1 00:00:05,680 --> 00:00:08,399 Speaker 1: Welcome to Fear and Greed. Some are investing series brought 2 00:00:08,440 --> 00:00:11,800 Speaker 1: to you by vantas specialist in compliance led growth. I'm 3 00:00:11,840 --> 00:00:14,640 Speaker 1: Sean Almer. One of the key themes for markets and 4 00:00:14,680 --> 00:00:19,560 Speaker 1: businesses more broadly has been the rise of AI artificial intelligence. 5 00:00:19,760 --> 00:00:22,560 Speaker 1: But there are winners and losers in every market, so 6 00:00:22,640 --> 00:00:25,599 Speaker 1: which companies are thriving and which ones are most at risk? 7 00:00:25,880 --> 00:00:28,319 Speaker 1: As always, this is general information only, and you should 8 00:00:28,320 --> 00:00:32,440 Speaker 1: seek independent advice before making investment decisions. Roger Montgomery is 9 00:00:32,479 --> 00:00:36,840 Speaker 1: the founder and chief investment officer of Montgomery Investment Management. Roger, 10 00:00:36,920 --> 00:00:38,040 Speaker 1: Welcome back to Fear and Greed. 11 00:00:38,360 --> 00:00:39,040 Speaker 2: Great to be with you. 12 00:00:39,080 --> 00:00:43,680 Speaker 1: Sean II is reshaving the world, well, whole industries in it, 13 00:00:43,760 --> 00:00:44,440 Speaker 1: isn't it, Roger? 14 00:00:44,960 --> 00:00:47,400 Speaker 2: It sure is. In fact, some people are describing it 15 00:00:47,440 --> 00:00:52,160 Speaker 2: as the fourth Industrial Revolution. So I'll summarize it very quickly. 16 00:00:52,200 --> 00:00:55,240 Speaker 2: The first one was in the late seventeen hundreds, and 17 00:00:55,240 --> 00:00:57,520 Speaker 2: that was the steam engine. The second one was in 18 00:00:57,640 --> 00:01:00,800 Speaker 2: the late eighteen hundreds and that was a electricity. Then 19 00:01:00,840 --> 00:01:04,600 Speaker 2: we had it from nineteen seventy onwards, and now since 20 00:01:04,600 --> 00:01:07,560 Speaker 2: about twenty ten, you know, we've really had an acceleration 21 00:01:07,680 --> 00:01:13,280 Speaker 2: in the Internet of Things, big data, automation, machine learning, 22 00:01:13,400 --> 00:01:15,640 Speaker 2: fuzzy logic, all of those sorts of things. And AI 23 00:01:15,840 --> 00:01:19,840 Speaker 2: is the latest, I guess, the latest and greatest version 24 00:01:19,920 --> 00:01:23,720 Speaker 2: of that fourth Industrial Revolution. It's had a huge effect 25 00:01:24,000 --> 00:01:27,400 Speaker 2: and it's expected to have a huge effect on healthcare, 26 00:01:27,440 --> 00:01:32,320 Speaker 2: for example, with more accurate diagnostics. It's expected to transform 27 00:01:32,760 --> 00:01:38,720 Speaker 2: transportation with automated vehicles, autonomous vehicles rather and then if 28 00:01:38,720 --> 00:01:42,119 Speaker 2: we look more locally, CBA, the Comonwealth Bank of Australia 29 00:01:42,160 --> 00:01:44,680 Speaker 2: recently came out or late last year came out and 30 00:01:44,760 --> 00:01:47,960 Speaker 2: said that they can see fifty use cases for AI. 31 00:01:48,040 --> 00:01:51,440 Speaker 2: They've trained up five hundred staff to help use AI 32 00:01:51,520 --> 00:01:54,800 Speaker 2: and experiment with AI within the bank safely. So they're 33 00:01:54,840 --> 00:01:59,360 Speaker 2: approving loans within ten minutes, they're reducing cybercrime and fraud, 34 00:02:00,000 --> 00:02:03,720 Speaker 2: and there you know, they're also personalizing loan approvals. 35 00:02:04,800 --> 00:02:07,160 Speaker 1: That's the upside. Is there a downside or is it 36 00:02:07,360 --> 00:02:09,280 Speaker 1: just a shift in the economy? 37 00:02:09,480 --> 00:02:13,079 Speaker 2: Well? Sure, the downside, yeah, there is, and it's whenever 38 00:02:13,960 --> 00:02:18,360 Speaker 2: whenever investors get excited about a particular theme, and you know, 39 00:02:18,480 --> 00:02:21,880 Speaker 2: and it's arguable that they've been very very excited about AI. 40 00:02:22,440 --> 00:02:26,400 Speaker 2: And so even if you get the theme right and 41 00:02:26,440 --> 00:02:29,480 Speaker 2: the technology is transformative, and this is true of a 42 00:02:29,520 --> 00:02:33,320 Speaker 2: lot of technology. Investors can really get ahead of themselves, 43 00:02:33,320 --> 00:02:37,480 Speaker 2: pushing prices up way beyond what these companies revenues future 44 00:02:37,520 --> 00:02:41,880 Speaker 2: revenues and profits can justify, and often there can be disappointment. 