z it's 34 00:02:08,919 --> 00:02:13,400 Speaker 2: about seventeen times earnings. Westpac and National Australia Bank are 35 00:02:13,400 --> 00:02:18,280 Speaker 2: more nineteen twenty times earnings. Now, if you think all 36 00:02:18,360 --> 00:02:21,400 Speaker 2: the major banks are kind of the same, right, so 37 00:02:21,840 --> 00:02:24,080 Speaker 2: they're all going to be giving taking deposits, They're all 38 00:02:24,120 --> 00:02:26,840 Speaker 2: going to be giving home loans and business loans. Some 39 00:02:26,919 --> 00:02:29,480 Speaker 2: will do better on costs, some will do better on tech. 40 00:02:30,080 --> 00:02:33,520 Speaker 2: But broadly, if the economy is growing, the banks grow, 41 00:02:34,520 --> 00:02:38,480 Speaker 2: then how do you distinguish between A and Z and 42 00:02:38,639 --> 00:02:41,480 Speaker 2: Commonwealth Bank. Well, one way is that ain Z is 43 00:02:41,639 --> 00:02:45,000 Speaker 2: much much cheaper than Commonwealth Bank. And what we've seen 44 00:02:45,120 --> 00:02:47,840 Speaker 2: over the past few months is all these bank analysts saying, well, 45 00:02:48,040 --> 00:02:50,040 Speaker 2: come off Bank at twenty nine times earnings compared to 46 00:02:50,040 --> 00:02:53,040 Speaker 2: A and ZED at seventeen times earnings, or common Wealth 47 00:02:53,080 --> 00:02:56,720 Speaker 2: Bank really needs to be outperforming the market to actually 48 00:02:56,840 --> 00:03:01,760 Speaker 2: justify that premium price you mentioned yesterday. I think it 49 00:03:01,840 --> 00:03:07,200 Speaker 2: was in the home lending market and in deposits they 50 00:03:07,200 --> 00:03:09,560 Speaker 2: were better than the market, but they're only slightly better 51 00:03:09,600 --> 00:03:12,600 Speaker 2: than the market. And so analysts are looking at that 52 00:03:12,600 --> 00:03:14,440 Speaker 2: and saying, well, we think they should be a lot 53 00:03:14,440 --> 00:03:16,200 Speaker 2: better than the market, but they're only slightly better than 54 00:03:16,240 --> 00:03:19,720 Speaker 2: the market. Therefore we're going to sell off. This isn't 55 00:03:19,880 --> 00:03:23,560 Speaker 2: just a bank thing either, Michael. It goes into all 56 00:03:23,639 --> 00:03:25,200 Speaker 2: the sectors. So if you look at the miners, right, 57 00:03:25,280 --> 00:03:29,040 Speaker 2: the big three miners BHP, Rio tinto Ford Sq Metals 58 00:03:29,040 --> 00:03:34,200 Speaker 2: Group YEP, BHP always trades at a premium to RIO, 59 00:03:34,280 --> 00:03:37,120 Speaker 2: which is at a premium to FOURD to Skew Metals. Now, 60 00:03:37,200 --> 00:03:40,760 Speaker 2: if you think about what that means, all share prices 61 00:03:40,840 --> 00:03:45,080 Speaker 2: reflect future earnings, and so what people are saying is 62 00:03:45,120 --> 00:03:48,640 Speaker 2: that b OR investors are saying, is that overall BHP 63 00:03:50,320 --> 00:03:55,120 Speaker 2: going forward is going to do better than Rio or 64 00:03:55,200 --> 00:03:58,000 Speaker 2: Ford to skew, Commonwealth Bank going forward is going to 65 00:03:58,000 --> 00:04:02,120 Speaker 2: do better than the other three big banks. Question is 66 00:04:02,160 --> 00:04:05,800 Speaker 2: whether they do or don't. Some sectors have really big 67 00:04:06,040 --> 00:04:09,400 Speaker 2: price to earnings multiple. You've got one guess, because when 68 00:04:09,440 --> 00:04:11,840 Speaker 2: we're talking about growth, we're talking about forward, which of 69 00:04:11,840 --> 00:04:13,800 Speaker 2: the boom companies in the future. Do you know which 70 00:04:13,840 --> 00:04:18,200 Speaker 2: sector that might comprise? Michael, I'm looking at you, and 71 00:04:18,200 --> 00:04:18,839 Speaker 2: you're looking at me. 72 00:04:19,160 --> 00:04:20,440 Speaker 1: Well, I was going to