Speaker 1: Juno Koto. Welcome to Shared Lunch. I'm Garth Bray. With
Speaker 1: all of the hype around AI and tech stocks, with
Speaker 1: all of that building up, maybe now is a perfect
Speaker 1: time to get a realistic take from someone who's been
Speaker 1: in the market long enough to remember other times when
Speaker 1: it was a little frotty to know the difference between
Speaker 1: a bargain and a bubble. That person is Scott Phillips
Speaker 1: from the Motley Fall in Australia legendary stockpicker. But before
Speaker 1: we hear from Scott has some important information that you
Speaker 1: should always consider an investing.
Speaker 2: Investing involves the risk you might lose the money you
Speaker 2: start with. We recommend talking to a licensed financial advisor.
Speaker 2: We also recommend reading product disclosure documents before deciding to invest.
Speaker 2: Everything you're about to see and here is current at
Speaker 2: the time of recording.
Speaker 1: Hi, Scott good A, thanks for having me on Shared Lunch. Look,
Speaker 1: we've just had a US federal reserve rate cuts, first
Speaker 1: one in nine months, like waiting for baby to be born,
Speaker 1: as true would tell us that after that length of
Speaker 1: time between changes and the policy rate in the U
Speaker 1: is the price of money that will typically see a
Speaker 1: bit of a bounce in this in the s and
Speaker 1: P five hundred the market and so on, and that's
Speaker 1: already to record a high, right, So how is this
Speaker 1: not a bubble?
Speaker 3: How have you got? Look, let's go with the rate
Speaker 3: cuts first, to come back to the bubble. The thing
Speaker 3: about rate cuts are any economic indicators, is the market
Speaker 3: tends to only react when it doesn't expect what happens.
Speaker 3: Jerome Power, the US Federal Reserve Chair, had written this
Speaker 3: almost in blood, and so we will cut rates, and
Speaker 3: so it was no surprise to the market that had happened.
Speaker 3: So part of what you're talking about about that increase
Speaker 3: on the back of rates is true. But I think
Speaker 3: someone's already happened. That idea of market anticipating the announcement,
Speaker 3: and that's why we saw almost no move on the day,
Speaker 3: was because it was already built into share prices. That
Speaker 3: being said, your question about the bubble is a really
Speaker 3: good one, and I'm going to try and separate out
Speaker 3: a record high from a bubble, because the market always
Speaker 3: hits record highs. It's the story of the last century plus.
Speaker 3: On the ASX, the New Zealand stocking chains, the US markets,
Speaker 3: we hit new highs all the time, because capitalism finds
Speaker 3: ways to solve new and old problems. And so that process,
Speaker 3: that literally the creative destruction that we talk about all
Speaker 3: the time, is what happens, whether that's a new way
Speaker 3: of doing something or a brand new thing. Think about
Speaker 3: the iPhone that's now not even still twenty years old. Now,
Speaker 3: think about any technology before or after that period of
Speaker 3: time that makes us more productive, makes us happier, makes
Speaker 3: us smarter, makes us richer. Those things happen anyway, and
Speaker 3: so what's really really important to know upfront is a
Speaker 3: bubble is sometimes absolutely a bubble. More often than not,
Speaker 3: a record high is simply the last high when we
Speaker 3: get to the next one. And we have set record
Speaker 3: highs for as I said, literally decades, more than a century.
Speaker 3: We've gone to new highs and new highs, and new
Speaker 3: highs and new highs because of that credit destruction, because
Speaker 3: human ingenuity, human activity continues to advance. So differentiating between
Speaker 3: a record high and a bubble not easy, but that
Speaker 3: is the job of the investor, particularly right now when
Speaker 3: we are, as you say, at those record highs.
Speaker 4: So I guess I think I read somewhere else that
Speaker 4: there've been studies of when there are these rate cuts,
Speaker 4: when there's been some time, and one of them sort
Speaker 4: of said, look, you know the last twenty two times
Speaker 4: has happened.
Speaker 1: The market was high twelve months later. Well, you're sort
Speaker 1: of saying, duh, it would have been higher twelve months
Speaker 1: later probably in any case, because it just keeps going up.
Speaker 3: Well, we're both right, it would have gone up anyway probably.
Speaker 3: I mean, twelve months is too short to say absolutely,
Speaker 3: but over any five year period, very very very rare.
Speaker 3: You don't have a higher point at the end of
Speaker 3: the five years than before it. So yeah, to your point,
Speaker 3: would have gone up there in a bubble and exuberance.
Speaker 3: By the way, so markets always overshoot, over shooting the upside,
Speaker 3: they overshooting the downside. Just what they do because humans
Speaker 3: a human And for your viewers, remembering that is so
Speaker 3: incredibly important. I wrote to our readers literally only today
Speaker 3: as we're recording this, I wrote to them and said,
Speaker 3: be mindful of the fact that sometimes the market is
Speaker 3: just irrational and you've just got to deal with it.
