1 00:00:00,400 --> 00:00:03,520 Speaker 1: Welcome to Fear and Greed Sunday feature. Oh Michael Thompson. 2 00:00:03,880 --> 00:00:06,160 Speaker 1: If you're a regular listener to the show, you will 3 00:00:06,160 --> 00:00:08,360 Speaker 1: have heard me mention this many times in the past. 4 00:00:08,360 --> 00:00:11,040 Speaker 1: But every week we release assist a podcasts called How 5 00:00:11,039 --> 00:00:14,480 Speaker 1: Do They Afford That? Featuring me and financial planner Canna Campbell. 6 00:00:14,760 --> 00:00:18,040 Speaker 1: It's all about personal finance, managing money, investing, all that 7 00:00:18,120 --> 00:00:20,040 Speaker 1: kind of thing, and the episode that I want to 8 00:00:20,079 --> 00:00:22,920 Speaker 1: share with you today could actually be my favorite one yet. 9 00:00:23,120 --> 00:00:27,520 Speaker 1: Roger Montgomery, the founder of Montgomery Investment Management, joined us 10 00:00:27,560 --> 00:00:31,240 Speaker 1: in the studio to take us through his approach to investing, 11 00:00:31,320 --> 00:00:34,440 Speaker 1: how to think like an investor, how to pick quality companies, 12 00:00:34,479 --> 00:00:37,519 Speaker 1: what to consider when deciding on stocks. It is at 13 00:00:38,040 --> 00:00:40,920 Speaker 1: a great one oh one on investing in shares, a 14 00:00:41,040 --> 00:00:44,800 Speaker 1: masterclass really from a great supporter of this podcast. So 15 00:00:45,040 --> 00:00:47,200 Speaker 1: here it is How Do They Afford That? It comes 16 00:00:47,240 --> 00:00:49,840 Speaker 1: out every Wednesday in its own feed wherever you listen 17 00:00:49,840 --> 00:00:56,160 Speaker 1: to podcasts. I hope you enjoy it. Welcome to How 18 00:00:56,200 --> 00:00:58,440 Speaker 1: Do They Afford That? The podcast that peeks into the 19 00:00:58,440 --> 00:01:01,600 Speaker 1: financial lives of every day aliens. I'm Michael Thompson. I'm 20 00:01:01,600 --> 00:01:03,800 Speaker 1: a writer and the co host of the podcast Fear 21 00:01:03,840 --> 00:01:07,040 Speaker 1: and Greed business news. As always, I'm with Canna Campbell, 22 00:01:07,120 --> 00:01:10,560 Speaker 1: financial planner and founder of Sugar Mamma TV, the financial 23 00:01:10,640 --> 00:01:15,080 Speaker 1: literacy platform covering YouTube and podcasts and Instagram, books, threads, 24 00:01:15,120 --> 00:01:18,160 Speaker 1: TikTok and more. Are like, Hannah, good morning. 25 00:01:18,160 --> 00:01:20,760 Speaker 2: I am so excited about today's episode because we're talking 26 00:01:20,800 --> 00:01:23,399 Speaker 2: about my favorite asset class. 27 00:01:23,880 --> 00:01:26,880 Speaker 1: Sure this is you are very excited. You've been excited 28 00:01:26,920 --> 00:01:28,760 Speaker 1: since the moment we walked in. And you know what, 29 00:01:28,800 --> 00:01:30,880 Speaker 1: I love it. I love it when we have guests 30 00:01:31,120 --> 00:01:34,040 Speaker 1: joining us in the studio because it means that I 31 00:01:34,080 --> 00:01:37,840 Speaker 1: always learn something new, which actually, as I say that now, 32 00:01:37,880 --> 00:01:39,560 Speaker 1: makes it sounds like I don't learn something from you 33 00:01:39,600 --> 00:01:41,840 Speaker 1: when it's just you and me in the studio. But 34 00:01:43,160 --> 00:01:44,800 Speaker 1: I'm going to dig myself out of this one. But 35 00:01:44,840 --> 00:01:46,520 Speaker 1: when we have a guest, I feel like we can 36 00:01:46,640 --> 00:01:48,960 Speaker 1: both learn on those occasions. 37 00:01:49,880 --> 00:01:54,000 Speaker 2: See, I feel like I'm in great company right now. Yeah, 38 00:01:54,200 --> 00:01:55,880 Speaker 2: I have someone in the rooms on the same page 39 00:01:55,920 --> 00:01:59,920 Speaker 2: as me. And is it equally is as passionate, educating, 40 00:02:00,080 --> 00:02:04,360 Speaker 2: get inspiring everyday people will have a power of Australian shares. 41 00:02:04,440 --> 00:02:04,960 Speaker 3: God, you are. 42 00:02:04,960 --> 00:02:06,760 Speaker 1: Excited today, aren't you? Today is going to be a 43 00:02:06,760 --> 00:02:09,440 Speaker 1: cracker because we are talking about investing. As you say, 44 00:02:09,480 --> 00:02:11,440 Speaker 1: we are talking about shares, we're talking about how you 45 00:02:11,480 --> 00:02:14,120 Speaker 1: need to think as an investor, and we're talking about 46 00:02:14,120 --> 00:02:16,160 Speaker 1: what to look for in a company when you are 47 00:02:16,200 --> 00:02:19,680 Speaker 1: considering investing. Now, for many people, for a lot of people, 48 00:02:20,000 --> 00:02:22,800 Speaker 1: this is I would say a little bit of a mystery. 49 00:02:23,000 --> 00:02:26,240 Speaker 1: A lot of this it feels until you're in there 50 00:02:26,280 --> 00:02:28,720 Speaker 1: and doing it, it can all feel a little bit 51 00:02:28,800 --> 00:02:31,720 Speaker 1: kind of opaque. But today we are going to try 52 00:02:31,800 --> 00:02:33,800 Speaker 1: and break through all of that. And we have a 53 00:02:34,040 --> 00:02:37,000 Speaker 1: very special guest who does this every single day so 54 00:02:37,120 --> 00:02:40,160 Speaker 1: knows it better than anybody. Roger Montgomery is the founder 55 00:02:40,200 --> 00:02:43,160 Speaker 1: of Montgomery Investment Management. He has more than three decades 56 00:02:43,200 --> 00:02:46,760 Speaker 1: of experience in funds management and related activities, including equities 57 00:02:46,880 --> 00:02:50,919 Speaker 1: analysis and stockbroking. He's the author as well of the 58 00:02:50,960 --> 00:02:54,040 Speaker 1: best selling investment book value Able, and he is a 59 00:02:54,040 --> 00:02:57,280 Speaker 1: supporter of this podcast. Roger Montgomery, welcome to How Do 60 00:02:57,320 --> 00:02:57,960 Speaker 1: They Afford That? 61 00:02:58,160 --> 00:02:59,600 Speaker 3: Great to be with you. Thank you for having me 62 00:02:59,639 --> 00:02:59,919 Speaker 3: on the pro. 63 00:03:00,600 --> 00:03:02,680 Speaker 1: Now, before we get too far down the track, as 64 00:03:02,720 --> 00:03:05,320 Speaker 1: you're listening, please know that everything that we talk about 65 00:03:05,360 --> 00:03:08,600 Speaker 1: is always general in nature and never personal investment, strategic 66 00:03:08,760 --> 00:03:12,400 Speaker 1: or product advice. It is purely for financial education purposes only. 67 00:03:12,760 --> 00:03:16,359 Speaker 2: Absolutely. In particular, we're talking about obviously high risk long 68 00:03:16,440 --> 00:03:20,840 Speaker 2: term asset classes such as shares here, So always get 69 00:03:21,160 --> 00:03:24,600 Speaker 2: professional advice from a licensed financial planner when it comes 70 00:03:24,639 --> 00:03:26,760 Speaker 2: to making your own investment decisions. 71 00:03:27,160 --> 00:03:31,280 Speaker 1: Now, Canna, you are barely able to still, would. 72 00:03:31,080 --> 00:03:31,440 Speaker 3: You like to do? 73 00:03:31,600 --> 00:03:33,600 Speaker 1: You just want to like launch? Shall I just take 74 00:03:33,600 --> 00:03:35,560 Speaker 1: a step back and you just jump straight in here? 75 00:03:36,480 --> 00:03:38,200 Speaker 2: Okay? I first question I want to ask you is 76 00:03:38,240 --> 00:03:42,480 Speaker 2: that mindset. I'm obsessed with mindsets to the point where 77 00:03:42,480 --> 00:03:44,920 Speaker 2: I've actually just employed a mindset coach in my life. 78 00:03:45,000 --> 00:03:50,560 Speaker 2: But how does an investor's mindset work? And how important 79 00:03:50,680 --> 00:03:51,880 Speaker 2: is to have this? 80 00:03:52,200 --> 00:03:55,800 Speaker 4: Well, let's take a step back from that, because what 81 00:03:55,840 --> 00:03:57,920 Speaker 4: we need to do is we need to understand, or 82 00:03:57,920 --> 00:04:00,120 Speaker 4: we need to accept, how we're going to approach the 83 00:04:00,120 --> 00:04:03,040 Speaker 4: stock market first, then we can apply the right mindset 84 00:04:03,080 --> 00:04:05,640 Speaker 4: to it. But before we do that, what we need 85 00:04:05,720 --> 00:04:08,720 Speaker 4: to ask is how do I see the stock market? 86 00:04:08,720 --> 00:04:11,400 Speaker 4: How do I treat the stock market? And I think 87 00:04:11,440 --> 00:04:16,920 Speaker 4: there's two paths towards the stock market. One is ultimately 88 00:04:17,120 --> 00:04:20,600 Speaker 4: very very profitable and it's going to be richly rewarding, 89 00:04:20,960 --> 00:04:23,000 Speaker 4: and the other one it's going to be hit and miss. 90 00:04:23,200 --> 00:04:25,839 Speaker 4: You might do well, you might not. What most people 91 00:04:25,880 --> 00:04:27,720 Speaker 4: do and what I see have seen a lot over 92 00:04:27,760 --> 00:04:31,200 Speaker 4: the years, it's people approaching the stock market a little 93 00:04:31,240 --> 00:04:34,679 Speaker 4: bit like they might approach a casino or a horse race. 94 00:04:35,600 --> 00:04:37,280 Speaker 3: So instead of thinking. 95 00:04:36,960 --> 00:04:40,599 Speaker 4: About shares as pieces of businesses, what they do is 96 00:04:40,680 --> 00:04:44,279 Speaker 4: they see shares as something on a screen that wiggles 97 00:04:44,360 --> 00:04:46,680 Speaker 4: up and down. You try and bet on the ups 98 00:04:46,960 --> 00:04:48,760 Speaker 4: and avoid the betting on the downs. 99 00:04:48,920 --> 00:04:50,440 Speaker 3: It's a little bit akin to rule out. 100 00:04:50,560 --> 00:04:53,120 Speaker 4: You bet on red or bet on black, and try 101 00:04:53,200 --> 00:04:58,000 Speaker 4: and avoid the other color. And that's not investing, that's speculating. 102 00:04:58,760 --> 00:05:00,960 Speaker 4: If you think of if you think of the stock 103 00:05:01,000 --> 00:05:05,080 Speaker 4: market as a venue where you can buy pieces of businesses. 104 00:05:05,839 --> 00:05:09,839 Speaker 4: Remembering that the Rich two hundred lists that comes out 105 00:05:09,880 --> 00:05:13,080 Speaker 4: every year is full of people who run businesses. You know, 106 00:05:13,080 --> 00:05:15,640 Speaker 4: there's no one in there that became a billionaire because 107 00:05:15,640 --> 00:05:17,919 Speaker 4: they put money in the bank and kept it on 108 00:05:18,000 --> 00:05:18,640 Speaker 4: term deposit. 109 00:05:19,080 --> 00:05:19,200 Speaker 3: Right. 