WEBVTT - How to spot a bubble 0:00:03.160 --> 0:00:06.520 Juno Koto. Welcome to Shared Lunch. I'm Garth Bray. With 0:00:06.640 --> 0:00:10.160 all of the hype around AI and tech stocks, with 0:00:10.320 --> 0:00:13.440 all of that building up, maybe now is a perfect 0:00:13.440 --> 0:00:16.320 time to get a realistic take from someone who's been 0:00:16.360 --> 0:00:19.400 in the market long enough to remember other times when 0:00:19.400 --> 0:00:21.919 it was a little frotty to know the difference between 0:00:21.920 --> 0:00:25.960 a bargain and a bubble. That person is Scott Phillips 0:00:26.000 --> 0:00:30.200 from the Motley Fall in Australia legendary stockpicker. But before 0:00:30.240 --> 0:00:32.760 we hear from Scott has some important information that you 0:00:32.800 --> 0:00:34.839 should always consider an investing. 0:00:38.159 --> 0:00:40.760 Investing involves the risk you might lose the money you 0:00:40.800 --> 0:00:44.080 start with. We recommend talking to a licensed financial advisor. 0:00:44.840 --> 0:00:48.640 We also recommend reading product disclosure documents before deciding to invest. 0:00:48.920 --> 0:00:51.320 Everything you're about to see and here is current at 0:00:51.320 --> 0:00:52.159 the time of recording. 0:00:52.240 --> 0:00:55.120 Hi, Scott good A, thanks for having me on Shared Lunch. Look, 0:00:55.120 --> 0:00:58.520 we've just had a US federal reserve rate cuts, first 0:00:58.520 --> 0:01:01.240 one in nine months, like waiting for baby to be born, 0:01:01.520 --> 0:01:03.920 as true would tell us that after that length of 0:01:03.960 --> 0:01:06.800 time between changes and the policy rate in the U 0:01:06.959 --> 0:01:10.040 is the price of money that will typically see a 0:01:10.080 --> 0:01:12.480 bit of a bounce in this in the s and 0:01:12.480 --> 0:01:15.040 P five hundred the market and so on, and that's 0:01:15.040 --> 0:01:18.000 already to record a high, right, So how is this 0:01:18.200 --> 0:01:19.200 not a bubble? 0:01:20.200 --> 0:01:22.240 How have you got? Look, let's go with the rate 0:01:22.280 --> 0:01:24.479 cuts first, to come back to the bubble. The thing 0:01:24.480 --> 0:01:27.520 about rate cuts are any economic indicators, is the market 0:01:27.600 --> 0:01:31.520 tends to only react when it doesn't expect what happens. 0:01:31.640 --> 0:01:34.280 Jerome Power, the US Federal Reserve Chair, had written this 0:01:34.280 --> 0:01:37.000 almost in blood, and so we will cut rates, and 0:01:37.040 --> 0:01:39.240 so it was no surprise to the market that had happened. 0:01:39.480 --> 0:01:42.000 So part of what you're talking about about that increase 0:01:42.040 --> 0:01:44.240 on the back of rates is true. But I think 0:01:44.280 --> 0:01:47.920 someone's already happened. That idea of market anticipating the announcement, 0:01:48.080 --> 0:01:50.400 and that's why we saw almost no move on the day, 0:01:50.800 --> 0:01:53.280 was because it was already built into share prices. That 0:01:53.440 --> 0:01:55.800 being said, your question about the bubble is a really 0:01:55.840 --> 0:01:58.040 good one, and I'm going to try and separate out 0:01:58.320 --> 0:02:02.400 a record high from a bubble, because the market always 0:02:02.640 --> 0:02:06.600 hits record highs. It's the story of the last century plus. 0:02:06.960 --> 0:02:09.880 On the ASX, the New Zealand stocking chains, the US markets, 0:02:10.120 --> 0:02:14.680 we hit new highs all the time, because capitalism finds 0:02:14.680 --> 0:02:18.760 ways to solve new and old problems. And so that process, 0:02:18.840 --> 0:02:21.480 that literally the creative destruction that we talk about all 0:02:21.520 --> 0:02:24.359 the time, is what happens, whether that's a new way 0:02:24.400 --> 0:02:27.080 of doing something or a brand new thing. Think about 0:02:27.080 --> 0:02:30.040 the iPhone that's now not even still twenty years old. Now, 0:02:30.120 --> 0:02:32.920 think about any technology before or after that period of 0:02:32.919 --> 0:02:35.520 time that makes us more productive, makes us happier, makes 0:02:35.560 --> 0:02:38.760 us smarter, makes us richer. Those things happen anyway, and 0:02:38.760 --> 0:02:42.120 so what's really really important to know upfront is a 0:02:42.120 --> 0:02:45.040 bubble is sometimes absolutely a bubble. More often than not, 0:02:45.200 --> 0:02:48.120 a record high is simply the last high when we 0:02:48.160 --> 0:02:50.239 get to the next one. And we have set record 0:02:50.320 --> 0:02:53.160 highs for as I said, literally decades, more than a century. 