A new bailout… and another on the way. October 10, 2025

25:03We were facing, like, the closure of one of our operations. And now the government's going to throw us all this money and no strings attached. Like, pinch me. Am I dreaming? Glencore turns out the meeting with nothing. Government walks in with a checkbook of one hand, a gun in the other. And he gives the gun to Glencore. You know what to do with this more than we do. We are not a serious people. We are not a serious people. Yes. Can I make it worse? If it's possible. No, it really is. So, again, we're recording this Thursday morning. Things may have changed since then. Reporting this morning in The Australian says that despite the deal was done on Wednesday, so yesterday our time, for three years.

25:42Now, to be fair, the money's going to be paid in installments. So, I'm not giving it up front. So, I want to, you know. Well, yeah, you thought you got a good deal. Well, it matters for what I'm about to say. I want to be, again, it's a stupid thing, but we should at least be fair in our criticism, right? So, it's paid in installments over the three-year period. thing is the report in the Australian this morning says Glencore hours after receiving a$600 million bailout says yeah there's still no guarantee we'll stay open this long because it turns out that and chef kiss right right yep and not again they're not even being necessarily nefarious although I do wonder how honest they were with the governments when the deal was done so we can I don't want to I don't want to cast any aspersion I don't know the answer to but we can ask ourselves either they didn't tell the truth or the government heard it and didn't require anything more than that that's even worse but turns out Mount Isa's Smelter provides a by-product to a local fertilizer plant.

26:32And that fertilizer plant uses that by-product and pays for it to produce fertilizer. Again, really important industry worth having. A place called Phosphate Hill, which I love because it just tells you exactly everything about the natural resources. Is there a hell of phosphate here, guys? Yeah, let's put a fertilizer plant there. Which again, that's why this is not a fertilizer plant. What do we call it? Exactly. Phosphate Hill? We're good at that, aren't we? I do love that. It's like a lot of Australian companies, right? Aussie Broadband. What is it? An Australian company selling broadband.

26:55Australian companies' ethical investment. We're very, very good at naming things very literally. What it says on the tin. Right, it says on the tin. Anyway, so Phosphate Hills is owned by Dyno Nobel, a company that used to be called Incitec Bivit. Yep. And it's been trying to offload this plant. If it can't offload the fertiliser plant from somebody else - And it's only getting rid of it because it's so insanely profitable. Gosh, this is such a great asset. Let's get rid of it. So they're trying to sell it. If they don't sell it, they'll close it. If they close it, Glencore's copper smelter in Mayaza also will have to close.

27:26Yeah. So, phase forward. You've given money to Ayala, you just earned money at Glencore, and then the next person to basically try and call your bluff, when I say try, it'll succeed because it has the last couple of examples and government's got no guts. Donor Nobel is now going to say, hey, Albo and David Christopher, before you leave town... Well, you got the checkbook open. Yeah, look, you gave them some money and you know what would be terrible? I mean, if we closed, then the smelter would close. If the smelter closes, what's going to happen to Man Isar? You don't want bad things to happen to Man Isar, do you guys?

27:58A hundred percent. I guess what you'll need to do is give me some money. And they've literally put the precedent... As soon as you show your hand, to your point about being the patsy, you feel the patsy at the table, everyone's like, keep him playing for as long as he possibly can, because we've got to make a fortune out of this thing. That's exactly what they've done. So there's no guarantee even after a$600 million deal was done, it's going to stay open. And now, Dono Nobel has got the government over exactly the same barrel for two reasons. One, they set the precedent. Two, they told the voters, we care about Mount Isa, we want to keep it, and we'll do what we need to do.

28:28So these guys are like, great. Government have already signed the check. All you gotta do is write the number and hand it over. Now, I don't want to be, I want to be very careful. Diana Nobel has not, as far as I know, publicly or privately, asked for money. But if it comes down to it, if you say as a starting point, David Christopher and Anthony Albanese, we must save Mount Isa, and Diana Nobel knows that, and knows if they close, Glencore closes, if Glencore closes, Mount Isa's at risk, it's the easiest layup in the world. I think we found our next bailout recipient. So I don't know how much money they'll need for that one but this is what happens when you start to play those games.