Speaker 3: You can't time the market. Now you can see potentially bubbles,
Speaker 3: you can potentially see the overreactions on the downside, I've
Speaker 3: spoken before on Shared Lunch about the COVID crash. Thirty
Speaker 3: eight percent in a month and four days now, I
Speaker 3: was buying right through, and I actually think I bought
Speaker 3: roughly at the bottom because I knew it was the bottom.
Speaker 3: By the way, I'm not that smart and I'm not
Speaker 3: that clever, But I bought at the bottom. Why Because
Speaker 3: I kept buying because I looked at it and thought,
Speaker 3: hang on, it is the future of our planet. Really,
Speaker 3: thirty eight percent worse than it was thirty five days ago,
Speaker 3: of course not, it was a massive overreaction. So, yes,
Speaker 3: markets go higher over time. Yes, rate cuts make assets
Speaker 3: worth more. The maths of asset pricing we won't go in,
Speaker 3: I promise, but your viewers will have discounted cash flows
Speaker 3: or net present values. We love three letter acronyms, right tla's.
Speaker 3: So the reality is, when intro it's go down, assets
Speaker 3: are worth more. They just are. So you should see
Speaker 3: prices increase. By the way, then when rates go up,
Speaker 3: assets are worthless. That's also true. But be careful about
Speaker 3: cycles within that longer time story. At what point in
Speaker 3: the last one hundred and seven ten years has been
Speaker 3: a bad time to buy shares well. Between then and now,
Speaker 3: the price has never been higher. Almost by definition, it's
Speaker 3: never been a bad time to buy shares. If you've
Speaker 3: got to sell them and own them today, you've done.
Speaker 3: You've bought up a cheaper prices, at least in terms
Speaker 3: of the market indexes. So that's the long term story.
Speaker 3: It doesn't mean they don't fluctuate in the meantime.
Speaker 1: It might have been a bad time to sell them though.
Speaker 3: Yeah, yes, absolutely, buying when things are too high, be really,
Speaker 3: really careful. I'm an optimist. I'm a diet in the
Speaker 3: will optimist, but i have to say I'm very I'm
Speaker 3: much happier being an optimistic wheneveryonel is a pessimistic middle
Speaker 3: of April twenty twenty, I am like, you know what,
Speaker 3: this feels awful, but I know things will get better
Speaker 3: because that always does. So I'm happy to be the optis.
Speaker 3: But everyone else is running around like chicken little when
Speaker 3: everybody else saying, come in, the water's fine, come in,
Speaker 3: fill your boots. You know this will let stop. This
Speaker 3: goes on forever, this is the new normal, all that
Speaker 3: kind of stuff. I'm still optimistic, but I'm less key
Speaker 3: to sort of throw my lodding with everybody else, I'm like, oh,
Speaker 3: I think the future is better than it is now,
Speaker 3: But I reckon you guys getting a bit carried away.
Speaker 3: That's kind of the That's the skill of the art
Speaker 3: over time, is trying to delineate between those two ideas.
Speaker 1: It's hard, though, right because I mean so much coverage
Speaker 1: around just a couple of key stocks that sort of
Speaker 1: spring to mind here for me, like a video obviously.
Speaker 1: But I think this week they the Chinese said to
Speaker 1: some of their companies, you can't buy their chips anymore. Boom,
Speaker 1: three percent drop on the sheer value. Oh we're buying
Speaker 1: some intel. Boom, We're back up again. This is a
Speaker 1: stop that's training it more than a fifty times multiple, right,
Speaker 1: you know you're saying that it's you know, you're gonna
Speaker 1: pay fifty times its earnings pretty much to have a
Speaker 1: piece of this action that seems like an astonishing valuation.
Speaker 1: Yet people are going for it.
Speaker 3: Yeah. So, and that's why I wanted to. I want
Speaker 3: to ditinguish point the market and individual companies. Right when
Speaker 3: the markets sky high, there's still stuff to buy. When
Speaker 3: the market's bombed out. Not everything's going to recover. Right,
Speaker 3: the remmons are bombed out during the bottom of COVID
Speaker 3: and then we broke an Australian company called Mosaic Brands,
Speaker 3: great example of that. Right we had the shutdowns, the
Speaker 3: lockdowns and all that kind of stuff. When the lockdown stop,
Speaker 3: everything else recovered. Mosaic Brands has died. Absolutely was just
Speaker 3: literally died as a company went bankrupt. So just because
Speaker 3: the market's low and everything will go up, just because
Speaker 3: some companies are in arguably bubble territory, I'll get doing
Speaker 3: VideA in a second. Don I'm not saying everything's worth buying.