say tech. 73 00:04:20,880 --> 00:04:24,120 Speaker 2: Yeah, so tech stocks trade on a much higher price 74 00:04:24,200 --> 00:04:29,480 Speaker 2: to earnings multiple than most other sectors. You probably won't 75 00:04:29,480 --> 00:04:34,520 Speaker 2: know this one, but on trying low low multiples, what 76 00:04:34,680 --> 00:04:37,000 Speaker 2: sectors would have a really there's one sector that has 77 00:04:37,000 --> 00:04:40,640 Speaker 2: a particularly low multiple, and there's any sensible reason for it. 78 00:04:41,640 --> 00:04:45,960 Speaker 2: Property No, orthough probably doesn't because there's lots of debt 79 00:04:45,960 --> 00:04:48,960 Speaker 2: in property, so they dont team to have particularly higher multiple. 80 00:04:49,360 --> 00:04:53,960 Speaker 2: Coal miners because oh the whole minersific. Yeah, it is 81 00:04:54,080 --> 00:04:57,120 Speaker 2: very specific, but because the future of coal in ten 82 00:04:57,200 --> 00:05:01,680 Speaker 2: or twenty years ain't great, okay, And therefore what these 83 00:05:01,720 --> 00:05:04,800 Speaker 2: price to earnings multiples do reflect is the potential for 84 00:05:04,880 --> 00:05:08,640 Speaker 2: these companies. And so if you think of like Karoon 85 00:05:08,800 --> 00:05:13,480 Speaker 2: Energy and Yend Coal and New Hope white Haven Coal, 86 00:05:13,920 --> 00:05:16,520 Speaker 2: they actually trade on some of the lowest pees on 87 00:05:16,560 --> 00:05:19,720 Speaker 2: the ASEX two one hundred. Yeah, because the potential is 88 00:05:19,760 --> 00:05:20,120 Speaker 2: not there. 89 00:05:20,880 --> 00:05:23,200 Speaker 1: Okay, if we can bring it back to Commonwealth's Bank 90 00:05:23,240 --> 00:05:24,680 Speaker 1: then for a minute, because. 91 00:05:24,400 --> 00:05:25,880 Speaker 2: I know I want to talk about woolies and coals, 92 00:05:25,880 --> 00:05:27,320 Speaker 2: can't I come on? Okays? 93 00:05:27,320 --> 00:05:27,800 Speaker 1: Which ones? 94 00:05:27,880 --> 00:05:30,360 Speaker 2: We guess which one's more expensive? Lot of pe multiple? 95 00:05:30,360 --> 00:05:31,320 Speaker 2: Which is more expensive? 96 00:05:32,200 --> 00:05:32,760 Speaker 1: Woolies? 97 00:05:33,120 --> 00:05:36,520 Speaker 2: Yeah? Yeah, I mean, and we talk about Cole's catching up, 98 00:05:36,800 --> 00:05:40,880 Speaker 2: but the market has still priced in a premium for woolies. Anyway, 99 00:05:40,880 --> 00:05:42,920 Speaker 2: back to Commonwealth Bank, I just I just knew that's 100 00:05:42,920 --> 00:05:43,720 Speaker 2: how I wanted to turn you with. 101 00:05:44,520 --> 00:05:46,600 Speaker 1: That's fine, just needed to show off a little bit 102 00:05:46,600 --> 00:05:48,920 Speaker 1: more knowledge. Is if you hadn't already shown off enough. 103 00:05:49,680 --> 00:05:57,359 Speaker 1: No on Commonwealth Bank though, is it? Because there have 104 00:05:57,440 --> 00:06:01,320 Speaker 1: been expectations that it would have to to almost correct. 105 00:06:02,160 --> 00:06:04,480 Speaker 1: A lot of analysts have been talking about how expensive 106 00:06:04,520 --> 00:06:07,840 Speaker 1: it has been for so long and that they were 107 00:06:07,880 --> 00:06:11,280 Speaker 1: saying it's how can it possibly just keep on going? 