29:01You just create the circumstance where everybody who employs a decent number of people anywhere say, hey guys, we're going to close. What are you going to do about it? And they know they're going to trip over themselves to come and pay them some money. You know how many people live in Mount Isa? 20 ,000? Less, 18 ,000. I don't think you got it. 0.07 % of the country. I don't know the point about Hill End, mate. Because Hilland had 30 ,000 people at a point in a population that would have been a tenth, maybe an 1870 of what we have today. Yeah, yeah, yeah. So actually where you've gone there is really interesting because what you've touched on is, as Dirk gently would say, is the fundamental interconnectedness of all things.

29:38Because it's sort of like the economy is all of us just interacting with one another. So this smelter goes out of business. So then this phosphate mine goes out of business. So the cafe owner who makes the coffee for the workers in the morning goes out of business. And she presumably, you know, bought shoes for their kids' school. And so then the shoe manufacturer is making a little less money. And it just goes on and on. And so there's a logical question of like, well, where do you draw the line? Correct. You know, like stock market goes into a funk for five years and half our industry closes down.

30:13So straw men should get a bailout, right? Yep. And, you know, I just put a deposit down on my third Porsche. So, well, what about the Porsche dealers, right? So they probably need some money. Actually, some of the money they get from me, which comes from other people, you know, et cetera, et cetera, et cetera. Don't you care about the economy, people? You know, and it's just like it makes no sense. You must draw a line somewhere. And this is why such an action is intrinsically political. It cannot be anything other than political because you must have a group or a subset of people who say you are worth saving and you are worth not.

30:56Now, this could be the most noble, you know, ethical person in the world, but it's not an objective question. It's a subjective question. It's going to depend on the world view and the understanding of the people making the decision. you know it's going to depend on their particular incentive structures and whenever we've tended to try this it just just never ends well it never never ever ends well and it's sort of like um i think it just all it does is belie a fundamental um misunderstanding of how of economics really it's all it is like we really don't get how it works can i can i be even can i say it's even worse than that.

31:35Probably is worse than that, yeah. I don't for a second believe they don't. Well, it's worse than they're cynical. Right, that's my point. It's not about, it's about electoral politics. I don't believe, it's like this bloody, new rants to go on. It's like the first-time buyer stuff. Every bastard in the world knows adding demand pushes up prices, which by definition can't improve affordability. And there is no chance, no way in God's green earth that the treasurer, and by the way, former treasurers who've done the same thing back since John Howard's time. Apparently, Bob Hawke had a first-time buyer scheme back in the early 80s, which I had completely forgotten about.

32:13So again, it poxed on both their houses. But this is not a political, a party political, partisan view. But if you're honestly saying to me that for some reason, 30 years worth of politicians, no one in treasury or in their staff has gone, hey, PM, treasurer, you might've missed this. and I know you're a busy man. Can I just explain how this doesn't work, right? Of course that's been done. Every single economist in the country, other than maybe the horribly biased ones, says exactly the same thing. This is going to make affordability worse. So either they are completely stupid and don't listen and I don't believe that for a second or they know and do it anyway.

32:50And that's why it's worse than, if it was just misunderstanding, that's fine, you could fix that. Crash course, Treasurer, give me a weekend, I'll teach some things about economics. If that was going to solve the problem, that'd be great. I'd take it to heartbreak. I just unfortunately don't believe it for a second. I wish I did. I don't know. Yeah, this is, I think this is why every now and again, we have these big collapses because the collapse is actually, we always see that as the anomaly. And to my way of thinking, it's actually the inevitable outcome of denying reality up to that point, you know, and you, you, you kick the can down the road, you know, you keep pushing on the string, whatever analogy you prefer until, until it just collapses under its own weight.