110 00:05:19,680 --> 00:05:23,240 Speaker 4: They all owned businesses of some description. So businesses are 111 00:05:23,279 --> 00:05:27,720 Speaker 4: a way to create wealth. One to create potentially a 112 00:05:27,760 --> 00:05:31,320 Speaker 4: lot of wealth, and to do it potentially very quickly 113 00:05:31,360 --> 00:05:33,919 Speaker 4: as well, so if you approach the stock market as 114 00:05:33,960 --> 00:05:36,560 Speaker 4: a venue where you can buy a piece of those businesses, 115 00:05:37,040 --> 00:05:40,159 Speaker 4: you're approaching the stock market the right way. And then 116 00:05:40,360 --> 00:05:42,320 Speaker 4: we layer on that the right mindset. 117 00:05:43,279 --> 00:05:46,479 Speaker 2: So talk me through mindset, because this is what helps 118 00:05:46,520 --> 00:05:49,919 Speaker 2: someone make great decisions for their long term benefit and 119 00:05:49,920 --> 00:05:51,080 Speaker 2: not get caught up in the noise. 120 00:05:51,160 --> 00:05:53,919 Speaker 4: Okay, So there's a couple of things. Number One, you 121 00:05:54,000 --> 00:05:58,360 Speaker 4: need to think about framing your time frame. So thinking 122 00:05:58,400 --> 00:06:01,640 Speaker 4: about time now a common phrase and you would have 123 00:06:01,720 --> 00:06:04,480 Speaker 4: heard it many times. It's not time in the market. 124 00:06:04,480 --> 00:06:06,719 Speaker 4: It's not time in the market. It's time in the market. 125 00:06:06,839 --> 00:06:10,400 Speaker 4: That's actually one hundred percent wrong because the longer you 126 00:06:10,440 --> 00:06:13,960 Speaker 4: spend in a bad business, the worse it's going to be. 127 00:06:14,000 --> 00:06:16,800 Speaker 4: So time is only your friend if you're in an 128 00:06:16,839 --> 00:06:19,760 Speaker 4: extraordinary business. So the first thing that we have to 129 00:06:19,760 --> 00:06:22,040 Speaker 4: do in our minds is except that we don't need 130 00:06:22,080 --> 00:06:26,119 Speaker 4: to know everything. We don't need to know the ins 131 00:06:26,160 --> 00:06:28,000 Speaker 4: and outs of every business. You know, And when I 132 00:06:28,040 --> 00:06:31,760 Speaker 4: look at a report from a research analyst on a 133 00:06:31,800 --> 00:06:34,039 Speaker 4: cell side or what's called a stock we call it 134 00:06:34,040 --> 00:06:35,920 Speaker 4: the cell side, I'm on the buy side. I'm buying 135 00:06:36,320 --> 00:06:38,760 Speaker 4: for a fund. And then there are cell side analysts 136 00:06:38,839 --> 00:06:41,039 Speaker 4: and they work for stockbrokers. When I look at a 137 00:06:41,040 --> 00:06:44,640 Speaker 4: cell side analyst's report, sometimes they're incredibly complex, and I 138 00:06:44,640 --> 00:06:47,760 Speaker 4: think I really need to know all this. So in 139 00:06:47,839 --> 00:06:50,919 Speaker 4: terms of mindset, you need to accept that you don't 140 00:06:50,960 --> 00:06:54,560 Speaker 4: need a stratispheric IQ, you don't need to know the 141 00:06:54,600 --> 00:06:58,520 Speaker 4: internal machinations of every single type of business in the world, 142 00:06:59,400 --> 00:07:03,560 Speaker 4: and you don't need any inside information. Anyone can do 143 00:07:03,680 --> 00:07:06,960 Speaker 4: this if you accept that along with the idea that 144 00:07:07,000 --> 00:07:09,720 Speaker 4: you've got, you've got plenty of time and most of 145 00:07:09,760 --> 00:07:11,520 Speaker 4: the people who are listening to me speak now have 146 00:07:11,600 --> 00:07:14,800 Speaker 4: more time than I do to do this. The longer 147 00:07:14,840 --> 00:07:17,800 Speaker 4: the runway you've got to allow compounding. 148 00:07:17,240 --> 00:07:20,000 Speaker 3: To work, the better off you'll be. So if you're. 149 00:07:19,880 --> 00:07:24,920 Speaker 4: Patient and you approach the market consistently, and we're going 150 00:07:24,960 --> 00:07:26,640 Speaker 4: to get into the detail of how to do that, 151 00:07:27,600 --> 00:07:31,160 Speaker 4: then you'll do very well, even if you're not immense 152 00:07:31,160 --> 00:07:31,760 Speaker 4: a genius. 153 00:07:32,200 --> 00:07:34,760 Speaker 1: What about or the hype and the noise? How do 154 00:07:34,800 --> 00:07:36,080 Speaker 1: you kind of shut that out? 155 00:07:36,160 --> 00:07:37,480 Speaker 3: Oh? That's easy? Is it? 156 00:07:37,600 --> 00:07:41,440 Speaker 1: Just don't pay attention? Is it? Because like media speculation, 157 00:07:41,600 --> 00:07:43,680 Speaker 1: A lot of the hype and the drama and all 158 00:07:43,680 --> 00:07:45,560 Speaker 1: of that, And I know that I'm kind of guilty 159 00:07:45,600 --> 00:07:47,280 Speaker 1: of that, being kind of working in the media and 160 00:07:47,360 --> 00:07:51,120 Speaker 1: kind of loving the theater of it all. Do investors 161 00:07:51,160 --> 00:07:52,920 Speaker 1: just need to shut that out and make their own 162 00:07:52,960 --> 00:07:54,360 Speaker 1: independent decisions. 163 00:07:54,800 --> 00:07:57,760 Speaker 4: I think if you can turn off, turn off your phone, 164 00:07:58,520 --> 00:08:01,800 Speaker 4: and I mean, you don't want to hear this, if 165 00:08:01,800 --> 00:08:04,320 Speaker 4: you can turn the media asked if you can turn 166 00:08:04,360 --> 00:08:07,960 Speaker 4: the media off, and when I'm very specific about which 167 00:08:08,000 --> 00:08:11,880 Speaker 4: media turn off to turn off the stuff at the 168 00:08:11,960 --> 00:08:14,160 Speaker 4: end of the day that says x y Z went 169 00:08:14,240 --> 00:08:18,480 Speaker 4: up fifteen percent, ABC went down five percent, and gold 170 00:08:18,520 --> 00:08:21,400 Speaker 4: did this and the Aussie dollar did that. 171 00:08:21,400 --> 00:08:22,560 Speaker 3: That's next to useless. 172 00:08:23,280 --> 00:08:25,960 Speaker 4: We know the price of everything that's freely available. What 173 00:08:26,000 --> 00:08:28,680 Speaker 4: we've got to learn is what things are value, how 174 00:08:28,680 --> 00:08:32,640 Speaker 4: they're valued, what they're really worth, rather than thinking about 175 00:08:32,679 --> 00:08:36,120 Speaker 4: prices because that's an information free zone. That end of 176 00:08:36,240 --> 00:08:39,720 Speaker 4: day report that says gold went up, oil went down. 177 00:08:40,000 --> 00:08:42,400 Speaker 4: I actually don't know why we need to know what 178 00:08:42,440 --> 00:08:43,120 Speaker 4: gold and oil? 179 00:08:43,200 --> 00:08:44,120 Speaker 3: Did you know? 180 00:08:44,160 --> 00:08:47,360 Speaker 4: Because gold is not an investment that's going to produce 181 00:08:47,400 --> 00:08:49,800 Speaker 4: any income for you. It's not something that's going to 182 00:08:49,800 --> 00:08:53,240 Speaker 4: compound gold, for example, and it's just giving you the 183 00:08:53,280 --> 00:08:55,760 Speaker 4: insights of my experience. Gold is a bet on other 184 00:08:55,800 --> 00:08:59,120 Speaker 4: people's fear. It goes up when people are afraid of something, 185 00:08:59,360 --> 00:09:02,320 Speaker 4: and it goes down when people are less afraid. So 186 00:09:02,400 --> 00:09:04,959 Speaker 4: gold is not a really great long term investment. And 187 00:09:04,960 --> 00:09:07,160 Speaker 4: I expect in one hundred years it'll trade about where 188 00:09:07,160 --> 00:09:09,920 Speaker 4: it is today. That'll be about it. So it's not 189 00:09:09,960 --> 00:09:11,480 Speaker 4: going to do you great. So I don't know why 190 00:09:11,520 --> 00:09:13,760 Speaker 4: we follow that stuff. I don't know why we care. 191 00:09:14,280 --> 00:09:16,920 Speaker 4: So turn that off. You don't need that. And that's 192 00:09:16,920 --> 00:09:20,280 Speaker 4: the answer your question about how you stop being distracted 193 00:09:20,320 --> 00:09:22,440 Speaker 4: by the noise. You have to turn it off and 194 00:09:22,480 --> 00:09:23,760 Speaker 4: separate yourself from it. 195 00:09:24,520 --> 00:09:26,959 Speaker 2: Can I ask you a quick question, that's why we're here? 196 00:09:28,360 --> 00:09:34,000 Speaker 2: Good point, Where would you recommend that, say, a new 197 00:09:34,080 --> 00:09:41,000 Speaker 2: investor access quality, independent information that's not about the market's 198 00:09:41,080 --> 00:09:44,640 Speaker 2: up the market's down today, but actually gives them information 199 00:09:44,679 --> 00:09:47,199 Speaker 2: that they're going to add value for their situation. 200 00:09:47,720 --> 00:09:52,160 Speaker 4: Books Books are really important. You know, everyone who is 201 00:09:52,200 --> 00:09:57,800 Speaker 4: a successful investor is a prodigious reader. When my kids 202 00:09:57,840 --> 00:10:01,600 Speaker 4: were really young, they're almost all a now, even the 203 00:10:01,600 --> 00:10:03,320 Speaker 4: ones that are adults are almost adults. 204 00:10:03,840 --> 00:10:04,040 Speaker 3: You know. 205 00:10:04,080 --> 00:10:06,560 Speaker 4: They asked me what I did for a job, and 206 00:10:06,679 --> 00:10:10,400 Speaker 4: when I distilled it down, it was I read. You know, 207 00:10:10,440 --> 00:10:13,640 Speaker 4: I do a lot of reading. Yes, there's some decisions 208 00:10:13,640 --> 00:10:16,560 Speaker 4: that need to be made, but ultimately I'm reading so 209 00:10:17,040 --> 00:10:19,800 Speaker 4: the information. So the source of the best information is books, 210 00:10:19,800 --> 00:10:21,719 Speaker 4: and perhaps at the end of the program, I'll give 211 00:10:21,720 --> 00:10:23,920 Speaker 4: you a list of them that I think are worth reading. 212 00:10:24,000 --> 00:10:26,280 Speaker 1: And I'm just going to give a very quick little 213 00:10:26,280 --> 00:10:31,040 Speaker 1: plug for your website. Go to montinvest dot com or 214 00:10:31,240 --> 00:10:34,480 Speaker 1: Roger Montgomery dot com, because I mean, you are reading 215 00:10:34,520 --> 00:10:37,640 Speaker 1: a lot, but you are then on those sites you 216 00:10:37,679 --> 00:10:40,160 Speaker 1: are kind of distilling the key points that people need 217 00:10:40,200 --> 00:10:44,080 Speaker 1: to know. And I have used these resources, particularly kind 218 00:10:44,080 --> 00:10:46,400 Speaker 1: of when we're working on fear and Greed, and it 219 00:10:46,480 --> 00:10:49,400 Speaker 1: is just really handy to get these insights and you 220 00:10:49,440 --> 00:10:51,640 Speaker 1: want to kind of shut out the noise. You've kind 221 00:10:51,640 --> 00:10:54,000 Speaker 1: of done it for us by heading. If you go there, 222 00:10:54,080 --> 00:10:56,160 Speaker 1: you can kind of get that knowledge without needing to 223 00:10:56,200 --> 00:10:57,360 Speaker 1: sift through all the other stuff. 