Speaker 3: As that exuberance, has that optimism. As that confidence continues
Speaker 3: to flow through, it's pushed some companies up to a
Speaker 3: price or I'm like, all right, well I like the company,
Speaker 3: but dude, no, I'm not paying that price. I'm not
Speaker 3: trying to time the market. I'm not saying, oh, well,
Speaker 3: I know what's happening, this is the top, and I
Speaker 3: know that in months time's going to be lower, a
Speaker 3: year soon's going to be I have no idea, absolutely
Speaker 3: no idea. All I can do is try and objectively
Speaker 3: value the companies that I want to buy or that
Speaker 3: I own and then workout of that which ones do
Speaker 3: I buy? What do I own that I should sell.
Speaker 3: There is absolutely a future in which we look back,
Speaker 3: can go, oh man, a video is cheap than twenty
Speaker 3: twenty five, and before people scoff at that, I'm gonna
Speaker 3: go back ironshirs An Amazon doesn't matter, but I should
Speaker 3: disclose it so your viewers. No. Back in two thousand
Speaker 3: and two, two thousand and eight, Back in ninety nine,
Speaker 3: by the way, barrens the I Think was well Fortune,
Speaker 3: one of the US business magazines led with Amazon dot Bomb.
Speaker 3: Right Think had Amazon today versus twenty six years ago
Speaker 3: when it was Amazon dot bomb allegedly was it No,
Speaker 3: it'll doesn't look expensive yet you bet a thousand times
Speaker 3: earnings at one point, Like, seriously, who pays that? Now.
Speaker 3: I'm not saying video is Amazon. I'm not saying Amazon's video.
Speaker 3: What I'm saying is there were times when stuff looked
Speaker 3: really expensive and it's absolutely worth paying. If you'd have
Speaker 3: paid a thousand times earnings on Amazon at ten bucks
Speaker 3: then out three hundred bucks a share. So you know,
Speaker 3: I'm not saying no by stuff that looks expensive. But
Speaker 3: to your point, when stuff is that expensive in video
Speaker 3: is the most and by the way, Amazon was still
Speaker 3: tiny at that point, right, thousand times earnings, but small
Speaker 3: in video is fifty times earnings and huge, Probably the
Speaker 3: most available company in the US stock market, if not
Speaker 3: pretty close at the moment at that point. Fifty times
Speaker 3: earnings for the most valuable company in the world. That's
Speaker 3: asking a lot. That's all of a sudden saying, hang on, guys,
Speaker 3: this thing's got to grow at massive rates just to
Speaker 3: justify the current price. Let alone get gains from this price. Right,
Speaker 3: I'll shot up at a second. Let's tusk another question,
Speaker 3: but really quickly. The job of the investor is not
Speaker 3: to be right or wrong. Sounds silly, right, The job
Speaker 3: of the investor is not to be right. Why Because
Speaker 3: you can't know in advance. My crystal ball's broken. Your
Speaker 3: crystal ball's broken. Everybody watching. If you think your crystal
Speaker 3: ball's working, go and check yourself in somewhere. It's not.
Speaker 3: I promise you. You don't know what the future holds.
Speaker 3: What you can do, what you should do as an
Speaker 3: investor is work on probabilities. Right, In other words, what
Speaker 3: is the risk of a downside? What is the chance
Speaker 3: of the upside. And when you do that, you're looking
Speaker 3: at MEDEO at fifty times earnings to say, well, is
Speaker 3: there some circumstances in which it's worth today's price? Yes? Absolutely?
Speaker 3: How probable is that outcome? Relative too, maybe it's not
Speaker 3: worth today's price. How probable is that outcome? I look
Speaker 3: at that and go I can absolutely make a case
Speaker 3: for it being worth today. AI becomes massively, massively bigger.
Speaker 3: No one ever comes up with a chip that rivals
Speaker 3: in video. There's a chip shortage for the next twenty
Speaker 3: five years. In video can set its own prices and
Speaker 3: it goes to the moon. That's very very very possible,
Speaker 3: very possible. Right, Maybe the hour of revolution doesn't grow
Speaker 3: quite as quickly as we think. Maybe venture capitalists run
Speaker 3: out of money. Maybe we talked about rates they go
Speaker 3: back up. We saw when rates started to go back
Speaker 3: up after COVID a whole lot of Australian businesses went broke.
Speaker 3: The one hour grocery delivery mobs, that was four or
Speaker 3: five of them at one point. They all went broke
Speaker 3: because the venture capital money dried up. Because all of
Speaker 3: a sudden money was worth something again. And you've got
Speaker 3: as an investor say, what are the odds that I'm right?
Speaker 3: And if I am right, what am I going to get?
Speaker 3: What are the odds that I'm wrong? And if I
Speaker 3: am wrong, how much do I lose? Put those together
Speaker 3: and say, now do I really want to buy in video?