33:32It's just like, well, that was the GFC, right? That was exactly what it was. And then we go, oh, this really bad thing happened. Let's fix that by doing the exact thing that caused this in the first place. And it's just, it was a Gordon Brown who said a decade or so ago that we've solved the economic cycle. I was like, no, you haven't. You've just, you've changed it from a fairly regular, mild kind of affair to something that never happens, but is building up just an incredibly fragile system that when, if, well, I mean, at some point, right? Like it's just like it cannot stand under its own, you know, it cannot withstand gravity anymore.

34:15I don't know when that kind of is, but it's just like you can only deny reality for so long. And that's the point I often like to sort of make when I'm ranting about this stuff is that economics isn't, well, this is unfair to philosophy because I think it's a fascinating topic, But it really is grounded in reality, or at least should be grounded in reality, because it is trying to deal with a very thorny problem of unlimited human desires and wants against scarcity. That's the study of economics, right? And the theories and philosophies that sort of come out of that are just different ways to solve that very real problem.

34:51But it's not a problem that lives in the heads of humans. It's a problem that is thrust upon us by the nature of the universe and the world in which we inhabit. Now, we can deny it. We can do all kinds of things in the meantime. But at a point, you know, it's like it's going to come back to bite you. And I don't know. I don't know what to say. It's sort of like I'm flummoxed. Exactly. And yet here we are. So, yes, assume there's another bailout coming. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

35:35Mate, speaking of bailouts, he says desperately trying to find a segue to a story about Grusman E. Gomez, and I'm not going to do it, so let's just move on and pretend I did. You made the point this morning we were sitting down talking about what we were going to cover. It's back below its IPO price, the price at which the shares were floating on the ASX. Let's do a victory lap, man, my friend. Back when that was happening, we're like, love the burritos. Big fan of the burritos. Fantastic restaurant. Fantastic company. Like, there's no... People struggle to separate these two thoughts. But I think at the time, you know, we were both very firmly of the view that this is like, ooh, that is a lofty price tag.

36:11Good business and very expensive. Yeah, I'll say there's still a third down on the high they got to after Lister. So December last year... It's a retail pump, yeah. Right. Well, I mean, they're just, what, 29 odd bucks from the look of it? last year 6th of December $43.35 now back down to$27 now they've been lower by the way they're at$23.70 back in August of this year but that's you know so there's I mean the IPO price in general but then there's the kind of excitedness of of whatever whatever came with that and I think you're right I I love buying what I know I love buying consumer brands I love buying businesses where the product delivers so I I wanted to buy this so many times I must have looked at this, I'm going to say conservatively, maybe eight or nine individual times over the last 12 or 18 months.

37:00Specifically because I was like, I wish it was available at a good price because I like the product. And so, you know, and other people do too. And this feels like a business that, wow, I mean, you know, it could be a great company. And I can never, to your point, ever, ever make the maths make sense. The list of assumptions that needed to compound correctly for this to be worth what it's worth. By the way, you've probably looked at it already. Do you know what the price-earnings ratio is? I'm just... You found it? No, no, no. Give me one second, though. Have a guess first. It's got to be still high 20s, I guess.

37:33Oh, no. 30s? Don't tell me that's the 40s. If it's 50s, I'm out. I'm walking away right now. Oh, my God. It's 168. I just... Right? Okay. Okay. Yeah. Yeah. Yeah. And look, you know, at some point, growing businesses can stop the growth expenditure and profits can be meaningfully higher. Zero is a great example. We've talked about that price-wise in the past too. But I mean, well, the business itself, it was pumping a truckload of money into marketing and customer acquisition. It stopped doing that and it became much more profitable, much more quickly. because we could probably do something like that at some point, but 197 Google says you've got 168.