0:02:53.240 --> 0:02:54.800 We've gone to new highs and new highs, and new 0:02:54.880 --> 0:02:58.280 highs and new highs because of that credit destruction, because 0:02:58.560 --> 0:03:04.040 human ingenuity, human activity continues to advance. So differentiating between 0:03:04.200 --> 0:03:06.800 a record high and a bubble not easy, but that 0:03:06.960 --> 0:03:09.480 is the job of the investor, particularly right now when 0:03:09.520 --> 0:03:12.120 we are, as you say, at those record highs. 0:03:12.200 --> 0:03:15.040 So I guess I think I read somewhere else that 0:03:15.040 --> 0:03:17.680 there've been studies of when there are these rate cuts, 0:03:17.680 --> 0:03:19.600 when there's been some time, and one of them sort 0:03:19.600 --> 0:03:21.600 of said, look, you know the last twenty two times 0:03:21.639 --> 0:03:22.240 has happened. 0:03:22.440 --> 0:03:26.119 The market was high twelve months later. Well, you're sort 0:03:26.120 --> 0:03:28.760 of saying, duh, it would have been higher twelve months 0:03:28.840 --> 0:03:31.079 later probably in any case, because it just keeps going up. 0:03:31.800 --> 0:03:33.840 Well, we're both right, it would have gone up anyway probably. 0:03:33.880 --> 0:03:35.960 I mean, twelve months is too short to say absolutely, 0:03:36.000 --> 0:03:39.240 but over any five year period, very very very rare. 0:03:39.560 --> 0:03:41.000 You don't have a higher point at the end of 0:03:41.040 --> 0:03:43.840 the five years than before it. So yeah, to your point, 0:03:44.040 --> 0:03:46.800 would have gone up there in a bubble and exuberance. 0:03:46.800 --> 0:03:50.080 By the way, so markets always overshoot, over shooting the upside, 0:03:50.080 --> 0:03:52.560 they overshooting the downside. Just what they do because humans 0:03:52.560 --> 0:03:55.560 a human And for your viewers, remembering that is so 0:03:55.680 --> 0:03:58.840 incredibly important. I wrote to our readers literally only today 0:03:58.880 --> 0:04:00.880 as we're recording this, I wrote to them and said, 0:04:01.520 --> 0:04:04.120 be mindful of the fact that sometimes the market is 0:04:04.240 --> 0:04:06.600 just irrational and you've just got to deal with it. 0:04:07.000 --> 0:04:11.000 You can't time the market. Now you can see potentially bubbles, 0:04:11.160 --> 0:04:13.960 you can potentially see the overreactions on the downside, I've 0:04:13.960 --> 0:04:17.000 spoken before on Shared Lunch about the COVID crash. Thirty 0:04:17.000 --> 0:04:19.840 eight percent in a month and four days now, I 0:04:19.920 --> 0:04:22.760 was buying right through, and I actually think I bought 0:04:22.880 --> 0:04:24.520 roughly at the bottom because I knew it was the bottom. 0:04:24.560 --> 0:04:25.960 By the way, I'm not that smart and I'm not 0:04:26.000 --> 0:04:29.000 that clever, But I bought at the bottom. Why Because 0:04:29.040 --> 0:04:30.680 I kept buying because I looked at it and thought, 0:04:30.720 --> 0:04:34.000 hang on, it is the future of our planet. Really, 0:04:34.000 --> 0:04:37.520 thirty eight percent worse than it was thirty five days ago, 0:04:37.839 --> 0:04:41.039 of course not, it was a massive overreaction. So, yes, 0:04:41.160 --> 0:04:44.440 markets go higher over time. Yes, rate cuts make assets 0:04:44.480 --> 0:04:47.960 worth more. The maths of asset pricing we won't go in, 0:04:48.240 --> 0:04:51.080 I promise, but your viewers will have discounted cash flows 0:04:51.320 --> 0:04:55.000 or net present values. We love three letter acronyms, right