Speaker 3: Or if I own it, do I want to hold it?
Speaker 3: And probability is the investor's friend if you really think
Speaker 3: it through and try and be as rational as you
Speaker 3: can to work out what you should buy and what
Speaker 3: you should pay.
Speaker 1: Do you when you're working that out, can you give
Speaker 1: us some insight into what level is enough for you?
Speaker 1: Like I've heard there are some people that say, I'll
Speaker 1: work valuation and when it gets to about ninety percent
Speaker 1: or eighty percent or ninety five, that's when I'm out.
Speaker 1: I'll happily that money on the table and be wrong,
Speaker 1: because more often than not, I'll be out in time.
Speaker 1: Do you I mean, does it vary from case case
Speaker 1: or do you have a rule you follow?
Speaker 3: So I'm an investor who value is quality first and foremost,
Speaker 3: And one of the rules I try and live by
Speaker 3: is I'm slow to buy, but even slower to sell.
Speaker 3: Right now, what does that mean? Slow to buy means
Speaker 3: I want to make sure that I feel really, really
Speaker 3: really good about what I'm buying, both from a quality
Speaker 3: and a price perspective. And if I've done that work properly,
Speaker 3: then i want to be even slower to sell, because
Speaker 3: if I've analyzed them and I took about when I
Speaker 3: sell at different prices, if I've got a quality business,
Speaker 3: I'm going to let that go really, really, really reluctantly.
Speaker 3: Right war On Buffet says, it's better to pay a
Speaker 3: fair price for a wonderful business than a wonderful price
Speaker 3: for our fair business. So if I've got a wonderful
Speaker 3: business in my back pocket, in my portfolio, I'm going
Speaker 3: to let that go really reluctantly. I'll say one of
Speaker 3: the business this is two of the businesses we sold
Speaker 3: from out for our members or recommended they sell, got
Speaker 3: to price earnings ratios of eighty and ninety times before
Speaker 3: we recommended they sell right now, which is extraordinarily high.
Speaker 3: Why do we not pull the trigger earlier? Because we
Speaker 3: kind of went, well, the great business, I really really
Speaker 3: don't want to sell us I have to, and then
Speaker 3: we went well, okay, now I'm out. So do we
Speaker 3: answer your question. I'm not a value I'm not a
Speaker 3: capital V value investor, nor am I a capital G
Speaker 3: growth investor. I think the distinction is really unhelpful. Frankly,
Speaker 3: people out there can do their own thing, but for me,
Speaker 3: it's not very helpful. So you asked the question. For me,
Speaker 3: it's probably one hundred and twenty one hundred and thirty
Speaker 3: percent of the value is where I sell. And someone said, well,
Speaker 3: why would you sell? Why would you wait for more
Speaker 3: than it's worth to sell? Two things. One back quality,
Speaker 3: and that's competitive advantage of the business, the quality of management,
Speaker 3: all the things that we talked about that another day,
Speaker 3: about what quality investing looks like. So back quality. Secondly,
Speaker 3: I don't want to be so arrogant as to believe
Speaker 3: my calculation of value is so incredibly precise that I
Speaker 3: know for sure arrogance and ego is the investor's absolute enemy, right,
Speaker 3: So the humility I try to bring to it is
Speaker 3: I think this is roughly right. But all of the
Speaker 3: sumps I have to put in the discount rate, the
Speaker 3: growth rates, the terminal values. Again we're talking about discount
Speaker 3: of cash flows here, really boring on video format. But
Speaker 3: all of that stuff is assumption laid on assumption. If
Speaker 3: I change a couple those numbers a little bit, I
Speaker 3: can justify paying fifty percent more or fifty percent less
Speaker 3: for the same company. Right, So that should tell you
Speaker 3: that this is a really, really really inexact science. It's
Speaker 3: an inexact art. It's a it's a guess, it's a
Speaker 3: it's a rough yardstick. So for me, I buy hopefully well,
Speaker 3: if I've bought well, I want to be slow to sell,
Speaker 3: and I want to be really really humble about how
Speaker 3: likely I am to be exactly right, and then intrinsic value.
Speaker 3: And if that's the case, let it have some rope,
Speaker 3: and then yes, sell. Now have I held stuff too
Speaker 3: long in hindsight, absolutely yes. But if I added up
Speaker 3: every company I've held for too long and compare that
Speaker 3: against every company I sold too early, I'm still behind. Right.
Speaker 3: Great example, I'll rub my nose my own problems. Domino's
Speaker 3: way back in the day went from we bought recommended,
Speaker 3: don't members that eight bucks? I think I went about
Speaker 3: thirteen bucks, right, I thought, oh may at sixty percent gain.