38:14Either way, pick any of those numbers. An extra zero. Go on. And on a price-to-sales basis, it's 5.7. And worth$3 billion. They make burritos. It's not 99 % margin SaaS software kind of, you know. Or with easily scalable sales. If you want to sell something in a new place, you've got to open a new restaurant and put new stuff in there and put new seats and buildings and marketing materials. Wow. And so, yeah. Of course, we're saying this and it'll triple. Oh, yeah. Yes, you should buy right now. You should buy right now. We are the ultimate reverse indicator. Please don't. It is a fascinating story, mate, for a whole lot of reasons.

39:04And I think what's really important, and I will happily, you know, can I say, by the way, mate, just quietly. So, again, recording this Thursday morning, we're talking about this. We were talking about it, and this is not live, so it's not got anything to do with us other than for psychic reasons. What do you reckon the share price movement is so far? I'll even time stamp. This is 20 past 10 on Thursday the 9th. Shares are up 11.2 % as we speak. although you're not doing it in the proper finance journalist kind of way you need to say ads x billion dollars in market cap yeah that's right that's right well here's the other thing by the way it's three billion dollar companies up 10 300 million dollars worth of value just created do you know why though right so so they're doing a 100 million dollar buyback okay so how does this work so think about look at the the timeline here so as a private company they decided to list.

40:01Why do you list? There's two reasons to list. One is that the founders want to exit or take a little bit of money off the table. And, you know, it's just easier to do to, you know, flog it to retail because, you know, you need some dumb money to buy an overinflated asset. God, I'm cynical. It's not always that bad, people. It's usually not that bad. Let me hasten to add. But also because you want to raise capital or have access to the equity markets, It is one of the lowest cost sources of capital that you will find being a public listed company. That's the reason that you go through all the compliance and having to talk to all these douchebag analysts all the time.

40:37It's because you get access to all of the capital. So not counting the money that was people who bought in to buy existing shares of existing holders. In terms of new shares issued, they raised$200 million in the float. A couple of years later, they're taking half that money and buying back their shares. So you didn't even need the money? Wait, I thought you needed all that money because you were going to go tell the North Americans how to make a taco. Because apparently they don't know. But what? How does this? And it strikes me as a little bit of financial engineering. I would actually have a huge amount.

41:16If we were saying, wow, this thing is on a PE of 12, you know, and it's, I mean, to be fair, they are growing rather strong. Like sales are up 27%. saying like this is great again the shares is one thing the company's another i love the product distinction such important they're growing really well i am not throwing shade on the the business that they are in because they are doing well in what in in what they're trying to do but the market has put this valuation on it that just makes no sense whatsoever and you know 160 something pe and you're taking half the money you raised in the float yes and buying back your shares at an So that basically says we are bereft of ideas.

41:58We've got no use for the money. And the best use of the money is to buy our own shares at a very high valuation. Now, the board would say that's unfair. The shares are cheap. You're not looking at it properly. We're growing at this. In five years' time, you will see that actually the shares were super cheap relative to what we got. And that's actually a reasonable argument. Time will tell. It's the only justifiable reason to do it. is I've got a dollar and I can either invest in growth, I can pay a dividend, I can pay down some debt, I can buy back my shares. That's it. And on behalf of shareholders, the very best thing I can do, weighing up all the potential returns from those areas, is to buy back my own shares.

42:36And it's a very, very, very legitimate way of managing a company's capital. If you've got a low share price, a great return on it. These are 20, well, what's the price now? It's come down, since we've been talking, now down to up only 8.2%. This is a$29, 21 share price. If this company is objectively worth 40 bucks, they should absolutely buy back their shares. If it was worth$100, they should do it with their, you know, is it hand side back? What's the phrase? Don't know. Anyway. They should do it with gay abandon, right? Because why would you not? You should. You're derelict usually not to do that.