tla's. 0:04:55.880 --> 0:05:00.400 So the reality is, when intro it's go down, assets 0:05:00.400 --> 0:05:02.680 are worth more. They just are. So you should see 0:05:02.720 --> 0:05:05.400 prices increase. By the way, then when rates go up, 0:05:05.720 --> 0:05:09.360 assets are worthless. That's also true. But be careful about 0:05:09.480 --> 0:05:13.760 cycles within that longer time story. At what point in 0:05:13.800 --> 0:05:16.760 the last one hundred and seven ten years has been 0:05:16.760 --> 0:05:19.360 a bad time to buy shares well. Between then and now, 0:05:19.440 --> 0:05:22.240 the price has never been higher. Almost by definition, it's 0:05:22.240 --> 0:05:23.920 never been a bad time to buy shares. If you've 0:05:23.920 --> 0:05:25.800 got to sell them and own them today, you've done. 0:05:25.839 --> 0:05:27.920 You've bought up a cheaper prices, at least in terms 0:05:27.920 --> 0:05:31.680 of the market indexes. So that's the long term story. 0:05:31.880 --> 0:05:33.680 It doesn't mean they don't fluctuate in the meantime. 0:05:33.680 --> 0:05:35.320 It might have been a bad time to sell them though. 0:05:35.400 --> 0:05:39.400 Yeah, yes, absolutely, buying when things are too high, be really, 0:05:39.400 --> 0:05:41.200 really careful. I'm an optimist. I'm a diet in the 0:05:41.200 --> 0:05:43.560 will optimist, but i have to say I'm very I'm 0:05:43.600 --> 0:05:46.880 much happier being an optimistic wheneveryonel is a pessimistic middle 0:05:46.920 --> 0:05:49.200 of April twenty twenty, I am like, you know what, 0:05:49.400 --> 0:05:51.600 this feels awful, but I know things will get better 0:05:51.640 --> 0:05:54.000 because that always does. So I'm happy to be the optis. 0:05:54.080 --> 0:05:56.279 But everyone else is running around like chicken little when 0:05:56.279 --> 0:05:58.480 everybody else saying, come in, the water's fine, come in, 0:05:58.560 --> 0:06:00.479 fill your boots. You know this will let stop. This 0:06:00.560 --> 0:06:02.919 goes on forever, this is the new normal, all that 0:06:03.000 --> 0:06:06.120 kind of stuff. I'm still optimistic, but I'm less key 0:06:06.240 --> 0:06:08.920 to sort of throw my lodding with everybody else, I'm like, oh, 0:06:09.200 --> 0:06:11.159 I think the future is better than it is now, 0:06:11.720 --> 0:06:13.560 But I reckon you guys getting a bit carried away. 0:06:14.000 --> 0:06:16.160 That's kind of the That's the skill of the art 0:06:16.279 --> 0:06:19.440 over time, is trying to delineate between those two ideas. 0:06:19.560 --> 0:06:22.200 It's hard, though, right because I mean so much coverage 0:06:22.240 --> 0:06:24.919 around just a couple of key stocks that sort of 0:06:24.920 --> 0:06:27.359 spring to mind here for me, like a video obviously. 0:06:27.440 --> 0:06:30.919 But I think this week they the Chinese said to 0:06:31.080 --> 0:06:34.080 some of their companies, you can't buy their chips anymore. Boom, 0:06:34.120 --> 0:06:36.520 three percent drop on the sheer value. Oh we're buying 0:06:36.600 --> 0:06:40.159 some intel. Boom, We're back up again. This is a 0:06:40.320 --> 0:06:44.440 stop that's training it more than a fifty times multiple, right, 0:06:44.560 --> 0:06:46.920 you know you're saying that it's you know, you're gonna 0:06:46.920 --> 0:06:49.680 pay fifty times its earnings pretty much to have a 0:06:49.680 --> 0:06:53.120 piece of this action that seems like an astonishing valuation. 