224 00:10:57,679 --> 00:11:01,640 Speaker 4: Like you guys, I've been long passionate about educating investors 225 00:11:02,600 --> 00:11:04,880 Speaker 4: so that they don't repeat the mistakes of the past. 226 00:11:04,960 --> 00:11:08,720 Speaker 4: You know, really, it really saddens me that a lot 227 00:11:08,760 --> 00:11:14,439 Speaker 4: of finfluences on social media are promoting technical analysis and charting. 228 00:11:15,040 --> 00:11:16,840 Speaker 4: We've done so much work when I was at BT 229 00:11:17,000 --> 00:11:20,559 Speaker 4: Australia and Merrill Lynch, we did so much research about that. 230 00:11:20,640 --> 00:11:24,079 Speaker 4: You know, we looked at algorithms that ran across markets 231 00:11:24,080 --> 00:11:27,120 Speaker 4: and across time frames, and it doesn't work. And yet 232 00:11:27,120 --> 00:11:29,480 Speaker 4: people are really excited about it and making the same 233 00:11:29,520 --> 00:11:33,600 Speaker 4: mistakes that generations before them made. So I'll recommend some books, 234 00:11:33,640 --> 00:11:36,640 Speaker 4: hopefully including my own, which was written for my kids, 235 00:11:36,720 --> 00:11:39,480 Speaker 4: so that if I died, they would have a recipe 236 00:11:39,840 --> 00:11:42,400 Speaker 4: to follow for investing successfully in the stock market. 237 00:11:43,280 --> 00:11:45,360 Speaker 1: Can I ask you a question that may come across 238 00:11:45,200 --> 00:11:48,800 Speaker 1: as probably overly simple, but what is the difference between 239 00:11:48,920 --> 00:11:49,959 Speaker 1: value and price? 240 00:11:50,360 --> 00:11:50,640 Speaker 2: Ah? 241 00:11:50,720 --> 00:11:54,240 Speaker 4: Okay, so okay, so that's a really great question. Yes, 242 00:11:54,760 --> 00:11:57,560 Speaker 4: and I said earlier. Price is available freely to everyone. 243 00:11:57,640 --> 00:12:01,120 Speaker 4: You know, there's not much information in price, But what 244 00:12:01,160 --> 00:12:03,160 Speaker 4: we need to know is what something is actually worth. 245 00:12:03,200 --> 00:12:05,920 Speaker 4: So I'll give you a real life example. People often say, 246 00:12:05,960 --> 00:12:09,800 Speaker 4: by the way, if I asked you the question what 247 00:12:10,000 --> 00:12:13,360 Speaker 4: is something worth any asset, what's it worth? What's the 248 00:12:13,360 --> 00:12:14,760 Speaker 4: typical response, You're here. 249 00:12:15,880 --> 00:12:17,439 Speaker 2: What someone's willing to pay for it? 250 00:12:17,520 --> 00:12:21,760 Speaker 3: Correct? Which is I think wrong? Because that's the price. 251 00:12:22,360 --> 00:12:24,400 Speaker 4: What someone's willing to pay for something is the price 252 00:12:24,440 --> 00:12:25,720 Speaker 4: and I'll give you a real life example. 253 00:12:26,120 --> 00:12:27,959 Speaker 3: Back in the first. 254 00:12:27,720 --> 00:12:31,080 Speaker 4: Tech boom, there was a company called Netja dot Com. 255 00:12:31,400 --> 00:12:35,200 Speaker 4: Now Netja dot Com issued the equivalent of a prospectus 256 00:12:35,360 --> 00:12:39,040 Speaker 4: a PDS. So they released to the market what it 257 00:12:39,120 --> 00:12:42,000 Speaker 4: is that they would do before they listed on the 258 00:12:42,000 --> 00:12:44,240 Speaker 4: stock market in the US, and I think they listed 259 00:12:44,280 --> 00:12:47,160 Speaker 4: on the NASDAC. Anyway, their shares were going to come on. 260 00:12:47,960 --> 00:12:50,960 Speaker 4: You could buy the shares before the IPO at about 261 00:12:50,960 --> 00:12:54,440 Speaker 4: fifty cents apiece. They said this, and I'm quoting from 262 00:12:54,480 --> 00:12:58,760 Speaker 4: their PDS or their equivalent in the US. Netj dot 263 00:12:58,800 --> 00:13:04,120 Speaker 4: Com conducts nos substantial business activity of any description, and 264 00:13:04,240 --> 00:13:07,280 Speaker 4: Netja dot Com has no plans of conducting any substantial 265 00:13:07,280 --> 00:13:09,320 Speaker 4: business activity at any description. 266 00:13:09,320 --> 00:13:13,600 Speaker 3: For the foreseeable future. Now, it's a remarkably consistent business model. 267 00:13:13,880 --> 00:13:17,000 Speaker 4: It's never done anything, it's not doing anything today, and 268 00:13:17,000 --> 00:13:20,400 Speaker 4: it's going to do anything anyway. You could buy shares 269 00:13:20,480 --> 00:13:25,440 Speaker 4: at fifty cents each. It was oversubscribed. It listed at 270 00:13:25,480 --> 00:13:29,160 Speaker 4: two dollars. It promptly went to eight dollars eighty eight 271 00:13:29,240 --> 00:13:32,760 Speaker 4: at the peak of the Internet boom in early two 272 00:13:32,800 --> 00:13:36,559 Speaker 4: thousand and then it fell to zero and was subsequently 273 00:13:36,600 --> 00:13:40,880 Speaker 4: delisted and true to label. It never conducted any business 274 00:13:40,920 --> 00:13:44,720 Speaker 4: activity of any description. Now someone was willing to pay 275 00:13:45,280 --> 00:13:48,920 Speaker 4: eight dollars eighty eight a share, Was it worth eight 276 00:13:48,920 --> 00:13:50,960 Speaker 4: dollars eighty eight? Was it worth two dollars? Was it 277 00:13:51,000 --> 00:13:54,679 Speaker 4: worth fifty cents? No, it was worth nothing. It was 278 00:13:54,720 --> 00:13:56,920 Speaker 4: worth zero because it was never going to do anything. 279 00:13:57,559 --> 00:13:59,680 Speaker 4: So it was worth the cash in the bank. But 280 00:13:59,720 --> 00:14:02,559 Speaker 4: of course that was being eroded by management fees and 281 00:14:03,000 --> 00:14:06,240 Speaker 4: director's fees, and so ultimately it was worth zero, and 282 00:14:06,280 --> 00:14:09,640 Speaker 4: the price ultimately went to what it was worth. But 283 00:14:09,679 --> 00:14:12,240 Speaker 4: there was a big gap at one point in time 284 00:14:12,320 --> 00:14:15,600 Speaker 4: between the price and the value. So price is what 285 00:14:15,640 --> 00:14:19,760 Speaker 4: you pay, but value is what you receive. And your 286 00:14:19,880 --> 00:14:22,280 Speaker 4: job as an investor is to pay a lower price 287 00:14:22,840 --> 00:14:25,440 Speaker 4: than the value you receive. And you know you go 288 00:14:25,480 --> 00:14:27,240 Speaker 4: to auctions. If you ever go to an auction with 289 00:14:27,320 --> 00:14:29,560 Speaker 4: your parents, you know, they'll stand there with their arms 290 00:14:29,560 --> 00:14:33,280 Speaker 4: folded watching the hammer go down on a property and 291 00:14:33,600 --> 00:14:37,920 Speaker 4: it'll sell for X millions of dollars and they immediately say, oh, 292 00:14:37,960 --> 00:14:41,960 Speaker 4: it's not worth that, it's not worth that. So there's 293 00:14:41,960 --> 00:14:48,040 Speaker 4: an intuitive We intuitively know that things are priced higher 294 00:14:48,040 --> 00:14:50,760 Speaker 4: than what they're really worth. You know, we won't buy 295 00:14:51,160 --> 00:14:53,400 Speaker 4: blueberries when they're nine dollars a punt it. They're not 296 00:14:53,560 --> 00:14:56,560 Speaker 4: worth that to us. Now, there's an element of value 297 00:14:56,600 --> 00:14:58,880 Speaker 4: that is in the eye of the beholder. You know, 298 00:14:58,920 --> 00:15:02,080 Speaker 4: what's something is worth to me might be worth something 299 00:15:02,080 --> 00:15:05,479 Speaker 4: else to you. For example, if I'm a passive shareholder 300 00:15:05,480 --> 00:15:08,440 Speaker 4: in a business, I own a thousand shares of a company, 301 00:15:08,800 --> 00:15:12,960 Speaker 4: I can't really influence what that business does. I'm literally 302 00:15:13,160 --> 00:15:15,320 Speaker 4: a standing on the sideline, so to. 303 00:15:15,280 --> 00:15:18,320 Speaker 3: Speak, and I'm. 304 00:15:17,360 --> 00:15:20,000 Speaker 4: At the mercy of the directors and the board to 305 00:15:20,080 --> 00:15:23,560 Speaker 4: do the right thing in that business. But for another 306 00:15:23,640 --> 00:15:27,520 Speaker 4: company to take over that business, to cut all the costs, 307 00:15:27,560 --> 00:15:30,360 Speaker 4: to make it more efficient, and then weld it to 308 00:15:30,480 --> 00:15:33,280 Speaker 4: its own business, it could be much worth much more 309 00:15:33,360 --> 00:15:36,000 Speaker 4: to that business than it is to us. But what 310 00:15:36,040 --> 00:15:40,240 Speaker 4: we have to do is consistently, over time, operate the 311 00:15:40,240 --> 00:15:44,720 Speaker 4: same way and buy businesses when they're cheaper than what 312 00:15:44,840 --> 00:15:49,120 Speaker 4: they're worth. Only extraordinary businesses, not rubbish businesses. And we'll 313 00:15:49,160 --> 00:15:52,400 Speaker 4: talk about the difference in a moment. I'm sure, all. 314 00:15:52,400 --> 00:15:55,760 Speaker 2: Right, So, how have equities performed as an asset class 315 00:15:55,920 --> 00:15:57,160 Speaker 2: over the long run? 316 00:15:57,960 --> 00:16:02,000 Speaker 4: So look, if you estimate, well, we know historically you 317 00:16:02,080 --> 00:16:06,280 Speaker 4: know somewhere between eight and ten percent per annum since 318 00:16:06,320 --> 00:16:09,240 Speaker 4: about nineteen eighty seven. And that's when we're looking at 319 00:16:09,280 --> 00:16:13,359 Speaker 4: the total return index, which includes the reinvestment of dividends, 320 00:16:13,800 --> 00:16:15,880 Speaker 4: and we could also add the franking credits. So if 321 00:16:15,920 --> 00:16:18,560 Speaker 4: you're on a tax rate that's lower than the company 322 00:16:18,600 --> 00:16:20,880 Speaker 4: tax rate, you get an extra bit of cash when 323 00:16:20,880 --> 00:16:23,680 Speaker 4: a company pays you a dividend. So if you reinvest 324 00:16:23,760 --> 00:16:26,720 Speaker 4: all that, it's been about the same whether you look 325 00:16:26,720 --> 00:16:28,760 Speaker 4: at the S and P five hundred or whether you 326 00:16:28,760 --> 00:16:31,760 Speaker 4: look at the Australian market. The only problem with that 327 00:16:31,960 --> 00:16:36,880 Speaker 4: is that going forward, the number of high growth large 328 00:16:36,920 --> 00:16:40,480 Speaker 4: businesses in Australia is reducing and the number of high 329 00:16:40,560 --> 00:16:43,200 Speaker 4: growth large businesses overseas is expanding. 