43:06Yeah. But they listed the company at$22 a share was the IPO price. The closing price on day one was$29. They're now at$28.50 as we talk. The share price gets falling. So we're not going to give a minute-by-minute update. But either way, they're going to buy back the shares for, for, what is that, 40 % more than they listed them for? So they sold shares at 22. They're going to buy them back at 28 or whatever the buyback price ends up being. So not only are they using half the money they raised to buy back shares, they're buying back at a more expensive price than they sold them at in the first place.

43:37Now, maybe the business is better. Maybe it's less risky now. Maybe the market knows more about what's going on. There's always those potential opportunities. I want to go back to your point about the company, mate, because sometimes we say the company when we mean the share price. We even say, and I've talked about this before, even when the bank share prices go nowhere, not because they're bad businesses necessarily, or they might be, it's investors thought they were worth more five years ago than today. Now, maybe the businesses got worse and they're genuinely worthless. Maybe people just paid too much five years ago.

44:02So we've got to always separate the business's performance and prospects from the share price, which is the point you made. I would love to buy Guzman & Govans at a reasonable price. I think it's got a bright future. I think it'll be bigger, more profitable, more successful in years to come. I think going to the US is frankly, I won't say silly well bold yeah because we've said before they should try these things sure Bunnings went to the UK Woolies opened Masters just stay in the hardware space yeah should Guzman try it yes I think so if you're a publicly listed company worth three billion dollars and you think you might have a model you can take to the US of course give it a go knowing that there's a very good chance it fails because talking about selling coals to Newcastle taking Mexican to the land of Tex-Mex is bold as you say but I'm okay with them doing it you know They're actually doing it in a measured way.

44:49I mean, it feels - And they've done the East Coast too, by the way, which is run the West Coast, which is also smart. Very true. So I think the board's given approval of 15 stores. I mean, this is not a big expansion, so it's fine. But the point - You wouldn't want to bet on the share price though. But that's what the market is doing. The market is saying, you will do this and you will be successful. And therefore, it's worth paying this much. And not only that, but really successful, right? And look, their net profit - Let me scroll back up very quickly, but it grew incredibly strongly. Yeah, they do.

45:20Again, it's a great business. They're doing really, really well. Yeah,$5.7 million in net profit in FY24,$14.5 million. So it's like nearly tripled their profit in a year off a 27 % increase in revenue. It's a great business. There's no question about that. But again, you're paying so much in terms of earnings that you need. The way I like to do it is, and I've mentioned this before, is I think as an investor, rather rather than trying to precisely guess the future, just do a range of scenario analysis. And let's go, well, I think they can continue to double their profit each and every year for the next five years.

45:57So it's 30, then it's 60, then it's 120 million. You go, well, I think a reasonable PE for a fast growing, high quality businesses, 25 in the current environment. You can do the mass and I'm going to get tied up doing this in my head. But my point is you can do it. And what you generally find is, and you see this a lot on the market, is that the business actually delivers. Like, holy crap, they did it. That's right. But when you go from a PE of 168 to 20, like it nullifies all of the gain. And it's sort of like, wait, so you're telling me that the business just like knocked it out of the park and my share price went down.

46:32It's like, yeah, because you paid too much for it. Hypothetically, potentially, we will see. We could be absolutely eating, you know, like face planting here. It's treading on a rake right now. But the other thing I like to do too, it's not so much about saying, and I'm just for an abundance of clarity here, I am not saying they definitely can't do it. The share price is definitely going down from here. I mean, you can't say that about anything. Like the future is unknowable, right? We have to understand that as investors. But I like, call me crazy. I like scenarios. I mean, we haven't done a Buffett quote yet.

47:07So we've got to fulfill our contractual obligations. Got there. and Buffett likes to say I'm not looking for six foot bars to jump over I want a one foot bar to step over here so I want a business where it's kind of like the market is basically saying there's no chance that they can have any success whatsoever and they're really nice opportunities because I mean often the market is right by the way so that's the first thing but it means if they like deliver slightly better than the market expected and the sentiment shifts you get this leveraged return in a way. It's just sort of like, oh, so earnings didn't fall.