Speaker 3: It was a couple of years. I'm a genius, but yess,
Speaker 3: looking expense, how I better get out? It went from
Speaker 3: thirteen two Hold your breath one hundred and forty dollars. Right,
Speaker 3: I missed a tenfold gain. I could have ten other
Speaker 3: companies go to zero, and I still would have been
Speaker 3: ahead if I'd held Dominoes. Don't be too quick to sell.
Speaker 3: But if you own quality and don't get caught up
Speaker 3: with your own hubis and your own kind of you.
Speaker 3: I've picked the stock and it's gone up, so I'm
Speaker 3: a genius. I'm gonnalet it keep going up. Be real
Speaker 3: with yourself, but don't don't don't. There's a great thought
Speaker 3: saying about watering your weeds and cutting your flowers right,
Speaker 3: don't cut your flowers to a let a bloom at
Speaker 3: a time. Cut them and put them into ours, for sure,
Speaker 3: but give it a little bit of time.
Speaker 1: So this sounds to me a wee bit like it's
Speaker 1: also bubble protection, getting back to what we were starting
Speaker 1: to talk about there. If you're following that kind of
Speaker 1: a strategy, you'd feel pretty confident that you're you're going
Speaker 1: to miss the bubble. You're not going to get caught
Speaker 1: up in the exuberance you Anything that's rising is rising
Speaker 1: because you can see a fundamental reason for it rather
Speaker 1: than just the exuberance.
Speaker 3: Am I getting close hundred percent? The other thing I
Speaker 3: will say for what it's worth is I think the
Speaker 3: bubble label it's worth being aware of. But it can
Speaker 3: be a little bit unhelpful because then we argue about
Speaker 3: is it isn't a bubble? I don't know. All I
Speaker 3: know is it's worth more than I think it should be.
Speaker 3: And that's enough to me. I don't have to say
Speaker 3: bubble tick. I just say, would I pay that price now? No?
Speaker 3: Where in the world do I really want to hold
Speaker 3: it at this price?
Speaker 1: No?
Speaker 3: Maybe it goes up, maybe goes out. I don't know.
Speaker 3: What I do know is probabilistically, we started talking about
Speaker 3: a lot's got to go right and nothing can go wrong.
Speaker 3: That's not a good bet. So at that point you
Speaker 3: take some money off the table. That is bubble protection,
Speaker 3: as you say, because I'm not saying, well, ever, it's
Speaker 3: going up, I'll keep holding it. Or the crowd must
Speaker 3: be right, so I guess I should keep holding the shares.
Speaker 3: Or you know, everyone's excited about it. I guess they
Speaker 3: must know something I don't. Don't try and keep up
Speaker 3: with the Joneses. Don't take money from your don't take
Speaker 3: tips for your taxi driver, don't list your brother in
Speaker 3: law who's getting rich owning something that no one else
Speaker 3: wants to own. Because, as you say, we've been through it.
Speaker 3: The dot com boom and bust was a great, great,
Speaker 3: great example. Another quick example Warren Buffett that the patron
Speaker 3: saying of investors way back in ninety nine, spoke about
Speaker 3: magazine articles. A great article you can still find on
Speaker 3: the internet called What's Wrong Warren? And the idea was
Speaker 3: Warren Buffets missing out on this boom, and everyone saying, oh,
Speaker 3: Buffet's lost and it's all over. What does he know?
Speaker 3: His old fashioned twenty six years later, still on top,
Speaker 3: still doing his thing, still a very very very good investor.
Speaker 3: What was wrong? He saw the bubble, he saw the
Speaker 3: fact that nothing was wasn't worth buying. Everyone was saying,
Speaker 3: you're missing a Warren, Look all the price are going up.
Speaker 3: Why'd you're playing our game? He said, Well, I buy
Speaker 3: stuff where it's worth buying. I sell it when I
Speaker 3: want to sell. Its nothing to buy off, stay in cash.
Speaker 3: It's not difficult, it's not sexy, it's not fun. You
Speaker 3: don't get the headlines, you don't feel excited because I
Speaker 3: owned the new cool thing. But it's a nice way
Speaker 3: to make money.
Speaker 1: I guess people might have said the same thing about
Speaker 1: Larry Allison until about two weeks ago. Gosh, here's a
Speaker 1: guy who had a pretty successful company, and he tried
Speaker 1: to run a few America's Cup defenses as well. But
Speaker 1: so long, see you lad off the basis of one
Speaker 1: innings report basically saying, you know, we I think to
Speaker 1: read the priest. That's most of it supplying capacity to open.
Speaker 1: So that's a pretty strong one way bit. The market
Speaker 1: seems to love it. That seems to be pretty out
Speaker 1: of whack. Surely if a stock can leap and deadly
Speaker 1: forty percent on one innings report.