330 00:16:43,840 --> 00:16:45,000 Speaker 3: So in Australia, if. 331 00:16:44,920 --> 00:16:46,720 Speaker 4: You're looking for growth, and we're going to talk about 332 00:16:46,760 --> 00:16:50,280 Speaker 4: why it's so important to invest in businesses that are growing, 333 00:16:50,480 --> 00:16:52,600 Speaker 4: if you're looking for growth in Australia, you probably look 334 00:16:52,640 --> 00:16:55,840 Speaker 4: at smaller companies what we call the small cap index 335 00:16:56,440 --> 00:17:00,960 Speaker 4: in Australia small capitalization and overseas, Gosh, there are thousands 336 00:17:00,960 --> 00:17:03,800 Speaker 4: of companies growing, believe it or not, at double digit rates. 337 00:17:03,800 --> 00:17:07,639 Speaker 4: You know, even when with all that noisy, distracting talk 338 00:17:08,119 --> 00:17:13,040 Speaker 4: about recessions and inflation and interest rates being high. There 339 00:17:13,040 --> 00:17:16,320 Speaker 4: are still businesses out there growing at fifteen twenty thirty 340 00:17:16,440 --> 00:17:20,200 Speaker 4: forty percent per annum, growing really really fast, and you 341 00:17:20,320 --> 00:17:23,240 Speaker 4: want to buy those businesses at a rational price. 342 00:17:24,440 --> 00:17:28,600 Speaker 1: Roger, this is fascinating. This is really really interesting. What 343 00:17:28,720 --> 00:17:30,560 Speaker 1: I really want to get into though, And we'll take 344 00:17:30,600 --> 00:17:33,240 Speaker 1: a quick break before we do it. And we've talked 345 00:17:33,240 --> 00:17:37,080 Speaker 1: about You've mentioned the concept of extraordinary businesses, and so 346 00:17:37,840 --> 00:17:40,240 Speaker 1: after the break, I want to get a bit of 347 00:17:40,320 --> 00:17:43,160 Speaker 1: a guide from you as to how to find those 348 00:17:43,200 --> 00:17:46,240 Speaker 1: that actually offer value and those that we talk about 349 00:17:46,320 --> 00:17:48,840 Speaker 1: the potential for growth. How do you actually spot those 350 00:17:48,880 --> 00:17:51,440 Speaker 1: ones that are growing and in order to do so, 351 00:17:51,520 --> 00:17:53,720 Speaker 1: cutting out the noise, cutting out everything that everyone else 352 00:17:53,800 --> 00:17:56,919 Speaker 1: is saying. And to be able to do that for yourself. 353 00:17:56,600 --> 00:17:58,439 Speaker 4: I'll make it super easy, too perfect. 354 00:17:58,520 --> 00:18:06,920 Speaker 1: We'll do that straight after the break, Canna, we're talking 355 00:18:06,960 --> 00:18:09,479 Speaker 1: about investing in shares today. We are getting a bit 356 00:18:09,520 --> 00:18:11,640 Speaker 1: of a masterclass, I think you would describe it. We're 357 00:18:11,680 --> 00:18:14,040 Speaker 1: joined in the studio by Roger Montgomery, the founder of 358 00:18:14,040 --> 00:18:18,240 Speaker 1: Montgomery Investment Management, the author of the best selling investment 359 00:18:18,280 --> 00:18:21,320 Speaker 1: book value Able head along as well. I mentioned this 360 00:18:21,359 --> 00:18:24,760 Speaker 1: before tomontinvest dot com and Roger Montgomery dot com to 361 00:18:24,840 --> 00:18:28,360 Speaker 1: hear more of Roger's insights into a whole bunch of 362 00:18:28,359 --> 00:18:33,800 Speaker 1: different topics and companies and things. Roger, we've talked about mindset, 363 00:18:33,960 --> 00:18:35,840 Speaker 1: We've talked about kind of some of the broad kind 364 00:18:35,840 --> 00:18:39,440 Speaker 1: of concepts here, about kind of buying businesses, not trading stocks, 365 00:18:40,160 --> 00:18:43,280 Speaker 1: and about the need to look at value instead of price, 366 00:18:43,920 --> 00:18:47,760 Speaker 1: And the fact that I thought this was really interesting 367 00:18:47,800 --> 00:18:49,600 Speaker 1: when he said, you don't need to know everything. You 368 00:18:49,600 --> 00:18:52,160 Speaker 1: don't need to know absolutely everything that everyone is saying 369 00:18:52,200 --> 00:18:55,159 Speaker 1: about a particular company or what's happening in the market 370 00:18:55,200 --> 00:18:59,320 Speaker 1: more broadly, But how then do you pick companies if 371 00:18:59,320 --> 00:19:01,439 Speaker 1: you're not trying to look at everything and assess everything, 372 00:19:01,480 --> 00:19:04,000 Speaker 1: how do you zero in on those opportunities? 373 00:19:04,040 --> 00:19:07,080 Speaker 4: Okay, so now we get really serious. So you don't 374 00:19:07,080 --> 00:19:09,600 Speaker 4: have to know everything, but you do need to know 375 00:19:09,800 --> 00:19:14,600 Speaker 4: some things. Now let me let me describe a business 376 00:19:14,600 --> 00:19:18,000 Speaker 4: opportunity and then you tell me whether you think it's 377 00:19:18,040 --> 00:19:21,760 Speaker 4: a good one or not. Okay, So what we're going 378 00:19:21,800 --> 00:19:25,000 Speaker 4: to do is we're going to put a million dollars 379 00:19:25,000 --> 00:19:28,840 Speaker 4: of our own money into this venture and we're going 380 00:19:28,880 --> 00:19:32,959 Speaker 4: to borrow another million dollars. So in total, there's capital 381 00:19:33,000 --> 00:19:36,359 Speaker 4: of two million dollars in this particular business venture. 382 00:19:37,119 --> 00:19:39,040 Speaker 3: Okay, Now, in our. 383 00:19:39,000 --> 00:19:45,320 Speaker 4: First year we make five hundred thousand dollars profit. Now 384 00:19:45,320 --> 00:19:48,560 Speaker 4: that's a fifty percent return on the money we put 385 00:19:48,560 --> 00:19:53,040 Speaker 4: in on our capital, which is phenomenal. Let's now fast 386 00:19:53,119 --> 00:19:59,399 Speaker 4: forward ten years. We're now making one hundred thousand dollars profit. 387 00:20:00,240 --> 00:20:01,719 Speaker 3: Is that good or bad? 388 00:20:02,960 --> 00:20:05,880 Speaker 4: We were making five hundred thousand when we kicked it off. 389 00:20:06,720 --> 00:20:09,000 Speaker 4: We're now making one hundred thousand. 390 00:20:09,840 --> 00:20:11,840 Speaker 2: Well, one would say that was bad. 391 00:20:12,160 --> 00:20:14,840 Speaker 3: I agree, I agree, it's absolutely not good. 392 00:20:15,000 --> 00:20:17,680 Speaker 4: We're not growing, we're going backwards. What if I then 393 00:20:17,760 --> 00:20:20,160 Speaker 4: lay it on some other information. What if I told 394 00:20:20,160 --> 00:20:24,480 Speaker 4: you in the intervening ten years, remembering the profit has 395 00:20:24,520 --> 00:20:27,040 Speaker 4: fallen from five hundred thousand dollars, which was a fifty 396 00:20:27,040 --> 00:20:30,679 Speaker 4: percent return, to one hundred thousand. What if I then 397 00:20:30,760 --> 00:20:34,560 Speaker 4: told you we also injected another two million dollars into 398 00:20:34,600 --> 00:20:37,439 Speaker 4: the business of our own money in the intervening ten years, 399 00:20:37,760 --> 00:20:41,440 Speaker 4: and we also borrowed another five million dollars to keep 400 00:20:41,480 --> 00:20:43,840 Speaker 4: the business venture going. And now we're only making one 401 00:20:43,880 --> 00:20:46,480 Speaker 4: hundred thousand dollars. Is that good or bad? 402 00:20:46,800 --> 00:20:50,119 Speaker 2: I'm feeling really rather sick right now thinking about these numbers. 403 00:20:50,200 --> 00:20:52,600 Speaker 4: Can I just tell you that's all you need to 404 00:20:52,680 --> 00:20:56,600 Speaker 4: know to differentiate between a good business and a bad business. 405 00:20:56,960 --> 00:21:00,000 Speaker 4: And all that information is available in the annual report 406 00:21:00,160 --> 00:21:03,920 Speaker 4: of the company, So you don't need to know much else. 407 00:21:04,240 --> 00:21:06,159 Speaker 4: You need to know how that put the turn the 408 00:21:06,160 --> 00:21:08,480 Speaker 4: stock market off, turn it off. Don't worry about the 409 00:21:08,480 --> 00:21:10,199 Speaker 4: share price. We're not talking about that yet. We're not 410 00:21:10,200 --> 00:21:12,399 Speaker 4: even going to look at it. All we're doing is 411 00:21:12,400 --> 00:21:14,920 Speaker 4: we're going to get an annual report from ten years ago. 412 00:21:15,080 --> 00:21:16,720 Speaker 4: We're going to have a look at how much equity 413 00:21:16,720 --> 00:21:19,639 Speaker 4: has been contributed by shareholders. We're going to have a 414 00:21:19,640 --> 00:21:22,080 Speaker 4: look at what the debt is. And then what we're 415 00:21:22,119 --> 00:21:24,600 Speaker 4: going to do is we're going to fast forward to 416 00:21:24,960 --> 00:21:28,560 Speaker 4: last year, for example, and from ten years ago, and 417 00:21:28,560 --> 00:21:30,439 Speaker 4: we're going to have a look at the profit change 418 00:21:30,840 --> 00:21:33,479 Speaker 4: over that time, the change in the equity, how much 419 00:21:33,560 --> 00:21:36,160 Speaker 4: extra capital has been put in, and how much extra 420 00:21:36,240 --> 00:21:39,320 Speaker 4: debt has been put in or paid off. That will 421 00:21:39,400 --> 00:21:42,520 Speaker 4: help us understand whether the business is a quality business 422 00:21:42,640 --> 00:21:46,640 Speaker 4: or not. It really is that in its essence, That's 423 00:21:46,680 --> 00:21:48,879 Speaker 4: what we're looking at now there's a little there's a 424 00:21:48,920 --> 00:21:51,120 Speaker 4: few other tweaks, and a few other bells and whistles. 