47:44In fact, they rose. And the PE went from like eight to 12. I'm like, wow, I got a 50 % gain just on the multiple expansion alone, plus the expansion in the profits. It's a wonderful thing. And it's that favorite term of mine, asymmetric outcomes. I want something where I can't know what the future is going to be, but I want it. It's like, well, if at least I'm wrong, there's not too much downside. If I'm right, there's a lot of upside. companies like Guzman and Gomez at this point it strikes me as potential as like things go insanely well and you'll get an okay return or they fall slightly still do well but fall short of expectations and you like wear a 50 % loss and that is that is not an exciting proposition for me um but fortunately I'm patient and you know I've got watch lists and you can you can you can add things there and you can, this is why the research is never wasted.

48:37You know, people on go, I spent all this time figuring out whether I wanted to buy it and I didn't. What a waste of time. It's like, no, it's not. You, you took the time, you understand the business. You've worked out a price that you think is probably reasonable to pay, given everything that's been said. And at some point in time, the market will give you that opportunity, you know, probably. And then you move on. Yeah. And you just, just wait. It's like, is now the time to do it? No. Is, is there likely to be a time in the future? Maybe. Yeah, probably. I don't know. I'll just, I'll just, I won't, I won't try and force the future or I'll just, I'll just, I'll be opportunistic.

49:07It's like, do I have the opportunity to do what I want to do? No, I won't do anything. Yes, I will do something. That's, that's just all it is. It's reacting to the opportunity set that's available to you. I think that's a great example. And by the way, we're not even saying you don't buy for growth companies. It's not, you know, you pay up for a growth company because you believe the future is bright. The question is just to handicap the odds against the price you're being asked to pay. and work out whether that's attractive. Amazon was a stupid PE for the first 20 years of its life. It grew into that PE.

49:37I own shares, as everyone knows. Not that long ago, I didn't buy them, unfortunately. I wish I had. But it grew into that PE because it had the ability to scale and to grow and to become more than it was. And that's perfectly okay. Was it guaranteed? Of course not. And my point is it should buy every growth company either. Guzman Gomez has to open new stores to serve new customers. Where each store can only really scale to a certain size before it has to open a new store, there are limits to its ability to scale. Not so much to grow. They can open more and more stores. Macca's got, I don't know how many stores around the world.

50:03So, you know, we're not saying there's no more growth left. But think about what the share price is requiring of the company and then work out how likely that is and handicap the odds. Maybe there's a 50 % chance of it. Okay, well, you're paying 160 PE for a 50 % chance of success. And if it doesn't happen, what happens? The asymmetric outcome, to your point, mate, in this case, I suggest, and I think you agree, is actually on the downside, not the upside, for exactly the reasons you've said. If it goes insanely well, you're okay. If it doesn't go insanely well, you're probably negative. And if it goes well, but not even close to very well, you're going to lose a decent amount of money.

50:34That is not a bet I think you want to make. Unfortunately, because I'd love to buy the shares. I just can't buy them at today's price. Yeah, that's it. Yeah, nothing to say here. But then just to put a full stop after all of this. It's put a bow on it. And I'm really not trying to have a go at any existing shareholders. And I'm certainly not trying to tell any listeners what they should or shouldn't do. and it's not really so much about this particular company. I think it's more about you will come across this as an investor on the ASX a lot and it's about the key point that I want to really underline here is that the company and the shares are two different things and you might remember, I was trying to Google the quote but I couldn't find it, but Munger said something like we want a bet with three to two odds.

51:24I love that quote. Can you help me out here? Yeah, yeah. The maths, well, not maths, but I'm sorry to give you, it doesn't work out. I don't bet on the pony, so I don't know what the phrasing is. It's a good one, though. So basically what he's saying is just like, we want a bet that's mispriced. And that's what you want. Here we go. I don't know if this isn't actually the quote at all. He's got a lot, so it's hard to find. Yeah, yeah, yeah. And this is why some of the best investments, dude, that I've ever made are actually really average companies. Like, they're just not that great a company.