108 00:06:12,040 --> 00:06:15,520 Speaker 1: Is it? Where does that leave investors, right, and there 109 00:06:15,520 --> 00:06:18,520 Speaker 1: are so many investors that essentially have to hold Commonwealth 110 00:06:18,520 --> 00:06:20,520 Speaker 1: Bank shares, whether it's through they're super or whether it's 111 00:06:20,520 --> 00:06:22,360 Speaker 1: through a fund that tracks the performance of the market, 112 00:06:22,360 --> 00:06:24,720 Speaker 1: because it is the biggest company on the burs Is 113 00:06:24,760 --> 00:06:27,560 Speaker 1: it bad news for investors who have to hold these 114 00:06:27,560 --> 00:06:31,120 Speaker 1: companies when they are kind of price to perfection and 115 00:06:31,400 --> 00:06:34,440 Speaker 1: anything at all could see the share price dip. 116 00:06:34,839 --> 00:06:38,679 Speaker 2: You've sort of answering your question in the question because 117 00:06:38,839 --> 00:06:41,120 Speaker 2: passive investing is one of the reasons Commonwealth Bank has 118 00:06:41,160 --> 00:06:44,599 Speaker 2: done so well. Right, do you buy an index of 119 00:06:45,400 --> 00:06:48,000 Speaker 2: the ASEX two hundred because Commonwealth Bank's such a big 120 00:06:48,040 --> 00:06:52,159 Speaker 2: waiting it just remains that waiting, so it goes with 121 00:06:52,240 --> 00:06:55,440 Speaker 2: the market at the very least overseas. Remember we talked 122 00:06:55,440 --> 00:06:59,479 Speaker 2: about overseas fund managers buying into Australia. Well they don't 123 00:06:59,520 --> 00:07:01,520 Speaker 2: really care the new once well they probably do care, 124 00:07:01,560 --> 00:07:03,880 Speaker 2: but the nuances of Commonwealth Bank versay and said, well, 125 00:07:03,880 --> 00:07:06,960 Speaker 2: Commonwealth Bank's a big one market leader, let's buy into that. 126 00:07:07,760 --> 00:07:11,000 Speaker 2: So in a sense it's kind of a victim of 127 00:07:11,040 --> 00:07:15,560 Speaker 2: its own success that's helped its share price keep rising. 128 00:07:16,280 --> 00:07:20,680 Speaker 2: But in the longer term, does Commonwealth Bank continue to 129 00:07:20,680 --> 00:07:23,280 Speaker 2: outperform the other banks quite as much as it has. 130 00:07:24,200 --> 00:07:27,720 Speaker 2: It's hard to say yes to that. Like you think 131 00:07:27,800 --> 00:07:32,520 Speaker 2: that it probably will come back to the pack at 132 00:07:32,520 --> 00:07:35,200 Speaker 2: some point now, you know, that's what analysts have said, 133 00:07:36,320 --> 00:07:39,640 Speaker 2: that's why they've got cells on it and or sell 134 00:07:39,680 --> 00:07:43,680 Speaker 2: recommendations on it. But it hasn't really happened yet. And 135 00:07:44,200 --> 00:07:46,920 Speaker 2: you know, to its credit, the Commonwealth Bank has been 136 00:07:46,960 --> 00:07:49,440 Speaker 2: the best performing bank in this country, not just on 137 00:07:49,480 --> 00:07:52,400 Speaker 2: a share price but on a day to day operations 138 00:07:52,800 --> 00:07:56,040 Speaker 2: for a number of years. So it's justified is premium, 139 00:07:56,320 --> 00:07:57,760 Speaker 2: but I'm not sure that it keeps going. 140 00:08:00,520 --> 00:08:03,840 Speaker 1: You mentioned tech stocks, and you mentioned the US before. 141 00:08:05,520 --> 00:08:08,760 Speaker 1: When we're talking about something being priced to perfection, and 142 00:08:08,960 --> 00:08:12,640 Speaker 1: as we saw the with Commonwealth Banks results yesterday when 143 00:08:12,800 --> 00:08:15,440 Speaker 1: they weren't they weren't actually a bad set of results, 144 00:08:16,080 --> 00:08:18,680 Speaker 1: and they got hammered. Is this like what we see 145 00:08:18,720 --> 00:08:22,040 Speaker 1: with Nvidia in the US where the performance can be 146 00:08:22,200 --> 00:08:27,840 Speaker 1: fantastic by kind of fairly objective standards, but it gets 147 00:08:27,920 --> 00:08:34,840 Speaker 1: sold off because it doesn't entirely exceed all expectations, where 148 00:08:34,600 --> 00:08:37,200 Speaker 1: there are just so many expectations, or it is just 149 00:08:37,320 --> 00:08:41,160 Speaker 1: it is priced so far beyond kind of perhaps where 150 00:08:41,160 --> 00:08:44,280 Speaker 1: it should be that if you don't completely blow the 151 00:08:44,360 --> 00:08:46,560 Speaker 1: lights out, shoot the lights out and blow the doors off, 