425 00:21:51,640 --> 00:21:55,560 Speaker 4: We're trying to find businesses that can generate. Remember earlier 426 00:21:55,640 --> 00:21:57,720 Speaker 4: I said, in that first year, we put in a 427 00:21:57,720 --> 00:22:01,200 Speaker 4: million dollars and then we generated a profit of five 428 00:22:01,240 --> 00:22:04,760 Speaker 4: hundred thousand, so it was a fifty percent return. That 429 00:22:04,840 --> 00:22:08,040 Speaker 4: return is called return on equity. What we want to 430 00:22:08,080 --> 00:22:13,040 Speaker 4: do when finding extraordinary businesses is uncover those businesses that 431 00:22:13,080 --> 00:22:17,280 Speaker 4: can generate twenty thirty, forty to fifty percent every year 432 00:22:18,240 --> 00:22:21,280 Speaker 4: for a long period of time. A business can that 433 00:22:21,320 --> 00:22:25,879 Speaker 4: can do that has something called a sustainable competitive advantage 434 00:22:26,320 --> 00:22:28,760 Speaker 4: because as we all well, as I was taught when 435 00:22:28,760 --> 00:22:32,080 Speaker 4: I was at university, was that the way business works, 436 00:22:32,080 --> 00:22:34,800 Speaker 4: the way the economy works, is if someone is or 437 00:22:34,840 --> 00:22:38,840 Speaker 4: a business is generating an outsized return, they're generating a really, 438 00:22:38,960 --> 00:22:43,920 Speaker 4: really attractive return. It's going to attract competition. Other businesses 439 00:22:44,040 --> 00:22:48,360 Speaker 4: will join that business and compete for that fifty percent return, 440 00:22:48,760 --> 00:22:51,040 Speaker 4: and the easiest thing for them to do is to 441 00:22:51,080 --> 00:22:55,679 Speaker 4: cut prices, and by cutting prices, they then reduce the 442 00:22:55,760 --> 00:22:58,720 Speaker 4: return on equity. So what I was taught at university 443 00:22:58,800 --> 00:23:03,040 Speaker 4: is over time, in any industry where there's an outsized return, 444 00:23:03,280 --> 00:23:07,280 Speaker 4: it eventually normalizes, it reverts to the average because competitors 445 00:23:07,320 --> 00:23:10,159 Speaker 4: come in. So if you can find a business that 446 00:23:10,400 --> 00:23:15,280 Speaker 4: doesn't conform to that idea, it doesn't it's roe doesn't 447 00:23:15,280 --> 00:23:18,760 Speaker 4: fall back, but it stays high for years and years 448 00:23:18,800 --> 00:23:21,160 Speaker 4: and years and years. Then you've got a special business 449 00:23:21,320 --> 00:23:24,119 Speaker 4: because other businesses have tried to compete with it and 450 00:23:24,240 --> 00:23:26,120 Speaker 4: haven't been successful at doing that. 451 00:23:26,400 --> 00:23:26,560 Speaker 3: You know. 452 00:23:26,600 --> 00:23:30,280 Speaker 4: An example of that in Australia is Bunnings. You know, 453 00:23:30,359 --> 00:23:34,080 Speaker 4: Bunnings has an amazing return on equity. What does it 454 00:23:34,160 --> 00:23:37,640 Speaker 4: do that's so special? Really hard to replicate? You know, 455 00:23:37,920 --> 00:23:40,400 Speaker 4: for example, it has that special offer if you can 456 00:23:40,440 --> 00:23:43,439 Speaker 4: find it anywhere else, will beat it by ten percent. 457 00:23:43,480 --> 00:23:46,159 Speaker 4: How do they do that? The skews that they have. 458 00:23:46,280 --> 00:23:49,080 Speaker 4: Their products are exclusively made for them. You can't find 459 00:23:49,119 --> 00:23:52,880 Speaker 4: that product anywhere else. It doesn't exist anywhere else. There's 460 00:23:52,880 --> 00:23:54,600 Speaker 4: a different version of it somewhere else, but it's not 461 00:23:54,680 --> 00:23:57,600 Speaker 4: the same. And so people think they're going in getting 462 00:23:57,600 --> 00:24:00,960 Speaker 4: a bargain, but it's a special product just for Bunnings, 463 00:24:01,000 --> 00:24:02,560 Speaker 4: and Bunnings gets a special. 464 00:24:02,240 --> 00:24:09,120 Speaker 3: Margin on it. A tricked well, welcome to business, right. 465 00:24:09,320 --> 00:24:11,720 Speaker 2: And also, no one goes to Bunnings and buys one thing. 466 00:24:11,960 --> 00:24:12,760 Speaker 3: No, that's right. 467 00:24:12,960 --> 00:24:14,679 Speaker 4: You know, you go there for a paint brush and 468 00:24:14,720 --> 00:24:16,160 Speaker 4: you come back with a new chainsaw. 469 00:24:20,320 --> 00:24:23,320 Speaker 1: Bunnings is obviously a larger kind of business. You mentioned 470 00:24:23,359 --> 00:24:26,760 Speaker 1: before that the opportunities in Australia to find these larger 471 00:24:26,800 --> 00:24:31,000 Speaker 1: companies that are growing are becoming rarer. Correct, So then 472 00:24:31,840 --> 00:24:34,600 Speaker 1: are you seeing more of these opportunities in these smaller companies? 473 00:24:34,760 --> 00:24:37,359 Speaker 4: Yes, we are, you know, and just before I go there, 474 00:24:37,480 --> 00:24:40,480 Speaker 4: you know an example of a really really challenging business, 475 00:24:40,960 --> 00:24:44,040 Speaker 4: a real life challenging business that has similar economics to 476 00:24:44,080 --> 00:24:47,480 Speaker 4: the ones I described with that hypothetical example, and that 477 00:24:47,720 --> 00:24:52,479 Speaker 4: is Quantus Airlines. So airlines have a really tough time 478 00:24:52,600 --> 00:24:56,720 Speaker 4: making money, and that's because it's incredibly expensive to replace 479 00:24:56,800 --> 00:25:00,520 Speaker 4: old planes with new planes. And so you know that 480 00:25:00,560 --> 00:25:03,439 Speaker 4: the last CEO of Quantas didn't really buy any planes. 481 00:25:03,480 --> 00:25:07,360 Speaker 4: The joke in the industry amongst pilots at Quantas was that, 482 00:25:07,480 --> 00:25:09,320 Speaker 4: you know, the CEO was one of the first in 483 00:25:09,359 --> 00:25:11,879 Speaker 4: the airline industry to have never bought a plane. It 484 00:25:12,040 --> 00:25:14,400 Speaker 4: was just a running gag. I'm not sure if factually 485 00:25:14,440 --> 00:25:17,280 Speaker 4: that's precise, but you know, didn't buy many planes. The 486 00:25:17,359 --> 00:25:20,280 Speaker 4: new CEO is going to have to replace the fleet, 487 00:25:20,320 --> 00:25:22,360 Speaker 4: which is one of the oldest in the world. It's 488 00:25:22,359 --> 00:25:24,640 Speaker 4: going to have to replace those planes, and that's going 489 00:25:24,640 --> 00:25:27,200 Speaker 4: to be super expensive. So any profits that might have 490 00:25:27,280 --> 00:25:29,760 Speaker 4: appeared over the last ten or fifteen years are going 491 00:25:29,800 --> 00:25:32,520 Speaker 4: to be soaked up by new planes over the next 492 00:25:32,960 --> 00:25:36,119 Speaker 4: Owning a building in the city, owning a CBD office 493 00:25:36,200 --> 00:25:39,959 Speaker 4: tower that has bad economics, why because it only has 494 00:25:40,000 --> 00:25:43,240 Speaker 4: a little bit of land, which appreciates. Land goes up, 495 00:25:43,520 --> 00:25:47,119 Speaker 4: but buildings depreciate. Buildings go down in value. So if 496 00:25:47,160 --> 00:25:50,119 Speaker 4: you owned a building in the city for fifty years, 497 00:25:50,480 --> 00:25:52,640 Speaker 4: pretty much all the income that you've ever earned from 498 00:25:52,640 --> 00:25:55,320 Speaker 4: the rent has to go back into updating the building 499 00:25:55,359 --> 00:25:58,480 Speaker 4: to keep it competitive, to keep it attractive. Because every 500 00:25:58,480 --> 00:26:01,360 Speaker 4: time a new building goes up, everyone wants to move 501 00:26:01,359 --> 00:26:03,760 Speaker 4: into the new flash building with all the new technology. 502 00:26:03,960 --> 00:26:05,560 Speaker 4: They want to move out of the old building with 503 00:26:05,600 --> 00:26:09,000 Speaker 4: the old windows and no balcony and no tech. And 504 00:26:09,040 --> 00:26:11,439 Speaker 4: so there are good businesses and bad businesses, and we 505 00:26:11,480 --> 00:26:13,760 Speaker 4: now know how to identify the difference. Oh and in 506 00:26:13,800 --> 00:26:16,399 Speaker 4: answer to your question, sorry, it's small businesses. Will you 507 00:26:16,520 --> 00:26:19,040 Speaker 4: do the same thing amongst small businesses. You know, companies 508 00:26:19,160 --> 00:26:23,280 Speaker 4: like Levisa in Australia, which is the fashion jewelry chain, 509 00:26:23,600 --> 00:26:26,560 Speaker 4: growing really really quickly, really cheap to set up a store, 510 00:26:26,880 --> 00:26:31,200 Speaker 4: and their customers aren't sensitive to interest rates because often 511 00:26:31,240 --> 00:26:34,160 Speaker 4: they're living at home. They have a job, so they've 512 00:26:34,160 --> 00:26:35,760 Speaker 4: got income, but they don't have a mortgage, so if 513 00:26:35,760 --> 00:26:37,520 Speaker 4: interest rates go up, it's no skin off their nose, 514 00:26:38,200 --> 00:26:40,959 Speaker 4: and the price point is really really attractive. You've got 515 00:26:40,960 --> 00:26:44,879 Speaker 4: a business like ARB for example. AARB is the aftermarket 516 00:26:45,119 --> 00:26:48,199 Speaker 4: for will drive parts and accessories. They're expanding. They've got 517 00:26:48,240 --> 00:26:51,399 Speaker 4: a great reputation in Australia. Now they're leveraging that reputation 518 00:26:51,800 --> 00:26:56,160 Speaker 4: to expand overseas, and as their reputation grows, they'll bring 519 00:26:56,200 --> 00:26:59,000 Speaker 4: more cash home. And with the Australian dollars so week 520 00:26:59,160 --> 00:27:01,520 Speaker 4: it's worth a lot more. And then you might have 521 00:27:01,640 --> 00:27:03,960 Speaker 4: I'll just give you one more example. You know business 522 00:27:03,960 --> 00:27:07,600 Speaker 4: in the cloud computing space. A company called Macquarie Technology. 523 00:27:08,400 --> 00:27:12,919 Speaker 4: They own data centers and data centers of particularly attractive 524 00:27:12,960 --> 00:27:15,640 Speaker 4: businesses at the moment because while they cost a lot 525 00:27:15,680 --> 00:27:18,640 Speaker 4: to set up, once they're fully tenanted, it's just money 526 00:27:18,640 --> 00:27:20,520 Speaker 4: for jam. They're just throwing off rent. 527 00:27:21,280 --> 00:27:24,280 Speaker 1: One more question on small companies before I know, Kenny, 528 00:27:24,320 --> 00:27:25,320 Speaker 1: you're just itching too. 529 00:27:25,880 --> 00:27:28,040 Speaker 2: I am literally this is like torture for me because 530 00:27:28,040 --> 00:27:30,760 Speaker 2: I might abound five hundred thousand questions to ask you, 531 00:27:30,800 --> 00:27:31,400 Speaker 2: but I can't. 532 00:27:32,760 --> 00:27:35,080 Speaker 1: And also because I keep jumping in and asking questions 533 00:27:35,440 --> 00:27:38,440 Speaker 1: what about newer companies? Because we're talking before in the 534 00:27:38,560 --> 00:27:41,720 Speaker 1: hypothetical about kind of looking at over ten years, how 535 00:27:41,760 --> 00:27:44,359 Speaker 1: important is a track record and how long a track 536 00:27:44,440 --> 00:27:46,560 Speaker 1: record should you be looking for in order to make 537 00:27:46,640 --> 00:27:48,560 Speaker 1: this kind of educated decision. 