51:59It was just like stupidly priced. Yeah. You know? Yeah. I will, as a general rule, err towards higher quality because it means that you don't have to be as spot on with your valuation. Here's the quote. Quote, To us, investing is the equivalent of going out and betting against what he calls the pari-mutual system. It's basically the ball-making system. Quote, We look for a horse with one chance and two of winning, and which pays you three to one. I got it backwards. You're looking for a missed priced gamble. That's what investing is, end quote. You know what I love about that, mate, is a lot of our peers spend a lot of time trying to say investing isn't gambling.

52:37And they're right. But I think they actually miss the opportunity to actually take people on that journey of why investing is hopefully gambling but better. Yeah. Because the study of probabilities is exactly what combines the two. There are no 100 % bets in investing. And let's take Munger's maths. For those who aren't horse racing people and don't kind of follow, if you've got one chance in two winning, you're winning 50 % of the time, right? So race one, you bet a dollar, you lose the buck. Next race, it wins. Okay. Now let's say it's paying three to one. When it loses, you lose a dollar. When it wins, it pays three to one, you get your dollar back plus another dollar.

53:16If you can do that over and over and over again, imagine, I mean, it's a great example that Munger uses. Imagine it's a coin toss, right? So you've got a coin. Heads, you lose. Tails, it pays three to one. You play all day. Right, and all night, and as long as someone's stupid enough to put the odds up. Now, you can't know for sure what the odds are. So Munger's giving an illustration rather than an absolute. Yes. But this is where gambling and racing make a whole lot of sense. Most gambling is stupid because the house wins or the bookie takes his cut. And so the overall pool of art - The bookie's just got better information.

53:47It's got an informational advantage and they're better at maths than you because the bookies are insanely good at maths. Plus they've got other parties who are happy to make money off. They'll make money off the mug punter. That's why Melbourne Cup, you know, the professionals don't like the Melbourne Cup because everything's badly mispriced because the retail punters in there just messing with the system, right? Yeah. But it's really, really important because it tells you about that idea of you're not going to have success all the time. All you're looking at is saying, what are the odds if I win and what are the chances of me being right?

54:14Yeah. And that's what you're asking yourself. Well, you would know this better than anyone running an investment newsletter. okay thank you and well you do right because you i mean i understand it because it's a it's an understandable misconception but people get angry right you recommended this and it didn't work out i was like yeah but it's and by the way that's it's not just like an anomaly like that's gonna happen like at least 40 of the time if not 50 of the time i know you interviewed david gardner recently which is on my playlist i'm really looking forward to that yeah so he's the he's one of the founders of the fool.

54:47He's an, he's actually an, an insanely successful investor, but he's, we've talked about it before, but if you, if you're new to the pod, his strike rate is abysmal. Like it's like chances, if he makes a recommendation, odds are it's a bad recommendation. And you go, so what, how does, how do you square that circle? It's because when he's wrong, it's not that wrong. And when he's right, he's insanely right. because he's playing, the system he is playing is exactly as Munger sort of outlined. And I'm not trying to say this to sort of set you up and like everyone be nice to Scott if he makes a bad recommendation.

55:23I'm not saying that whatsoever. Like let him have it, I say. But what I'm saying is more for your own sake, you've got to forgive yourself as an investor. There's actually nothing to forgive. That's right. You've just got to expect that like, God, I mean, Lynch said, if you're good at this game, you're right six times out of 10. All right. Let that sink in. Yes. And you've got to understand that's just the nature of things. Process is what's far more important than outcome. It's something that you're very hard to make peace with in our game, but you can do the exact right thing and get a bad result.