152 00:08:46,920 --> 00:08:48,840 Speaker 1: that it's going to be sold off. 153 00:08:49,400 --> 00:08:53,040 Speaker 2: So if the doors are still on their hinges, maybe 154 00:08:53,080 --> 00:08:56,160 Speaker 2: there's a point. But remember most of the moves after 155 00:08:56,320 --> 00:08:59,080 Speaker 2: earnings or a quarterly earnings like common Wealth Bank yesterday, 156 00:08:59,400 --> 00:09:04,000 Speaker 2: reflect what the boss says. So the CEO of Matt 157 00:09:04,080 --> 00:09:06,360 Speaker 2: Common he came out and he just said, there's a 158 00:09:06,360 --> 00:09:08,760 Speaker 2: lot of competition in the market. We might have to 159 00:09:08,800 --> 00:09:14,040 Speaker 2: adjust things to remain competitive. And analy's went, oh, I'm 160 00:09:14,080 --> 00:09:15,920 Speaker 2: going to read between the lines and then under the 161 00:09:15,920 --> 00:09:18,080 Speaker 2: lines and then between the between the between the lines. 162 00:09:18,559 --> 00:09:22,960 Speaker 2: Maybe that's not so good, n vidiot. I mean, their 163 00:09:22,960 --> 00:09:27,240 Speaker 2: results are phenomenal, but Jensen Huang sort of talks about 164 00:09:27,280 --> 00:09:31,760 Speaker 2: the issue of China and chips in China and China 165 00:09:31,800 --> 00:09:36,760 Speaker 2: winning the AI race. Well, that's kind of forecast from 166 00:09:36,800 --> 00:09:39,560 Speaker 2: the CEO of this massive company. Analysts don't like that. 167 00:09:39,559 --> 00:09:43,559 Speaker 2: That actually sounds bad. Jenson Haig might have had an 168 00:09:43,679 --> 00:09:45,680 Speaker 2: argument that he was trying to make to Donald Trump 169 00:09:46,040 --> 00:09:50,920 Speaker 2: rather than investors in that instance, who knows, but investors 170 00:09:50,960 --> 00:09:54,000 Speaker 2: don't like hearing that. And so mostly the sell off 171 00:09:54,120 --> 00:09:57,360 Speaker 2: about not so much the result on the day, but 172 00:09:57,440 --> 00:09:59,400 Speaker 2: what the manager says looking forward. 173 00:10:00,000 --> 00:10:03,480 Speaker 1: All right, as we say, Sean, it is definitely wise 174 00:10:03,559 --> 00:10:07,520 Speaker 1: to get advice, professional advice before making investment decisions. But 175 00:10:07,600 --> 00:10:11,199 Speaker 1: hopefully there's just a bit of understanding. I think you 176 00:10:11,280 --> 00:10:13,280 Speaker 1: put things into play in English quite well. 177 00:10:13,880 --> 00:10:15,760 Speaker 2: Oh, thank you as a compliment. 178 00:10:15,920 --> 00:10:17,760 Speaker 1: It certainly was intended as one. It was probably a 179 00:10:17,760 --> 00:10:21,120 Speaker 1: little bit more lackluster than I'd wanted it to be. 180 00:10:22,520 --> 00:10:24,480 Speaker 1: I thought you did a great job there, Sean. How 181 00:10:24,840 --> 00:10:25,240 Speaker 1: that better? 182 00:10:25,720 --> 00:10:26,720 Speaker 2: Yea much better? 183 00:10:26,880 --> 00:10:27,680 Speaker 1: Thank you very much. 184 00:10:28,120 --> 00:10:28,760 Speaker 2: Thanks Michael. 185 00:10:28,800 --> 00:10:30,280 Speaker 1: And now if you've got a question that you'd like 186 00:10:30,360 --> 00:10:33,679 Speaker 1: us to tackle, send it. When I say us, realistically, 187 00:10:33,760 --> 00:10:35,280 Speaker 1: I'm going to put it to Sean and he's going 188 00:10:35,320 --> 00:10:36,960 Speaker 1: to do the tackling, and I'll ask him a couple 189 00:10:36,960 --> 00:10:38,520 Speaker 1: of follow up questions in a way we go. But 190 00:10:38,559 --> 00:10:41,640 Speaker 1: send it through on LinkedIn, Instagram, Facebook, or at Fearangreed 191 00:10:41,640 --> 00:10:42,440 Speaker 1: dot com dot au. 192 00:10:42,559 --> 00:10:43,440 Speaker 2: I'm Michael Thompson 193 00:10:43,480 --> 00:10:44,920 Speaker 1: And this is Fear and Greed Q and a