538 00:27:48,800 --> 00:27:52,760 Speaker 4: The temptation is to buy the new new thing. We're 539 00:27:52,880 --> 00:27:55,359 Speaker 4: recording this, and I know this is going global, but 540 00:27:55,400 --> 00:27:57,879 Speaker 4: we're recording this in Sydney. You know, one of the 541 00:27:57,920 --> 00:28:01,320 Speaker 4: toughest businesses in Sydney to run is a restaurant or 542 00:28:01,359 --> 00:28:04,440 Speaker 4: a bar. Because Sydney Siders love the new new thing, 543 00:28:05,080 --> 00:28:07,520 Speaker 4: you know, they go on to they get really excited 544 00:28:07,520 --> 00:28:10,200 Speaker 4: about something that they move on and in investing, it's 545 00:28:10,320 --> 00:28:13,280 Speaker 4: tempting to go with the shiny new thing that the 546 00:28:13,320 --> 00:28:16,840 Speaker 4: promotion of a new technology, for example, that doesn't have 547 00:28:16,880 --> 00:28:19,600 Speaker 4: a track record. Let me say this, you can do 548 00:28:19,880 --> 00:28:24,360 Speaker 4: just fine. In fact, you'll do exceptionally well just ignoring 549 00:28:24,400 --> 00:28:26,800 Speaker 4: those just not investing in those because they don't have 550 00:28:26,840 --> 00:28:31,399 Speaker 4: a track record, and instead focusing on businesses that do. Now, 551 00:28:31,720 --> 00:28:33,520 Speaker 4: sometimes there are businesses that are new to. 552 00:28:33,480 --> 00:28:34,280 Speaker 3: The stock market. 553 00:28:34,280 --> 00:28:37,879 Speaker 4: They've just ipo'd, you know, they've just just had their 554 00:28:37,920 --> 00:28:40,760 Speaker 4: initial public offering. But they're an older business. They've been 555 00:28:40,800 --> 00:28:43,560 Speaker 4: around a long time. It's just that they haven't been 556 00:28:43,600 --> 00:28:47,600 Speaker 4: listed before. That is a different proposition, because that is 557 00:28:47,640 --> 00:28:49,440 Speaker 4: a business where you can look at the track record, 558 00:28:49,880 --> 00:28:52,080 Speaker 4: you can see what they've been doing in the past. 559 00:28:52,240 --> 00:28:55,680 Speaker 4: It's just that they're new to the stock market. Technology, 560 00:28:55,720 --> 00:28:59,080 Speaker 4: by the way, is a really dangerous field to invest in. 561 00:29:00,200 --> 00:29:03,200 Speaker 4: It's really really hard to predict who the winner is 562 00:29:03,240 --> 00:29:06,840 Speaker 4: going to be. You know, you look at the vehicle, 563 00:29:07,440 --> 00:29:10,000 Speaker 4: the motor car, right, I sound really old calling at 564 00:29:10,000 --> 00:29:11,920 Speaker 4: the motor car, because I'm in my mind I've just 565 00:29:11,920 --> 00:29:14,600 Speaker 4: gone back to eighteen eighty eight, right when the first 566 00:29:14,640 --> 00:29:19,440 Speaker 4: motor vehicle, the first horseless carriage at the automobile, was 567 00:29:19,480 --> 00:29:24,960 Speaker 4: invented by Carl Bens. Here's a really interesting fact. He 568 00:29:25,080 --> 00:29:29,200 Speaker 4: invented that for what was called promenading. So promenading is 569 00:29:29,200 --> 00:29:31,480 Speaker 4: something you did in the late eighteen hundreds in Germany 570 00:29:31,520 --> 00:29:34,959 Speaker 4: and in France, people walked around with their parasols and 571 00:29:35,000 --> 00:29:37,360 Speaker 4: their dresses, and they walked around the park and they 572 00:29:37,400 --> 00:29:40,640 Speaker 4: showed off their new clothes, and some of them rode horses. 573 00:29:40,960 --> 00:29:43,320 Speaker 4: And then Carl Ben's thought, I'm going to top everyone. 574 00:29:43,880 --> 00:29:46,200 Speaker 4: I'm going to have an automobile. That's what I'm going 575 00:29:46,280 --> 00:29:50,520 Speaker 4: to do. Now, here's a really interesting fact about transportation. 576 00:29:51,160 --> 00:29:56,320 Speaker 4: His wife, Bertha Betty, his wife, stole the car and 577 00:29:56,360 --> 00:30:00,880 Speaker 4: she drove to another town. Halfway along that road, she 578 00:30:01,040 --> 00:30:03,640 Speaker 4: ran out of fuel. It ran on alcohol. So she 579 00:30:03,720 --> 00:30:07,080 Speaker 4: went into a pharmacist and asked for some alcohol, and 580 00:30:07,120 --> 00:30:09,680 Speaker 4: the pharmacist gave her a tiny little jar of alcohol. 581 00:30:09,720 --> 00:30:10,720 Speaker 3: This is all a true story. 582 00:30:11,160 --> 00:30:14,000 Speaker 4: She said, no, no, no, I want all of your alcohol. 583 00:30:14,320 --> 00:30:16,920 Speaker 4: She put it in the vehicle, drove to another town, 584 00:30:17,000 --> 00:30:19,000 Speaker 4: did her grocery shopping or did whatever it is she 585 00:30:19,040 --> 00:30:23,040 Speaker 4: wanted to do, and came back and it transformed the world. 586 00:30:23,240 --> 00:30:24,800 Speaker 3: Now, how exciting would it have. 587 00:30:24,800 --> 00:30:28,880 Speaker 4: Been to be there looking at this vehicle and thinking 588 00:30:29,200 --> 00:30:31,680 Speaker 4: this is I want to invest in this, I want 589 00:30:31,720 --> 00:30:34,240 Speaker 4: to buy into this new technology. Well, in the United 590 00:30:34,280 --> 00:30:38,880 Speaker 4: States since then, there's been about fifteen hundred car manufacturers 591 00:30:39,320 --> 00:30:42,880 Speaker 4: and there is not one today that is profitable that 592 00:30:43,120 --> 00:30:46,520 Speaker 4: wasn't bailed out by government or private equity. The rest 593 00:30:46,560 --> 00:30:49,959 Speaker 4: of gone broke. The same with airlines, the same with 594 00:30:50,000 --> 00:30:55,360 Speaker 4: television manufacturing. Technology is great for consumers, it's usually pretty 595 00:30:55,440 --> 00:30:56,560 Speaker 4: dangerous for investors. 596 00:30:57,440 --> 00:31:00,880 Speaker 1: I lost for words, but I do say that I'm 597 00:31:00,920 --> 00:31:02,760 Speaker 1: sensing an opportunity here for me to jump back in, 598 00:31:02,960 --> 00:31:04,200 Speaker 1: go for it. Canna all right? 599 00:31:04,240 --> 00:31:06,800 Speaker 2: For the listeners are thinking, wow, this is fascinating. I 600 00:31:06,840 --> 00:31:09,320 Speaker 2: want to invest like this, but I'm time poor. I 601 00:31:09,360 --> 00:31:12,240 Speaker 2: don't have time to go and look at an annual 602 00:31:12,280 --> 00:31:15,520 Speaker 2: report from ten years ago. Is there a cheat sheet? 603 00:31:16,720 --> 00:31:17,440 Speaker 3: There? Used to be? 604 00:31:17,720 --> 00:31:20,760 Speaker 4: We many years ago, I developed a piece of software 605 00:31:20,960 --> 00:31:23,280 Speaker 4: that allowed you to press a button and it would 606 00:31:23,400 --> 00:31:26,920 Speaker 4: it would take all of the companies with their updated 607 00:31:27,080 --> 00:31:30,600 Speaker 4: results from their half yearly results and their annual returns 608 00:31:31,040 --> 00:31:34,040 Speaker 4: or annual reports, and then it would distill all that 609 00:31:34,080 --> 00:31:38,400 Speaker 4: information and then grade companies. And I sold that business 610 00:31:38,400 --> 00:31:40,959 Speaker 4: many years ago because I couldn't continue to run that 611 00:31:41,200 --> 00:31:44,040 Speaker 4: and run my funds management business and dedicate myself to 612 00:31:44,680 --> 00:31:48,320 Speaker 4: the returns for our investors. So I sold that business. 613 00:31:48,560 --> 00:31:51,440 Speaker 4: That business then non sold it again, and unfortunately, the 614 00:31:51,440 --> 00:31:55,120 Speaker 4: subsequent business that bought it went bust. And so that 615 00:31:55,280 --> 00:31:57,960 Speaker 4: software is now gone. So the short answer is, there 616 00:31:58,040 --> 00:32:03,280 Speaker 4: isn't a short lots of broken websites that allow you 617 00:32:03,320 --> 00:32:06,440 Speaker 4: to search for companies with high rates of return on equity. 618 00:32:06,800 --> 00:32:09,160 Speaker 4: So you can run a filter, you can find businesses 619 00:32:09,160 --> 00:32:11,360 Speaker 4: with high rates of return on equity. Then what you 620 00:32:11,400 --> 00:32:13,440 Speaker 4: need to do is go look at the ones with 621 00:32:13,520 --> 00:32:16,320 Speaker 4: good great returns on equity and do that analysis that 622 00:32:16,360 --> 00:32:21,760 Speaker 4: we talked about earlier, and then from that list start 623 00:32:21,840 --> 00:32:23,600 Speaker 4: thinking about And this is the hard bit of investing. 624 00:32:23,640 --> 00:32:27,080 Speaker 4: It's the only hardbit imagining how this business is going 625 00:32:27,160 --> 00:32:29,560 Speaker 4: to continue winning. Why do I think this is going 626 00:32:29,600 --> 00:32:31,840 Speaker 4: to be the winning business? Why do I think people 627 00:32:31,880 --> 00:32:34,280 Speaker 4: will cross the street even though there might be a 628 00:32:34,360 --> 00:32:36,760 Speaker 4: cheaper product on this side of the street. Why will 629 00:32:36,760 --> 00:32:39,320 Speaker 4: they cross the street and pay a higher price from 630 00:32:39,360 --> 00:32:44,600 Speaker 4: this business. Tiffany's is an example. Tiffany's diamonds super expensive. 631 00:32:45,040 --> 00:32:47,040 Speaker 3: But I have bought all of. 632 00:32:47,000 --> 00:32:48,920 Speaker 4: The diamonds for my wife that I've ever bought, be 633 00:32:48,960 --> 00:32:52,320 Speaker 4: it the engagement ring or a tennis bracelet or whatever, 634 00:32:52,920 --> 00:32:56,120 Speaker 4: I have bought those things from a diamond merchant because 635 00:32:56,120 --> 00:33:00,719 Speaker 4: instead of paying seventy thousand dollars for a tennis bracelet, Tiffany's. 636 00:33:00,880 --> 00:33:03,440 Speaker 4: I've got exactly the same diamonds of the same cut, 637 00:33:03,480 --> 00:33:05,960 Speaker 4: the same clarity, the same quality, everything's the same, and 638 00:33:05,960 --> 00:33:07,440 Speaker 4: I got it for less than ten thousand dollars. 639 00:33:08,080 --> 00:33:08,680 Speaker 3: Now, why do. 640 00:33:08,680 --> 00:33:12,560 Speaker 4: People cross the road to spend more for Tiffany's. And 641 00:33:12,600 --> 00:33:15,200 Speaker 4: that's because of the you know, the provenance and the 642 00:33:15,360 --> 00:33:20,320 Speaker 4: history and the little coys, that little patented blue box. 643 00:33:20,400 --> 00:33:22,400 Speaker 4: You know that color is patented. No one else can 644 00:33:22,480 --> 00:33:26,840 Speaker 4: use it people, And look, the fact is people know 645 00:33:26,960 --> 00:33:29,600 Speaker 4: that when they get down on one knee and ask 646 00:33:29,680 --> 00:33:32,240 Speaker 4: that really really important question, will you marry me? You 647 00:33:32,280 --> 00:33:34,120 Speaker 4: don't want to finish that sentence with and look, I 648 00:33:34,160 --> 00:33:35,040 Speaker 4: saved forty percent. 