Speaker 3: Great example, By the way, it was already up forty
Speaker 3: percent for the year to date, so up forty percent
Speaker 3: over the previous nine months eight months, and then up
Speaker 3: a another forty percent top of that on one earnings report.
Speaker 3: What a share price means, it's the value of every
Speaker 3: dollar worth of cash flow from now to eternity, discounted
Speaker 3: back to allow for the time value of money. And
Speaker 3: I know that's complex. I'm going to live it there.
Speaker 3: Other than to say, which has got forty percent. What
Speaker 3: you're actually saying is the value of all of the
Speaker 3: future cash list from now to eternity, and they were
Speaker 3: an aggregate forty percent higher. Not this month, not this half,
Speaker 3: not this year, not the last five years, over the
Speaker 3: next five years, but from here to eternity, everything in
Speaker 3: total is gonna be forty percent more. And so if
Speaker 3: you don't do that, and that's not saying the the
Speaker 3: ownsults were great, very good earning, result, great announcement. All
Speaker 3: things were good. But to imagine that is now permanently
Speaker 3: and to quivocally be higher forever from here can't be Again.
Speaker 3: I mentioned I mentioned a video. What if someone else
Speaker 3: enters that that cloud, you know, cloud race, whereas I'll
Speaker 3: take some share off Oracle, what happens to the share price?
Speaker 3: Then let's take Microsoft. Microsoft in two thousand fell in
Speaker 3: the dot com crash. It took fifteen years for the
Speaker 3: share price to get back to where it was pre
Speaker 3: dot com. It was a great business. It it went
Speaker 3: on to even bigger and better things. It was a
Speaker 3: fantastic success story. But you can't pay just any price.
Speaker 3: There is such a thing as too high a price
Speaker 3: for even the very best business in the world, So
Speaker 3: making sure you're paying a good price for the company,
Speaker 3: even if you know the future is bright. If Oracle
Speaker 3: is much bigger in ten years time, is it forty
Speaker 3: percent bigger permanently, I don't know. Is that really worth
Speaker 3: paying for? And do you want to take that bet
Speaker 3: given there is risk that maybe it's not back to probability.
Speaker 3: So be very very very careful getting caught up in
Speaker 3: the euphoria. That's the thing about bubbles. You ask about bubbles,
Speaker 3: I suppose the kiding to look out for is actually
Speaker 3: not so much the companies or the share price or
Speaker 3: the result. It's the sentiment of the crowd when everybody
Speaker 3: else is excited about it, when you know the time
Speaker 3: is as I say, that a great story of the
Speaker 3: Great Depression, and I can't remember who it's told of,
Speaker 3: and apparently it's apocryphal anyway, But the idea was basically
Speaker 3: this particular you know, Titan of Wall Street, when you
Speaker 3: had the taxi driver pull him asides, I think you
Speaker 3: should buy these shares. He's like, oh, this feels bad.
Speaker 3: I'm going to sell now. I'm not saying you should
Speaker 3: use that as the test you go with. Everyone's a
Speaker 3: shareholder these as everyone's an investor, but to be very
Speaker 3: careful when everyone's excited, when the tides all the way in,
Speaker 3: when euphoria is at its peak, what could possibly go wrong. Well,
Speaker 3: that's the time we'll be a little bit concerned. Now
Speaker 3: I will say, don't sell anything just because don't try
Speaker 3: and time the market. A bubble can go on much
Speaker 3: longer than you think it can. Even if it is
Speaker 3: a bubble now, it could have got fifty percent down
Speaker 3: twenty percent, in which case it'll should be thirty percent
Speaker 3: higher than it is now. So don't try and trade
Speaker 3: the bubble. Don't try and time the market. But when
Speaker 3: you're buying and selling, think about what you own, think
Speaker 3: about how good the future is probabilistically, think about and
Speaker 3: how much you're paying for that future. And we're going
Speaker 3: if it's a reasonable price. I mention we've sold half
Speaker 3: a dozen companies we have. We've kept a heap more
Speaker 3: because we actually think, despite some of the excitement in
Speaker 3: the market, these businesses are likely to go on beating
Speaker 3: the market over the long term, despite what's going on
Speaker 3: right now. So got to kind of keep both those
Speaker 3: things in mind at the same time. It's not easy,
Speaker 3: but that's the skill you need to develop as an investor.
Speaker 1: It sounds like you and the Motley Full community either
Speaker 1: classic active investors. You are really getting in there into
Speaker 1: the weeds. You're looking closely at what each company's performing.
Speaker 1: We've seen obviously a trend towards automatic diversity. Is the
Speaker 1: word I'm looking for here products like ETFs. I mean,
Speaker 1: is that is that reducing the risk or would you
Speaker 1: say there's some sort of concentration risk building up there
Speaker 1: that people need to be careful of there when they're
Speaker 1: buying those kinds of products.