45 00:02:42,400 --> 00:02:45,760 Speaker 2: Remember that that aphorism, what the wives do early, the 46 00:02:45,800 --> 00:02:48,840 Speaker 2: fools do at the end. And so, you know, the 47 00:02:48,880 --> 00:02:51,360 Speaker 2: AI theme has been running now for a while for 48 00:02:51,440 --> 00:02:54,480 Speaker 2: some years, and you know there was easy money to 49 00:02:54,520 --> 00:02:57,000 Speaker 2: be made, I guess if you were very early, but 50 00:02:57,120 --> 00:02:59,040 Speaker 2: now we're much later in that and you've seen some 51 00:02:59,080 --> 00:03:02,160 Speaker 2: stocks not performing as well. For example, in the last 52 00:03:02,200 --> 00:03:06,080 Speaker 2: six months of last year and Video and Video went sideways. 53 00:03:06,080 --> 00:03:07,880 Speaker 2: It really didn't move at all. And a lot of 54 00:03:07,880 --> 00:03:11,840 Speaker 2: other companies that were exposed to the AI theme haven't 55 00:03:11,840 --> 00:03:14,880 Speaker 2: done well. For example, qual Comm's down about thirty percent 56 00:03:14,919 --> 00:03:18,720 Speaker 2: in the last six months. Intel's down sixty five percent 57 00:03:18,840 --> 00:03:22,080 Speaker 2: over the last five years. And so you know that 58 00:03:22,240 --> 00:03:24,800 Speaker 2: first phase of the AI boom, which are really what 59 00:03:24,840 --> 00:03:27,160 Speaker 2: we call the upstreamers, you know, they're the pick and 60 00:03:27,160 --> 00:03:30,760 Speaker 2: shovel supplies, that's starting to fade. That rally is starting 61 00:03:30,760 --> 00:03:33,760 Speaker 2: to tire now. And it was the second phase, which 62 00:03:33,800 --> 00:03:39,160 Speaker 2: are the downstream users or appliers of the technology, the apples, 63 00:03:39,160 --> 00:03:42,280 Speaker 2: the Microsoft's, maybe not so much Microsoft, but the apples, 64 00:03:42,320 --> 00:03:44,640 Speaker 2: the metas, and the ibms. You know, they are the 65 00:03:44,640 --> 00:03:47,160 Speaker 2: ones that have done well in the second phase of 66 00:03:47,160 --> 00:03:48,000 Speaker 2: the rally and AI. 67 00:03:48,920 --> 00:03:51,440 Speaker 1: So, as an investor heading into twenty twenty five, I 68 00:03:51,480 --> 00:03:54,200 Speaker 1: want to jump on the AI bandwagon for one of 69 00:03:54,200 --> 00:03:58,040 Speaker 1: the better phrase I mean, beware. I suppose is number one. 70 00:03:58,120 --> 00:04:00,440 Speaker 1: Be cautious, But how do I do it well? 71 00:04:01,000 --> 00:04:04,160 Speaker 2: You know, it really comes back to these boring but 72 00:04:04,280 --> 00:04:09,000 Speaker 2: tried and trued investment ideas, and that is if you're 73 00:04:09,000 --> 00:04:12,640 Speaker 2: ever buying a stock, any company, and you're paying let's 74 00:04:12,640 --> 00:04:16,160 Speaker 2: say you're paying twelve times earnings for that company. Now, 75 00:04:16,200 --> 00:04:19,919 Speaker 2: the price to earnings ratio is if you're like an 76 00:04:20,000 --> 00:04:24,320 Speaker 2: indicator of popularity of that particular company shares. The more 77 00:04:24,360 --> 00:04:26,920 Speaker 2: popular it is, the higher the PE ratio will be, 78 00:04:27,279 --> 00:04:29,080 Speaker 2: and the less popular it is, the lower the PE 79 00:04:29,279 --> 00:04:32,159 Speaker 2: ratio will be. Whatever PE ratio you pay for a 80 00:04:32,200 --> 00:04:35,520 Speaker 2: company's earnings, if you buy and sell it at the 81 00:04:35,600 --> 00:04:38,279 Speaker 2: same PE. So let's say you buy it today on 82 00:04:38,360 --> 00:04:41,040 Speaker 2: a PE of twelve and you sell it in five 83 00:04:41,120 --> 00:04:44,039 Speaker 2: years time on a PE of twelve, your return. So, 84 00:04:44,080 --> 00:04:47,920 Speaker 2: assuming the popularity doesn't change, your return's going to equal 85 00:04:48,520 --> 00:04:51,840 Speaker 2: the earnings growth of that particular company. So you have 86 00:04:51,880 --> 00:04:53,520 Speaker 2: to think about a couple of things. Number One, you 87 00:04:53,560 --> 00:04:56,080 Speaker 2: have to think is this company going to grow over 88 00:04:56,160 --> 00:04:58,080 Speaker 2: the next three to five years? And do I believe 89 00:04:58,120 --> 00:05:00,040 Speaker 2: it's going to grow? And why do I believe it 90 00:05:00,160 --> 00:05:03,240 Speaker 2: going to grow? And it's not enough to just