0:06:53.960 --> 0:06:55.760 Yet people are going for it. 0:06:55.880 --> 0:06:57.600 Yeah. So, and that's why I wanted to. I want 0:06:57.600 --> 0:07:01.000 to ditinguish point the market and individual companies. Right when 0:07:01.040 --> 0:07:03.280 the markets sky high, there's still stuff to buy. When 0:07:03.279 --> 0:07:06.000 the market's bombed out. Not everything's going to recover. Right, 0:07:06.160 --> 0:07:08.400 the remmons are bombed out during the bottom of COVID 0:07:08.520 --> 0:07:11.560 and then we broke an Australian company called Mosaic Brands, 0:07:11.600 --> 0:07:13.720 great example of that. Right we had the shutdowns, the 0:07:13.720 --> 0:07:16.280 lockdowns and all that kind of stuff. When the lockdown stop, 0:07:16.320 --> 0:07:19.440 everything else recovered. Mosaic Brands has died. Absolutely was just 0:07:19.640 --> 0:07:22.440 literally died as a company went bankrupt. So just because 0:07:22.480 --> 0:07:25.040 the market's low and everything will go up, just because 0:07:25.080 --> 0:07:27.720 some companies are in arguably bubble territory, I'll get doing 0:07:27.800 --> 0:07:30.720 VideA in a second. Don I'm not saying everything's worth buying. 0:07:30.840 --> 0:07:33.680 As that exuberance, has that optimism. As that confidence continues 0:07:33.720 --> 0:07:35.960 to flow through, it's pushed some companies up to a 0:07:35.960 --> 0:07:38.240 price or I'm like, all right, well I like the company, 0:07:38.280 --> 0:07:40.960 but dude, no, I'm not paying that price. I'm not 0:07:40.960 --> 0:07:42.840 trying to time the market. I'm not saying, oh, well, 0:07:42.840 --> 0:07:45.040 I know what's happening, this is the top, and I 0:07:45.040 --> 0:07:46.280 know that in months time's going to be lower, a 0:07:46.360 --> 0:07:48.280 year soon's going to be I have no idea, absolutely 0:07:48.280 --> 0:07:50.560 no idea. All I can do is try and objectively 0:07:50.680 --> 0:07:52.720 value the companies that I want to buy or that 0:07:52.720 --> 0:07:55.400 I own and then workout of that which ones do 0:07:55.440 --> 0:07:57.520 I buy? What do I own that I should sell. 0:07:57.640 --> 0:08:00.000 There is absolutely a future in which we look back, 0:08:00.080 --> 0:08:02.080 can go, oh man, a video is cheap than twenty 0:08:02.120 --> 0:08:04.760 twenty five, and before people scoff at that, I'm gonna 0:08:04.760 --> 0:08:07.160 go back ironshirs An Amazon doesn't matter, but I should 0:08:07.200 --> 0:08:10.800 disclose it so your viewers. No. Back in two thousand 0:08:10.840 --> 0:08:13.120 and two, two thousand and eight, Back in ninety nine, 0:08:13.160 --> 0:08:15.440 by the way, barrens the I Think was well Fortune, 0:08:15.480 --> 0:08:18.120 one of the US business magazines led with Amazon dot Bomb. 0:08:18.440 --> 0:08:21.480 Right Think had Amazon today versus twenty six years ago 0:08:21.480 --> 0:08:24.280 when it was Amazon dot bomb allegedly was it No, 0:08:24.960 --> 0:08:27.240 it'll doesn't look expensive yet you bet a thousand times 0:08:27.320 --> 0:08:30.520 earnings at one point, Like, seriously, who pays that? Now. 0:08:30.560 --> 0:08:32.720 I'm not saying video is Amazon. I'm not saying Amazon's video. 0:08:32.880 --> 0:08:34.840 What I'm saying is there were times when stuff looked 0:08:34.880 --> 0:08:38.079 really expensive and it's absolutely worth paying. If you'd have 0:08:38.120 --> 0:08:40.440 paid a thousand times earnings on Amazon at ten bucks 0:08:40.559 --> 0:08:42.400 then out three hundred bucks a share. So you know, 0:08:42.440 --> 0:08:44.920 I'm not saying no by stuff that looks expensive. But 0:08:45.000 --> 0:08:47.839 to your point, when stuff is that expensive in video 0:08:47.880 --> 0:08:49.360 is the most and by the way, Amazon was still 0:08:49.360 --> 0:08:51.560 tiny at that point, right, thousand times earnings, but small 0:08:51.920 --> 0:08:55.600 in video is fifty times earnings and huge, Probably the 0:08:55.720 --> 0:08:57.439 most available company in the US stock market, if not 0:08:57.520 --> 0:09:00.640 pretty close at the moment at that point. Fifty times 0:09:00.679 --> 0:09:03.320 earnings for the most valuable company in the world. That's 0:09:03.360 --> 0:09:06.000 asking a lot. That's all of a sudden saying, hang on, guys, 0:09:06.160 --> 0:09:09.560 this thing's got to grow at massive rates just to 0:09:09.679 --> 0:09:13.400 justify the current price. Let alone get gains from this price. Right, 0:09:13.559 --> 0:09:15.200 I'll shot up at a second. Let's tusk another question, 0:09:15.200 --> 0:09:18.440 but really quickly. The job of the investor is not 0:09:18.520 --> 0:09:21.640 to be right or wrong. Sounds silly, right, The job 0:09:21.679 --> 0:09:23.440 of the investor is not to be right. Why Because 0:09:23.440 --> 0:09:26.000 you can't know in advance. My crystal ball's broken. Your 0:09:26.000 --> 0:09:28.439 crystal ball's broken. Everybody watching. If you think your crystal 0:09:28.440 --> 0:09:31.280 ball's working, go and check yourself in somewhere. It's not. 0:09:31.400 --> 0:09:33.200 I promise you. You don't know what the future holds. 