Speaker 3: Now, I love passive ETFs. I'm an active investor, JUSTYB
Speaker 3: a stockpicker. I don't mean active, by the way. It's actively.
Speaker 3: There's active, right, I'm not an active trader. I don't
Speaker 3: buy sol By cell by Cell. I'm active in the
Speaker 3: sense that I'm trying to find companies I think we'll
Speaker 3: beat the index if I buy company X. I buy
Speaker 3: it so I think in five years time it'll be
Speaker 3: worth more and hopefully grow faster than the market. That's
Speaker 3: my version of active. But I love passive investing. You
Speaker 3: see the fund man is out there, by the way,
Speaker 3: who say the ETFs are destroying the market, absolute rubbish,
Speaker 3: complete and other nonsense. Passive ETFs are wonderful, wonderful, wonderful things.
Speaker 3: Just they are right mean less business for me, so
Speaker 3: be it. Investors are much better off than they were
Speaker 3: because a massive range of passive ETFs are available. A
Speaker 3: couple things to answer your question. Firstly, not all ETFs
Speaker 3: are the same. Now your viewers know that I really
Speaker 3: really really dislike thematic ETFs, not because individually some of
Speaker 3: them can't do well, but because they're sold as panaceas
Speaker 3: AI is going to be huge. Here's my AIETF.
Speaker 1: Even with the concentration that you're getting from Meg seven,
Speaker 1: I mean the Meg seven companies. Some of those companies
Speaker 1: are bigger than entire sectors. Now you know, I'm pretty
Speaker 1: sure if you edit up with the healthcare sector is
Speaker 1: or the you know, some parts of the industrials and
Speaker 1: you go to the see kind of are.
Speaker 3: So yes, absolutely when you ask about diversification in concentration.
Speaker 3: So I'm not saying don't pick individual socks. What I'm
Speaker 3: saying is ETFs are a great based reportfolio. And anyone
Speaker 3: who said to me is this enough? I say yes, absolutely?
Speaker 3: Do you think do I think you do? Better by
Speaker 3: picking stocks. Yes, absolutely, But is that enough if you're
Speaker 3: young enough, if you had regularly to a handful of
Speaker 3: diversified in next based ETFs, you'll retire very, very very
Speaker 3: comfortably and be very happy you did. I have no doubt.
Speaker 3: If I can't make promise, I'm not allowed to, But
Speaker 3: I have no doubt you'll be very happy with what
Speaker 3: you did. Right. So back to your point about concentration.
Speaker 3: I wouldn't just own a US ETF, same as I
Speaker 3: wouldn't just own ASXTF, because we've got index floor banks
Speaker 3: and minors. But if I had a global ETF or
Speaker 3: a range of ETFs, you might an a SX three hundred,
Speaker 3: you might have a developing markets, you might have an
Speaker 3: emerging developed markets. If you got that diversification by currency,
Speaker 3: by geography, by industry, then yeah, you start to put
Speaker 3: together a portfolio that it is diversified. Here's the other thing.
Speaker 3: When you buy an ETF, don't just put money in
Speaker 3: a ETF once and be done with it. If your
Speaker 3: dollar cost averaging adding regularly, maybe in hindsight we say,
Speaker 3: you know what, September twenty twenty five was a massive bubble.
Speaker 3: But if you've been adding monthly over the last year,
Speaker 3: two years, five years, ten years. Add all that up.
Speaker 3: People say to me sometimes, oh, the mike hasn't recovered
Speaker 3: from the highs of twenty two thousand and seven, or
Speaker 3: it's not as high as it was in whatever. If
Speaker 3: you'd only bought chairs on that day, maybe I'll talk
Speaker 3: to you about it. But if you did, you are
Speaker 3: the unluckiest person in the world. If you'd have been
Speaker 3: buying every month for the three years before and the
Speaker 3: three years after, you are up massively on that point.
Speaker 3: So is it diverse fied? Yes, If you buy one
Speaker 3: ETF for one index and you buy it once, you're
Speaker 3: absolutely rolling the dice. I still think you'll do very well,
Speaker 3: by the way, but maybe not as well if the
Speaker 3: market was lower. If you're adding regularly to a range
Speaker 3: of ETFs and you're adding to that regularly every payday
Speaker 3: or every month or every quarter over five, ten, fifteen years,
Speaker 3: I mean, think about it. If you do it every
Speaker 3: month fifteen years, what's that If you've made one hundred
Speaker 3: and eighty different transactions over that period of time, have
Speaker 3: you bought one of the is going to be at
Speaker 3: a bubble? Probably one of those is probably going to
Speaker 3: be at an absolute low low, most somewhere in between.
Speaker 3: But overall, I go back to the Vanguard index chart.
Speaker 3: I know your viewers have seen it a million times.