649 00:33:36,440 --> 00:33:37,360 Speaker 1: That's not a great. 650 00:33:37,200 --> 00:33:39,760 Speaker 3: Way to finish that killer exactly. 651 00:33:39,760 --> 00:33:41,640 Speaker 1: Having said that, I suspect there's plenty of people listening 652 00:33:41,720 --> 00:33:43,760 Speaker 1: right now that want the name of your diamond merchants. 653 00:33:44,040 --> 00:33:46,880 Speaker 4: I'm sure well to happy to talk to her about 654 00:33:46,920 --> 00:33:47,960 Speaker 4: that and ask if that's okay. 655 00:33:48,200 --> 00:33:49,440 Speaker 3: But let me just say this. 656 00:33:49,560 --> 00:33:52,760 Speaker 4: You know, Tiffany's knows that, and there's a perception that 657 00:33:52,760 --> 00:33:56,520 Speaker 4: it's better quality because it's expensive, and so they generate 658 00:33:56,600 --> 00:33:59,200 Speaker 4: a really attractive rate of return on equity as a 659 00:33:59,240 --> 00:34:01,800 Speaker 4: consequence of able to charge more for their product? 660 00:34:03,200 --> 00:34:05,160 Speaker 1: Can I ask you about Sorry, now I'm just jumping 661 00:34:05,200 --> 00:34:07,200 Speaker 1: back in again. So I'm like, cand you've had one question, 662 00:34:07,240 --> 00:34:09,279 Speaker 1: Now it's my turn to ask three more. Can I 663 00:34:09,280 --> 00:34:12,719 Speaker 1: ask you about diversification? And this is kind of a 664 00:34:12,719 --> 00:34:14,279 Speaker 1: broader because we are running out of time, but I 665 00:34:14,280 --> 00:34:18,200 Speaker 1: want to ask a broader kind of perspective on a portfolio. Yes, 666 00:34:18,600 --> 00:34:22,480 Speaker 1: So how important is diversification within a portfolio? What does 667 00:34:22,520 --> 00:34:24,360 Speaker 1: that look like? And does it mean that you should 668 00:34:24,400 --> 00:34:27,200 Speaker 1: be looking to own ten or twenty or thirty or 669 00:34:27,280 --> 00:34:30,799 Speaker 1: more at different companies within that portfolio. 670 00:34:31,880 --> 00:34:34,640 Speaker 4: I have been doing this for over thirty years, so 671 00:34:35,080 --> 00:34:37,239 Speaker 4: I know what I'm looking for. So in my portfolio, 672 00:34:37,280 --> 00:34:40,080 Speaker 4: I have six companies, you know, my private portfolio. But 673 00:34:40,120 --> 00:34:41,719 Speaker 4: I also know I'm going to make mistakes and I 674 00:34:41,760 --> 00:34:44,239 Speaker 4: also know I'm going to miss opportunities. So what I've 675 00:34:44,280 --> 00:34:47,520 Speaker 4: done is I've invested with fund managers. So I'm invested 676 00:34:47,680 --> 00:34:50,440 Speaker 4: with fund managers who are doing that for me as well. 677 00:34:50,920 --> 00:34:54,319 Speaker 4: So I've got my own little portfolio where I do 678 00:34:54,440 --> 00:34:58,280 Speaker 4: my own thing. But then I've invested the larger proportion 679 00:34:58,440 --> 00:35:02,400 Speaker 4: of my wealth with other managers, mostly the managers who 680 00:35:02,520 --> 00:35:05,680 Speaker 4: we work with but yeah, with other managers. So do 681 00:35:05,719 --> 00:35:08,719 Speaker 4: they get They give me the diversification that I need. 682 00:35:08,760 --> 00:35:11,520 Speaker 4: And I would advocate the same approach for most people 683 00:35:11,560 --> 00:35:13,799 Speaker 4: who are new to doing this. As you're learning, you're 684 00:35:13,840 --> 00:35:16,480 Speaker 4: going to make mistakes. It's not easy. You know, it 685 00:35:17,239 --> 00:35:20,000 Speaker 4: sounds easy, but it's not easy because there are going 686 00:35:20,000 --> 00:35:22,120 Speaker 4: to be you know, Trump's going to do something silly, 687 00:35:22,160 --> 00:35:24,440 Speaker 4: or Jijiping in China is going to do something silly. 688 00:35:24,600 --> 00:35:27,040 Speaker 4: The market's going to get volatile, You're going to get nervous, 689 00:35:27,040 --> 00:35:30,600 Speaker 4: You're probably going to react emotionally and probably do the 690 00:35:30,600 --> 00:35:33,280 Speaker 4: wrong thing at the wrong time. So it's really important 691 00:35:33,280 --> 00:35:36,320 Speaker 4: to have some of your money invested with fund managers 692 00:35:37,440 --> 00:35:40,440 Speaker 4: or you know, some people even advocate investing in ETFs. 693 00:35:40,960 --> 00:35:42,840 Speaker 4: I think there are some benefits to that, but there 694 00:35:42,840 --> 00:35:47,200 Speaker 4: are also some risks, particularly those thematic ETFs. We don't 695 00:35:47,200 --> 00:35:49,239 Speaker 4: have time to talk about that today, but so you know, 696 00:35:49,280 --> 00:35:52,840 Speaker 4: I'll advocate having some element of doing it yourself because 697 00:35:52,840 --> 00:35:55,520 Speaker 4: that will make you a better investor in funds as well. 698 00:35:55,920 --> 00:35:59,279 Speaker 2: Would you include listed investment companies in this in that 699 00:35:59,360 --> 00:36:01,440 Speaker 2: obviously is very similar for an ATF, but it's a 700 00:36:01,480 --> 00:36:04,800 Speaker 2: different tax structure behind it, and long term buy and 701 00:36:04,880 --> 00:36:05,799 Speaker 2: hold philosophy. 702 00:36:06,440 --> 00:36:06,640 Speaker 3: Yeah. 703 00:36:06,719 --> 00:36:11,200 Speaker 4: So listed investment companies are companies that are listed and 704 00:36:11,719 --> 00:36:15,080 Speaker 4: all they do is buy a portfolio of shares or 705 00:36:15,080 --> 00:36:17,799 Speaker 4: buy portfolio of assets. So when you invest in a 706 00:36:17,840 --> 00:36:20,760 Speaker 4: listed investment company, you're buying shares on the stock market, 707 00:36:21,040 --> 00:36:24,239 Speaker 4: but you're buying into a portfolio. Now, the thing with 708 00:36:24,320 --> 00:36:28,240 Speaker 4: it listed investment companies shares is that sometimes they trade 709 00:36:28,280 --> 00:36:32,360 Speaker 4: above or below what that portfolio is worth. The NA, 710 00:36:32,400 --> 00:36:35,680 Speaker 4: the NTA, the net tangible assets. So if you're buying 711 00:36:35,719 --> 00:36:38,640 Speaker 4: above and selling below, well you're going to be doing 712 00:36:38,680 --> 00:36:41,839 Speaker 4: worse than the underlying portfolio. I think they're fine if 713 00:36:41,880 --> 00:36:44,520 Speaker 4: you've got a really long term mindset, and that's what 714 00:36:44,520 --> 00:36:47,840 Speaker 4: we're talking about today, so there's probably a place for them. 715 00:36:48,080 --> 00:36:51,600 Speaker 4: ETFs exchange traded funds tend to trade at their net 716 00:36:51,640 --> 00:36:54,680 Speaker 4: asset value, you know, they trade at their NTA, so 717 00:36:54,719 --> 00:36:57,239 Speaker 4: there you're getting in and out. Typically you're buying and 718 00:36:57,280 --> 00:37:01,080 Speaker 4: selling at the underlying asset value. And there are lots 719 00:37:01,120 --> 00:37:03,880 Speaker 4: of them. You know, you can invest in bitcoin ETFs 720 00:37:03,920 --> 00:37:07,440 Speaker 4: now in the US listed on the NASDAK. You know, 721 00:37:07,480 --> 00:37:09,920 Speaker 4: there's so many different themes that you can invest in. 722 00:37:10,200 --> 00:37:13,400 Speaker 4: I think they're potentially dangerous because often there'll be a 723 00:37:13,440 --> 00:37:17,120 Speaker 4: plethora of them launching, just as that particular theme is 724 00:37:17,120 --> 00:37:20,880 Speaker 4: that maximum popularity, and that's one of the dangers of investing. 725 00:37:20,920 --> 00:37:24,240 Speaker 4: Don't invest at maximum popularity. You generally want to invest 726 00:37:24,280 --> 00:37:25,680 Speaker 4: at maximum despondency. 727 00:37:26,600 --> 00:37:30,640 Speaker 1: Roger, we are unfortunately running out of time and it 728 00:37:30,680 --> 00:37:32,520 Speaker 1: does mean that you are going to have to come 729 00:37:32,560 --> 00:37:34,920 Speaker 1: back and do this again. Very happy to you if 730 00:37:34,920 --> 00:37:37,239 Speaker 1: that's all right, because there is so much more and 731 00:37:37,520 --> 00:37:40,040 Speaker 1: I feel like I've robbed Canner of so many opportunities 732 00:37:40,040 --> 00:37:42,480 Speaker 1: to ask questions here and that this could be our 733 00:37:42,480 --> 00:37:43,680 Speaker 1: first three hour episodes. 734 00:37:44,600 --> 00:37:45,480 Speaker 3: It's any consolation. 735 00:37:45,719 --> 00:37:48,920 Speaker 4: Back in the early two thousands, I used to run 736 00:37:49,400 --> 00:37:52,680 Speaker 4: a session for investors for the Australian Stock Exchange and 737 00:37:52,760 --> 00:37:55,280 Speaker 4: I spoke for eight hours on this subject. 738 00:37:55,360 --> 00:37:57,400 Speaker 1: So trying to cram it into a half hour podcast 739 00:37:57,480 --> 00:37:59,480 Speaker 1: is probably asking a little bit much. We might have 740 00:37:59,520 --> 00:38:01,560 Speaker 1: to do a full series. I suspect in that case 741 00:38:02,000 --> 00:38:04,680 Speaker 1: before we go, though we did reference earlier. Okay, we 742 00:38:04,719 --> 00:38:07,400 Speaker 1: want to know where to get more information. Are the 743 00:38:07,920 --> 00:38:12,879 Speaker 1: books that you have found useful? And also I will 744 00:38:12,920 --> 00:38:16,480 Speaker 1: mention your website again visit montinvest dot com. Roger at 745 00:38:16,520 --> 00:38:19,239 Speaker 1: Montgomery dot com as well. What are the books though 746 00:38:19,239 --> 00:38:19,960 Speaker 1: we should be looking at. 747 00:38:20,200 --> 00:38:22,640 Speaker 4: So I think if you can, if you can start 748 00:38:22,680 --> 00:38:27,000 Speaker 4: off with anything by or about Benjamin Graham. 749 00:38:27,040 --> 00:38:28,480 Speaker 3: So if you're really. 