0:09:33.520 --> 0:09:35.000 What you can do, what you should do as an 0:09:35.000 --> 0:09:38.880 investor is work on probabilities. Right, In other words, what 0:09:39.000 --> 0:09:40.920 is the risk of a downside? What is the chance 0:09:41.000 --> 0:09:44.040 of the upside. And when you do that, you're looking 0:09:44.080 --> 0:09:46.440 at MEDEO at fifty times earnings to say, well, is 0:09:46.440 --> 0:09:50.000 there some circumstances in which it's worth today's price? Yes? Absolutely? 0:09:50.600 --> 0:09:54.600 How probable is that outcome? Relative too, maybe it's not 0:09:54.640 --> 0:09:57.439 worth today's price. How probable is that outcome? I look 0:09:57.480 --> 0:09:59.319 at that and go I can absolutely make a case 0:09:59.320 --> 0:10:03.160 for it being worth today. AI becomes massively, massively bigger. 0:10:03.320 --> 0:10:05.000 No one ever comes up with a chip that rivals 0:10:05.000 --> 0:10:07.400 in video. There's a chip shortage for the next twenty 0:10:07.400 --> 0:10:10.120 five years. In video can set its own prices and 0:10:10.160 --> 0:10:12.640 it goes to the moon. That's very very very possible, 0:10:12.760 --> 0:10:15.280 very possible. Right, Maybe the hour of revolution doesn't grow 0:10:15.360 --> 0:10:17.800 quite as quickly as we think. Maybe venture capitalists run 0:10:17.800 --> 0:10:19.680 out of money. Maybe we talked about rates they go 0:10:19.760 --> 0:10:21.600 back up. We saw when rates started to go back 0:10:21.679 --> 0:10:23.760 up after COVID a whole lot of Australian businesses went broke. 0:10:23.840 --> 0:10:26.000 The one hour grocery delivery mobs, that was four or 0:10:26.000 --> 0:10:27.600 five of them at one point. They all went broke 0:10:27.600 --> 0:10:29.319 because the venture capital money dried up. Because all of 0:10:29.360 --> 0:10:31.679 a sudden money was worth something again. And you've got 0:10:31.679 --> 0:10:34.040 as an investor say, what are the odds that I'm right? 0:10:34.360 --> 0:10:35.920 And if I am right, what am I going to get? 0:10:36.360 --> 0:10:37.600 What are the odds that I'm wrong? And if I 0:10:37.600 --> 0:10:40.120 am wrong, how much do I lose? Put those together 0:10:40.160 --> 0:10:42.320 and say, now do I really want to buy in video? 0:10:42.360 --> 0:10:43.679 Or if I own it, do I want to hold it? 0:10:43.720 --> 0:10:46.959 And probability is the investor's friend if you really think 0:10:47.000 --> 0:10:48.800 it through and try and be as rational as you 0:10:48.880 --> 0:10:50.960 can to work out what you should buy and what 0:10:50.960 --> 0:10:51.480 you should pay. 0:10:51.840 --> 0:10:54.839 Do you when you're working that out, can you give 0:10:54.880 --> 0:10:57.440 us some insight into what level is enough for you? 0:10:57.520 --> 0:10:59.679 Like I've heard there are some people that say, I'll 0:10:59.679 --> 0:11:03.440 work valuation and when it gets to about ninety percent 0:11:03.520 --> 0:11:06.000 or eighty percent or ninety five, that's when I'm out. 0:11:06.040 --> 0:11:08.600 I'll happily that money on the table and be wrong, 0:11:08.679 --> 0:11:10.600 because more often than not, I'll be out in time. 0:11:10.679 --> 0:11:12.840 Do you I mean, does it vary from case case 0:11:12.920 --> 0:11:14.600 or do you have a rule you follow? 