Speaker 3: Google Vanguard indext chart. If you do know what I'm
Speaker 3: talking about. Yes, you might have brought it two thousand
Speaker 3: and seven at the peak, then you're brought in two
Speaker 3: thousand and nine at the trough. You might have brought
Speaker 3: it ninety ninety nine at the peak, and then at
Speaker 3: two thousand and one in the trough. You're probably bought
Speaker 3: in twenty twenty March twenty twenty at the peak, and
Speaker 3: then again in April twenty twenty in the trough. And
Speaker 3: where are we at record highs? Sometimes you'll buy at
Speaker 3: high prices, sometimes at low prices. I'd love to know
Speaker 3: which ones will which side can not do it, But
Speaker 3: you can only do that in hindsight. And in hindsight,
Speaker 3: by the way, where a record highs every point before
Speaker 3: that was worth buying shares.
Speaker 1: That you touch on an important point about regularity, And
Speaker 1: I think I know the people are always looking for
Speaker 1: a comparison or a meter four, and people talk about it,
Speaker 1: the Marathione approach. You know you're trying to. But if
Speaker 1: you've ever actually done any I don't know if you've
Speaker 1: done any running. I've done a little bit in my time.
Speaker 1: The hardest thing is just pulling on the shoes and
Speaker 1: getting up and doing it three or four or five
Speaker 1: times a week and sticking with that. And that's the
Speaker 1: bit that pays off almost more than anything else. So
Speaker 1: that is quite a crucial part, isn't it. It's just
Speaker 1: getting that kind of regular habit built in so that
Speaker 1: you're in that market.
Speaker 3: Can I go one step before above that? Actually putting
Speaker 3: the shoes on five times a week is really really hard.
Speaker 3: I absolutely feel that pain. Investing regular is even easier
Speaker 3: than that. I can decide to invest to put the shoes on,
Speaker 3: I've still got to put the shoes on. If I
Speaker 3: decide I want to invest regularly, and I tell my payoffice,
Speaker 3: my payroll manager, or my bank please do this for
Speaker 3: me on this date, I don't have to pull on
Speaker 3: the shoes. Someone else puts the shoes on for me.
Speaker 3: And that is what's beautiful about pre commitment and automation.
Speaker 3: You automate that process so that if you've got to
Speaker 3: company and allows it, you tell you payroll manager, please
Speaker 3: put nine percent of my pay into my savings account.
Speaker 3: Please put ten percent of my pay in my investing account,
Speaker 3: and then on payday just happens. You don't have to
Speaker 3: pull metaphorical shoes on. But that's the beauty of pre
Speaker 3: commitment automation is you're a million percent right. You can
Speaker 3: actually get out of your own way. And now if
Speaker 3: you pay all office won't do it. Tell you bank on,
Speaker 3: I get paid on the fifteenth of the month, or
Speaker 3: every two weeks or every week or whatever it is.
Speaker 3: On those days, please take X dollars out of my
Speaker 3: savings account and move it to my investing account. And
Speaker 3: as long as you do that, and let it happen,
Speaker 3: by the way, you don't miss it because it's never there.
Speaker 3: It happens automatically every time you get paid. Go well,
Speaker 3: I really want to go and buy a pair of jeans,
Speaker 3: or go out for dinner, or buy address or buy
Speaker 3: a computer or do whatever your thing is. You've got
Speaker 3: to choose to take that money out, put over there
Speaker 3: and IDENTI if I want to next, I'll do it
Speaker 3: next month, next month. If it does it automatically before
Speaker 3: you even get to it, that's just beautiful. And you
Speaker 3: can absolutely make it happen. It's why superannuation for Australians
Speaker 3: particularly is important because that happens to us. Literally the
Speaker 3: government says you can't have it, bad luck, twelve cent
Speaker 3: of your payer go straight over there. So those kind
Speaker 3: of forced savings or automated savings, it might suck at
Speaker 3: the time you might want the money to buy X,
Speaker 3: Y and Z. I have not heard a single person
Speaker 3: in Australia say, gee, unhappy the government, maybe save my superannuation.
Speaker 3: Never ever, ever have I heard anyone say that. They're
Speaker 3: always like, I hate it at the time, but cheum
Speaker 3: And that's a really nice lesson.
Speaker 1: It sounds like a great place to leave it, especially
Speaker 1: if you want to go and pull your sues on
Speaker 1: now Scott and being out there and yet I really
Speaker 1: should do that, Scott, vertus from them not befoul. Thank
Speaker 1: you so much for giving us so much your time
Speaker 1: and your wisdom time in the market and you've shared
Speaker 1: it with us today. And thanks everybody else for listening
Speaker 1: and watching along with us. We'd love to know what
Speaker 1: you thought of that and who we should be talking
Speaker 1: to next for us Kuma to that shared lunch for
Speaker 1: this week