say, oh, well, 91 00:05:03,279 --> 00:05:05,200 Speaker 2: everyone else is saying it's going to grow, that's why 92 00:05:05,240 --> 00:05:07,640 Speaker 2: I believe it. You have to understand where that growth 93 00:05:07,680 --> 00:05:10,120 Speaker 2: is going to come from, what the competition is going 94 00:05:10,160 --> 00:05:12,400 Speaker 2: to do to try and thwart that growth. And then 95 00:05:12,440 --> 00:05:14,120 Speaker 2: you have the second question that you have to think 96 00:05:14,160 --> 00:05:16,880 Speaker 2: about is how popular is this company right now? And 97 00:05:16,920 --> 00:05:18,719 Speaker 2: do I believe that in three and five years time 98 00:05:19,000 --> 00:05:21,720 Speaker 2: it could be just as popular or do I think 99 00:05:21,760 --> 00:05:24,680 Speaker 2: there's a risk that the popularity could fall. And they're 100 00:05:24,720 --> 00:05:27,000 Speaker 2: the two things. You're looking at earning's growth and you're 101 00:05:27,000 --> 00:05:30,440 Speaker 2: looking at PEE expansion or PE contraction, and in the 102 00:05:30,520 --> 00:05:34,040 Speaker 2: AI space, I think those two things are very very important. 103 00:05:34,680 --> 00:05:38,320 Speaker 1: Roger, just very quickly. You've been investing for a long time. 104 00:05:38,480 --> 00:05:41,440 Speaker 1: Is it exciting when you get a transformational change like 105 00:05:41,480 --> 00:05:42,279 Speaker 1: AI coming? 106 00:05:42,680 --> 00:05:46,719 Speaker 2: Yeah? Look, it's exciting, but I think the consumer usually wins. 107 00:05:47,560 --> 00:05:49,880 Speaker 2: I think it's the users of the technology rather the 108 00:05:49,920 --> 00:05:53,640 Speaker 2: investor than investors that win when it comes to new technology. 109 00:05:54,080 --> 00:05:57,640 Speaker 2: And that's simply because of what we just described. Investors 110 00:05:57,640 --> 00:06:00,840 Speaker 2: can get very, very excited about the new technolog put 111 00:06:00,839 --> 00:06:03,680 Speaker 2: the share prices up way above what can be justified 112 00:06:03,680 --> 00:06:06,480 Speaker 2: by earnings growth. The other thing that you see happen 113 00:06:06,600 --> 00:06:10,400 Speaker 2: a lot is analysts are looking at individual companies and 114 00:06:10,440 --> 00:06:14,320 Speaker 2: they might make an estimate about what share of market 115 00:06:14,360 --> 00:06:17,480 Speaker 2: that particular company can capture. But when you step back 116 00:06:17,720 --> 00:06:20,840 Speaker 2: and look at all the analyst expectations for all the companies, 117 00:06:21,240 --> 00:06:23,640 Speaker 2: they're all going to be winners. And we know historically 118 00:06:23,680 --> 00:06:26,400 Speaker 2: that that just doesn't happen in any industry. Not all 119 00:06:26,400 --> 00:06:29,159 Speaker 2: the companies are going to win. So the assumption that 120 00:06:29,440 --> 00:06:33,839 Speaker 2: all companies will win is a dangerous one. It never happens, 121 00:06:34,400 --> 00:06:37,800 Speaker 2: and often, as I mentioned a moment ago, it's consumers 122 00:06:37,800 --> 00:06:40,800 Speaker 2: that win out rather than the investors because of that pricing. 123 00:06:41,279 --> 00:06:43,599 Speaker 1: Roger, thanks for joining us on Fear and Greed. Always 124 00:06:43,600 --> 00:06:46,799 Speaker 1: a pleasure that was. Roger Montgomery, founder and chief investment 125 00:06:46,839 --> 00:06:50,040 Speaker 1: officer of Montgomery Investment Management. Remember to get your own 126 00:06:50,040 --> 00:06:53,600 Speaker 1: independent advice before making investment decisions. This is fair and greed. 127 00:06:53,600 --> 00:06:56,280 Speaker 1: Some are investing series brought to you by van to 128 00:06:56,400 --> 00:07:01,880 Speaker 1: automates compliance for frameworks like ISO twenty seven one, SoC two, 129 00:07:01,920 --> 00:07:04,640 Speaker 1: CPS two three four, in Essential eight, saving time and 130 00:07:04,760 --> 00:07:08,080 Speaker 1: money while building trust. Join over eight thousand companies like 131 00:07:08,120 --> 00:07:12,280 Speaker 1: at Lassian, Dovetail, and Fireant managing real time risk. Get 132 00:07:12,320 --> 00:07:15,560 Speaker 1: one thousand dollars off Advance dot com, slash fear and greed. 133 00:07:15,640 --> 00:07:18,520 Speaker 1: I'm Sean Elmer. 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