750 00:38:28,200 --> 00:38:33,040 Speaker 4: Keen on investing yourself direct investing in chairs, start off 751 00:38:33,040 --> 00:38:35,120 Speaker 4: with Ben Graham. But then you're going to graduate from 752 00:38:35,160 --> 00:38:38,920 Speaker 4: Ben Graham because Ben Graham's method in today's market is 753 00:38:38,960 --> 00:38:42,719 Speaker 4: probably going to be less than effective. He had what 754 00:38:42,920 --> 00:38:45,160 Speaker 4: was called the cigar but approach to investing. You know, 755 00:38:45,200 --> 00:38:47,080 Speaker 4: the idea that you find a cigar butt in the 756 00:38:47,080 --> 00:38:48,799 Speaker 4: street and it's got one puff left, and you take 757 00:38:48,840 --> 00:38:51,560 Speaker 4: that puff. I'm not a smoker, but presumably people have 758 00:38:51,640 --> 00:38:53,920 Speaker 4: done that, and then you throw it away and you 759 00:38:53,920 --> 00:38:56,160 Speaker 4: get a return from that last puff or the one 760 00:38:56,200 --> 00:39:00,160 Speaker 4: that was discarded. Much better is it to invest in 761 00:39:00,360 --> 00:39:05,440 Speaker 4: high quality companies and businesses with those sustainable competitive advantages 762 00:39:05,480 --> 00:39:09,160 Speaker 4: we talked about earlier. Now the author of that style 763 00:39:09,200 --> 00:39:12,560 Speaker 4: of investing is Charlie Munger, who worked with Warren Buffett. 764 00:39:12,800 --> 00:39:15,600 Speaker 4: So if you can read anything, you know, the Making 765 00:39:15,640 --> 00:39:19,560 Speaker 4: of an American Capitalist by Roger Lowenstein is a really 766 00:39:19,560 --> 00:39:24,759 Speaker 4: good one. Snowball is another good book about Warren Buffett. 767 00:39:25,120 --> 00:39:29,160 Speaker 4: The Warren Buffett Way and The Warren Buffett Portfolio by 768 00:39:29,280 --> 00:39:33,239 Speaker 4: Robert Hagstrom are another two that are really good. 769 00:39:33,880 --> 00:39:35,640 Speaker 3: But then I read all those books. 770 00:39:35,719 --> 00:39:39,480 Speaker 4: You know, I've got a library of books, hundreds, and 771 00:39:39,520 --> 00:39:42,600 Speaker 4: I've read them all, and I was still dissatisfied. I 772 00:39:42,600 --> 00:39:46,919 Speaker 4: still felt that the Buffet and Munger philosophy hadn't been 773 00:39:47,000 --> 00:39:50,680 Speaker 4: distilled properly. And I wanted to leave my kids a 774 00:39:50,719 --> 00:39:54,480 Speaker 4: recipe to follow that approach in the event of my 775 00:39:54,880 --> 00:39:58,120 Speaker 4: untimely demise. They're now adults. They actually don't care about 776 00:39:58,120 --> 00:40:02,640 Speaker 4: shares at all. I remember one of my kids in 777 00:40:02,719 --> 00:40:05,080 Speaker 4: year eleven, he took up business studies and he said, Dad, 778 00:40:05,120 --> 00:40:07,919 Speaker 4: can you explain profit and lost? Balance sheet and cash 779 00:40:07,960 --> 00:40:09,719 Speaker 4: flow statements? So we sat down, we did what we 780 00:40:09,760 --> 00:40:12,120 Speaker 4: did earlier. Anyway, he puts his hand on my shoulder 781 00:40:12,120 --> 00:40:15,239 Speaker 4: in You're eleven, he said, Dad, I've chosen the wrong subject. Dad, 782 00:40:15,239 --> 00:40:15,880 Speaker 4: this is not for me. 783 00:40:17,920 --> 00:40:20,880 Speaker 3: So this is really that, you know. 784 00:40:21,239 --> 00:40:23,360 Speaker 4: Anyway, I wrote a book for him in the event 785 00:40:23,400 --> 00:40:25,719 Speaker 4: that he would be interested, and that's the book that 786 00:40:25,800 --> 00:40:28,279 Speaker 4: I published some years ago called Valuable. 787 00:40:28,680 --> 00:40:31,120 Speaker 1: That is great, and I know, Canna, you will be 788 00:40:31,239 --> 00:40:34,040 Speaker 1: very keen to you are holding a copy in your 789 00:40:34,120 --> 00:40:35,640 Speaker 1: hands right now, am. 790 00:40:36,120 --> 00:40:39,240 Speaker 2: This is I'm getting into bed tonight with this. 791 00:40:40,360 --> 00:40:41,600 Speaker 3: Good you goodness me. 792 00:40:42,000 --> 00:40:42,960 Speaker 2: I'm lucky Tom. 793 00:40:43,040 --> 00:40:46,680 Speaker 1: Indeed, now, Roger, the only thing that we haven't mentioned 794 00:40:47,000 --> 00:40:49,000 Speaker 1: to you is the fact that whenever we have a 795 00:40:49,080 --> 00:40:53,240 Speaker 1: special guest in the studio, that it becomes their responsibility 796 00:40:53,239 --> 00:40:55,960 Speaker 1: to supply us with our savings. Tip of the wing, 797 00:40:56,200 --> 00:40:58,120 Speaker 1: which is he gave us. 798 00:40:58,040 --> 00:41:00,560 Speaker 2: One through your diamond wholesale. 799 00:41:01,800 --> 00:41:04,240 Speaker 4: That's a big saving. That's a substantial saving. 800 00:41:04,920 --> 00:41:08,040 Speaker 1: That's not my Tip's got another one double tip. 801 00:41:08,200 --> 00:41:08,399 Speaker 3: Yeah. 802 00:41:08,440 --> 00:41:12,799 Speaker 4: My tip is there's actually two parts to it. Number one, 803 00:41:13,480 --> 00:41:18,359 Speaker 4: pay yourself first. So when you receive your pay from 804 00:41:18,400 --> 00:41:21,400 Speaker 4: your employer, for example, or you get your first contract, 805 00:41:21,440 --> 00:41:23,359 Speaker 4: if you're starting out in a business and you've got 806 00:41:23,360 --> 00:41:28,120 Speaker 4: your first invoice paid, carve out some money for yourself 807 00:41:28,440 --> 00:41:30,760 Speaker 4: first and put that away in a separate bank account 808 00:41:30,760 --> 00:41:34,799 Speaker 4: with no access, and that's going to be your wealthing account. 809 00:41:35,160 --> 00:41:38,279 Speaker 4: You're going to build your wealth by just having this 810 00:41:38,360 --> 00:41:41,680 Speaker 4: account over here that you pay yourself and then survive 811 00:41:41,800 --> 00:41:44,160 Speaker 4: on the rest. You know, you pay your rent, you 812 00:41:44,200 --> 00:41:46,319 Speaker 4: pay your bills, you pay all those other things. Pay 813 00:41:46,360 --> 00:41:49,000 Speaker 4: your parents because you're so grateful that they supported you. 814 00:41:49,040 --> 00:41:51,520 Speaker 4: While you were growing up. And do all of those 815 00:41:51,560 --> 00:41:54,520 Speaker 4: things with what remains, but don't touch that other money 816 00:41:54,640 --> 00:41:56,799 Speaker 4: that's going to build your wealth, whether it's for your 817 00:41:56,800 --> 00:41:59,080 Speaker 4: first deposit for a property or you know, to buy 818 00:41:59,160 --> 00:42:02,120 Speaker 4: property outright, mate, I don't know, but pay yourself first. 819 00:42:02,680 --> 00:42:04,719 Speaker 4: And the other thing that I'll say is when your 820 00:42:04,760 --> 00:42:07,920 Speaker 4: salary goes up, don't let your spending go up like 821 00:42:08,040 --> 00:42:11,560 Speaker 4: that dog creep you've had, Yeah, you've had. If you've 822 00:42:11,680 --> 00:42:13,640 Speaker 4: enjoyed your life last year, the year before and the 823 00:42:13,719 --> 00:42:16,040 Speaker 4: year before that, well you'll enjoy it just as much 824 00:42:16,080 --> 00:42:18,239 Speaker 4: if you spend just as much next year and the 825 00:42:18,320 --> 00:42:18,719 Speaker 4: year after. 826 00:42:18,719 --> 00:42:19,200 Speaker 3: But if your. 827 00:42:19,120 --> 00:42:20,960 Speaker 4: Salary goes up, that's more that can go in the 828 00:42:21,000 --> 00:42:24,040 Speaker 4: wealthing account. That's more that you can put aside for yourself. 829 00:42:24,360 --> 00:42:28,280 Speaker 4: So pay yourself first and don't let your expenses increase 830 00:42:28,440 --> 00:42:29,719 Speaker 4: with your salary. 831 00:42:30,719 --> 00:42:33,480 Speaker 2: And on that note, most of Australians are about to 832 00:42:33,480 --> 00:42:36,000 Speaker 2: go to tax savings, which is on average around about 833 00:42:36,000 --> 00:42:39,080 Speaker 2: one hundred and fifty dollars per month, So use that 834 00:42:39,120 --> 00:42:41,000 Speaker 2: one hundred and fifty to start your wealthing account. 835 00:42:41,040 --> 00:42:44,080 Speaker 1: There you go, because it's just everybody just volunteering tips here. 836 00:42:45,440 --> 00:42:46,120 Speaker 1: This is amazing. 837 00:42:46,680 --> 00:42:47,560 Speaker 2: We're on the same page. 838 00:42:47,640 --> 00:42:49,719 Speaker 1: Yes, you certainly are. It feels like you are on 839 00:42:49,760 --> 00:42:53,440 Speaker 1: the same wavelength. Roger, this has been fantastic. Thank you 840 00:42:53,480 --> 00:42:55,000 Speaker 1: so much for coming in and joining us today. 841 00:42:55,040 --> 00:42:56,440 Speaker 3: Thank you for having me on the program. 842 00:42:56,560 --> 00:42:59,440 Speaker 1: That was Roger Montgomery, founder and Chief investment officer at 843 00:42:59,440 --> 00:43:03,399 Speaker 1: Montgomery Investment Management and supporter of this podcast. Visitmontinvest dot 844 00:43:03,440 --> 00:43:06,000 Speaker 1: com for more information, sign up for Roger's insights at 845 00:43:06,080 --> 00:43:09,239 Speaker 1: Roger Montgomery dot com and don't forget to pick up 846 00:43:09,239 --> 00:43:11,640 Speaker 1: a copy of his book as well, value able. Now 847 00:43:11,680 --> 00:43:14,000 Speaker 1: remember this is all general information only. You should seek 848 00:43:14,000 --> 00:43:17,840 Speaker 1: professional advice before making investment decisions. And Kenna, if we 849 00:43:17,880 --> 00:43:19,640 Speaker 1: want more information from you, where do we find you. 850 00:43:19,880 --> 00:43:21,759 Speaker 2: The fastest supposed to get in contact with me is 851 00:43:21,800 --> 00:43:25,040 Speaker 2: actually through Instagram, so shoot me through a DM. 852 00:43:24,600 --> 00:43:27,120 Speaker 1: There excellent and you can hear me every day with 853 00:43:27,160 --> 00:43:30,320 Speaker 1: Sean Aylmer on Fear and Greed, Australia's best business podcast. 854 00:43:30,600 --> 00:43:32,160 Speaker 1: Thank you very much for listening to how Do They 855 00:43:32,160 --> 00:43:35,000 Speaker 1: Afford That? Remember to hit follow on the podcast and 856 00:43:35,080 --> 00:43:36,759 Speaker 1: the very best thing that you can do to help 857 00:43:36,840 --> 00:43:39,120 Speaker 1: us out is to tell somebody else to spread the 858 00:43:39,120 --> 00:43:41,919 Speaker 1: word about how do they Afford That? Next week we 859 00:43:41,960 --> 00:43:45,000 Speaker 1: are talking about can money make you happy? It is 860 00:43:45,040 --> 00:43:48,640 Speaker 1: a guide to mindful spending. Feels like the kind of 861 00:43:48,640 --> 00:43:50,080 Speaker 1: thing you're going to be very passionate about. 862 00:43:50,640 --> 00:43:54,520 Speaker 2: I've read a book called Mindful Money. You better believe it. 863 00:43:53,880 --> 00:43:56,520 Speaker 1: It is one not to miss. Join us then,