0:11:14.880 --> 0:11:18.800 So I'm an investor who value is quality first and foremost, 0:11:19.320 --> 0:11:20.880 And one of the rules I try and live by 0:11:21.040 --> 0:11:24.560 is I'm slow to buy, but even slower to sell. 0:11:24.920 --> 0:11:27.000 Right now, what does that mean? Slow to buy means 0:11:27.240 --> 0:11:29.440 I want to make sure that I feel really, really 0:11:29.480 --> 0:11:32.200 really good about what I'm buying, both from a quality 0:11:32.200 --> 0:11:35.800 and a price perspective. And if I've done that work properly, 0:11:36.480 --> 0:11:38.920 then i want to be even slower to sell, because 0:11:39.440 --> 0:11:41.440 if I've analyzed them and I took about when I 0:11:41.440 --> 0:11:43.760 sell at different prices, if I've got a quality business, 0:11:43.800 --> 0:11:46.520 I'm going to let that go really, really, really reluctantly. 0:11:46.760 --> 0:11:48.600 Right war On Buffet says, it's better to pay a 0:11:48.640 --> 0:11:51.560 fair price for a wonderful business than a wonderful price 0:11:51.600 --> 0:11:54.320 for our fair business. So if I've got a wonderful 0:11:54.320 --> 0:11:57.040 business in my back pocket, in my portfolio, I'm going 0:11:57.120 --> 0:11:59.679 to let that go really reluctantly. I'll say one of 0:11:59.679 --> 0:12:01.200 the business this is two of the businesses we sold 0:12:01.240 --> 0:12:03.400 from out for our members or recommended they sell, got 0:12:03.440 --> 0:12:06.240 to price earnings ratios of eighty and ninety times before 0:12:06.240 --> 0:12:09.600 we recommended they sell right now, which is extraordinarily high. 0:12:09.840 --> 0:12:11.880 Why do we not pull the trigger earlier? Because we 0:12:12.000 --> 0:12:14.199 kind of went, well, the great business, I really really 0:12:14.200 --> 0:12:16.040 don't want to sell us I have to, and then 0:12:16.040 --> 0:12:18.040 we went well, okay, now I'm out. So do we 0:12:18.080 --> 0:12:19.840 answer your question. I'm not a value I'm not a 0:12:19.840 --> 0:12:22.280 capital V value investor, nor am I a capital G 0:12:22.280 --> 0:12:25.600 growth investor. I think the distinction is really unhelpful. Frankly, 0:12:25.800 --> 0:12:27.360 people out there can do their own thing, but for me, 0:12:27.400 --> 0:12:29.959 it's not very helpful. So you asked the question. For me, 0:12:30.000 --> 0:12:31.600 it's probably one hundred and twenty one hundred and thirty 0:12:31.559 --> 0:12:34.120 percent of the value is where I sell. And someone said, well, 0:12:34.280 --> 0:12:35.679 why would you sell? Why would you wait for more 0:12:35.679 --> 0:12:39.080 than it's worth to sell? Two things. One back quality, 0:12:39.280 --> 0:12:42.720 and that's competitive advantage of the business, the quality of management, 0:12:43.080 --> 0:12:44.880 all the things that we talked about that another day, 0:12:44.880 --> 0:12:48.440 about what quality investing looks like. So back quality. Secondly, 0:12:48.679 --> 0:12:50.440 I don't want to be so arrogant as to believe 0:12:50.520 --> 0:12:53.840 my calculation of value is so incredibly precise that I 0:12:53.880 --> 0:12:57.400 know for sure arrogance and ego is the investor's absolute enemy, right, 0:12:57.480 --> 0:12:59.320 So the humility I try to bring to it is 0:12:59.800 --> 0:13:02.319 I think this is roughly right. But all of the 0:13:02.360 --> 0:13:04.320 sumps I have to put in the discount rate, the 0:13:04.360 --> 0:13:07.280 growth rates, the terminal values. Again we're talking about discount 0:13:07.280 --> 0:13:09.480 of cash flows here, really boring on video format. But 0:13:09.920 --> 0:13:12.280 all of that stuff is assumption laid on assumption. If 0:13:12.280 --> 0:13:14.000 I change a couple those numbers a little bit, I 0:13:14.000 --> 0:13:16.199 can justify paying fifty percent more or fifty percent less 0:13:16.240 --> 0:13:18.720 for the same company. Right, So that should tell you 0:13:19.160 --> 0:13:21.679 that this is a really, really really inexact science. It's 0:13:21.679 --> 0:13:24.240 an inexact art. It's a it's a guess, it's a 0:13:24.240 --> 0:13:28.000 it's a rough yardstick. So for me, I buy hopefully well, 0:13:28.200 --> 0:13:30.000 if I've bought well, I want to be slow to sell, 0:13:30.240 --> 0:13:32.080 and I want to be really really humble about how 0:13:32.200 --> 0:13:34.920 likely I am to be exactly right, and then intrinsic value. 0:13:35.240 --> 0:13:37.720 And if that's the case, let it have some rope, 0:13:37.800 --> 0:13:40.640 and then yes, sell. Now have I held stuff too 0:13:40.640 --> 0:13:44.840 long in hindsight, absolutely yes. But if I added up 0:13:44.880 --> 0:13:47.520 every company I've held for too long and compare that 0:13:47.559 --> 0:13:51.080 against every company I sold too early, I'm still behind. Right. 0:13:52.080 --> 0:13:54.880 Great example, I'll rub my nose my own problems. Domino's 0:13:54.920 --> 0:13:57.400 way back in the day went from we bought recommended, 0:13:57.440 --> 0:13:59.080 don't members that eight bucks? I think I went about 0:13:59.080 --> 0:14:02.000 thirteen bucks, right, I thought, oh may at sixty percent gain. 0:14:02.000 --> 0:14:04.000 It was a couple of years. I'm a genius, but yess, 0:14:04.040 --> 0:14:06.160 looking expense, how I better get out? It went from 0:14:06.200 --> 0:14:11.040 thirteen two Hold your breath one hundred and forty dollars. Right, 0:14:11.240 --> 0:14:14.719 I missed a tenfold gain. I could have ten other 0:14:14.760 --> 0:14:16.800 companies go to zero, and I still would have been 0:14:16.800 --> 0:14:19.800 ahead if I'd held Dominoes. Don't be too quick to sell. 0:14:20.160 --> 0:14:22.600 But if you own quality and don't get caught up 0:14:22.640 --> 0:14:23.960 with your own hubis and your own kind of you. 0:14:24.360 --> 0:14:25.800 I've picked the stock and it's gone up, so I'm 0:14:25.800 --> 0:14:28.280 a genius. I'm gonnalet it keep going up. Be real 0:14:28.320 --> 0:14:31.720 with yourself, but don't don't don't. There's a great thought 0:14:31.760 --> 0:14:33.680 saying about watering your weeds and cutting your flowers right, 0:14:33.680 --> 0:14:36.280 don't cut your flowers to a let a bloom at 0:14:36.320 --> 0:14:38.200 a time. Cut them and put them into ours, for sure, 0:14:38.400 --> 0:14:39.640 but give it a little bit of time. 0:14:39.840 --> 0:14:42.040 So this sounds to me a wee bit like it's 0:14:42.040 --> 0:14:44.560 also bubble protection, getting back to what we were starting 0:14:44.600 --> 0:14:47.240 to talk about there. If you're following that kind of 0:14:47.240 --> 0:14:50.480 a strategy, you'd feel pretty confident that you're you're going 0:14:50.560 --> 0:14:52.000 to miss the bubble. You're not going to get caught 0:14:52.080 --> 0:14:55.040 up in the exuberance you Anything that's rising is rising 0:14:55.080 --> 0:14:57.800 because you can see a fundamental reason for it rather 0:14:57.880 --> 0:14:58.880 than just the exuberance. 0:14:59.120 --> 0:15:01.440 Am I getting close hundred percent? The other thing I 0:15:01.480 --> 0:15:03.320 will say for what it's worth is I think the 0:15:03.320 --> 0:15:05.760 bubble label it's worth being aware of. But it can 0:15:05.800 --> 0:15:07.360 be a little bit unhelpful because then we argue about 0:15:07.360 --> 0:15:09.120 is it isn't a bubble? I don't know. All I 0:15:09.160 --> 0:15:10.680 know is it's worth more than I think it should be. 0:15:10.840 --> 0:15:12.440 And that's enough to me. I don't have to say 0:15:12.800 --> 0:15:16.000 bubble tick. I just say, would I pay that price now? No? 0:15:16.040 --> 0:15:17.600 Where in the world do I really want to hold 0:15:17.640 --> 0:15:18.240 it at this price? 0:15:18.640 --> 0:15:18.680 No? 0:15:18.960 --> 0:15:20.440 Maybe it goes up, maybe goes out. I don't know. 0:15:20.520 --> 0:15:22.760 What I do know is probabilistically, we started talking about 0:15:23.240 --> 0:15:25.640 a lot's got to go right and nothing can go wrong. 0:15:26.080 --> 0:15:28.040 That's not a good bet. So at that point you 0:15:28.080 --> 0:15:30.040 take some money off the table. That is bubble protection, 0:15:30.120 --> 0:15:32.200 as you say, because I'm not saying, well, ever, it's 0:15:32.240 --> 0:15:34.440 going up, I'll keep holding it. Or the crowd must 0:15:34.480 --> 0:15:36.480 be right, so I guess I should keep holding the shares. 0:15:36.600 --> 0:15:38.600 Or you know, everyone's excited about it. I guess they 0:15:38.640 --> 0:15:40.720 must know something I don't. Don't try and keep up 0:15:40.760 --> 0:15:42.880 with the Joneses. Don't take money from your don't take 0:15:42.920 --> 0:15:45.800 tips for your taxi driver, don't list your brother in 0:15:45.880 --> 0:15:47.680 law who's getting rich owning something that no one else 0:15:47.680 --> 0:15:49.640 wants to own. Because, as you say, we've been through it. 0:15:49.880 --> 0:15:52.480 The dot com boom and bust was a great, great, 0:15:52.560 --> 0:15:57.160 great example. Another quick example Warren Buffett that the patron 0:15:57.200 --> 0:16:00.440 saying of investors way back in ninety nine, spoke about 0:16:00.440 --> 0:16:02.760 magazine articles. A great article you can still find on 0:16:02.800 --> 0:16:05.720 the internet called What's Wrong Warren? And the idea was 0:16:05.720 --> 0:16:07.800 Warren Buffets missing out on this boom, and everyone saying, oh, 0:16:07.800 --> 0:16:10.240 Buffet's lost and it's all over. What does he know? 0:16:10.560 --> 0:16:13.520 His old fashioned twenty six years later, still on top, 0:16:13.600 --> 0:16:16.480 still doing his thing, still a very very very good investor. 0:16:16.840 --> 0:16:19.560 What was wrong? He saw the bubble, he saw the 0:16:19.600 --> 0:16:22.160 fact that nothing was wasn't worth buying. Everyone was saying, 0:16:22.200 --> 0:16:23.840 you're missing a Warren, Look all the price are going up. 0:16:23.840 --> 0:16:26.400 Why'd you're playing our game? He said, Well, I buy 0:16:26.400 --> 0:16:28.520 stuff where it's worth buying. I sell it when I 0:16:28.640 --> 0:16:31.280 want to sell. Its nothing to buy off, stay in cash. 0:16:31.640 --> 0:16:33.960 It's not difficult, it's not sexy, it's not fun. You 0:16:33.960 --> 0:16:35.920 don't get the headlines, you don't feel excited because I 0:16:35.920 --> 0:16:38.240 owned the new cool thing. But it's a nice way 0:16:38.240 --> 0:16:38.800 to make money. 0:16:39.000 --> 0:16:40.600 I guess people might have said the same thing about 0:16:40.680 --> 0:16:43.080 Larry Allison until about two weeks ago. Gosh, here's a 0:16:43.080 --> 0:16:45.800 guy who had a pretty successful company, and he tried 0:16:45.800 --> 0:16:48.240 to run a few America's Cup defenses as well. But 0:16:48.320 --> 0:16:52.320 so long, see you lad off the basis of one 0:16:52.360 --> 0:16:56.120 innings report basically saying, you know, we I think to 0:16:56.160 --> 0:16:59.960 read the priest. That's most of it supplying capacity to open. 0:17:00.400 --> 0:17:02.800 So that's a pretty strong one way bit. The market 0:17:02.840 --> 0:17:06.200 seems to love it. That seems to be pretty out 0:17:06.200 --> 0:17:08.720 of whack. Surely if a stock can leap and deadly 0:17:08.800 --> 0:17:11.200 forty percent on one innings report. 0:17:11.680 --> 0:17:13.720 Great example, By the way, it was already up forty 0:17:13.720 --> 0:17:15.800 percent for the year to date, so up forty percent 0:17:15.840 --> 0:17:17.959 over the previous nine months eight months, and then up 0:17:17.960 --> 0:17:21.639 a another forty percent top of that on one earnings report. 0:17:21.680 --> 0:17:24.600 What a share price means, it's the value of every 0:17:24.640 --> 0:17:27.560 dollar worth of cash flow from now to eternity, discounted 0:17:27.560 --> 0:17:29.280 back to allow for the time value of money. And 0:17:29.320 --> 0:17:30.840 I know that's complex. I'm going to live it there. 0:17:30.880 --> 0:17:34.000 Other than to say, which has got forty percent. What 0:17:34.040 --> 0:17:37.000 you're actually saying is the value of all of the 0:17:37.000 --> 0:17:39.119 future cash list from now to eternity, and they were 0:17:39.119 --> 0:17:43.280 an aggregate forty percent higher. Not this month, not this half, 0:17:43.359 --> 0:17:44.960 not this year, not the last five years, over the 0:17:45.000 --> 0:17:48.720 next five years, but from here to eternity, everything in 0:17:48.760 --> 0:17:50.760