56:02What's really frustrating is you're watching, particularly in periods of euphoria, you're watching people do all kinds of dumb things and make 10 times as much money as you and it's not fair it's not fair but but eventually i mean it's like the person who's got a hot hand in poker you know on a hot streak rather and and you know it is winning and winning and winning and winning it's like one thing that you know with with um probabilistic distributions is that they you will mean revert at some stage it's not in there's nothing in the laws of the universe that says you can't go to a roulette table and spin a billion blacks in a row.

56:40Like it absolutely can happen. It's just insanely unlikely. Because it's 50-inch individual spin. Yes. Insanely unlikely for that to happen. Before someone writes in and goes, yes, it may have had a billion blacks in a row. It's still 50-50 on the next spin. I get that. But I'm saying ahead of time, if I say, right, what are the odds of spinning a billion blacks in a row? It's infinitesimal. It's stupidly small. And so what that means is that, you know, if you've got a good process and you get a bad result and then you get another bad result and then you've got another bad result, the temptation will be to go, well, I need to do something different.

57:16Now, this is where it gets hard because maybe you do need to do something different. That's right. But assuming you've actually got a decent process, you should actually keep doing what you are doing because you know that there will be a mean reversion at time. And just like there is that idiot out there on social media talking about how they're the next Warren Buffett, they are going to face plan at some stage because they just have a bad process. They're confusing luck for skill. And, you know, if this is sounding like it's going to mess with your head, welcome to the party. Yeah, it is. That's a very Bruce Willis diehard of you.

57:51Welcome to the party, pal. Welcome to the party, pal. Yippee-ki-yay, something-something. You're welcome, listeners. Bit of diehard for you. We are nothing about children of the 80s. 100%. No, really good point. Mate, can we finish off? I want to talk a little bit about AI and specifically about Deloitte. And I want to give – I have a view. We should just change. It's not Motley Fool money. It's Motley Fool anti-government at this point. Well, not any government, yes. So Deloitte did some work for government and got paid – it was$440 ,000, I think, for this particular piece of work. Turns out they used a lot of AI for it and it was full of errors, at least according to the reporting.

58:29I think it's a reasonable assumption to make. No, they admitted it and they've actually paid back some of them. Good on them. Aren't they nice? They're good guys. Sorry about the mistakes. We paid it back. No, no. All of it? No. God, no. No. 20 % or something. What do you people want from us? We gave you a discount. That's right. Can we have some more contracts? Oh, yeah, absolutely. Here you go. Promise you I messed it up this time? Yeah. No, but we'll try. How many can we have? Oh, more than all the other consultants combined. Cool. Cool. Nothing wrong here. No penalties for doing a bad job.

59:02God, I'd love to all it. Anyway, you know the reason? So that's its own point, which is worth just calling it, because government's overusing consultants and paying stupid amounts of money, and often those consultants are giving different advice to their clients than what they're giving to government. The whole thing is rotten. Just quickly, you know what the report was on, right? I don't, actually. No, tell me. It was on how to recoup money from welfare recipients. It's got some robo-debt flavours to it. Meanwhile, they're paying$600 million to Glencore. again we're not a serious people we're not um but i want you know what so i don't want to i'm not going to defend do it in the slightest what i do want to actually call out or at least comment on is those people who've then taken this on so i told you i was stupid it's full of it's full of errors do it was stupid to use ai i was never going to work it doesn't work they shouldn't have used ai that's the problem now i think that is fundamentally wrong and i think it fundamentally belies a bit of ludditeism it's not actually a word but it is now among some of those who want to believe AI is not going to help.

1:00:00Now, you and I have talked about this before. You're a big fan of AI. I'm a big fan of AI. Not uselessly and not the way Deloitte used it, which is clearly stupid because they didn't bother cheating. It was full of errors. That's not... It's AI. It's like saying with the work experience, kids do the calculations. So therefore, we shouldn't use people to do the work because using people to do the work doesn't make any sense. They get it wrong sometimes. Oh yeah, we use the internet though and we put a whole bunch of stuff we found on Reddit rather than verifying it and doing it ourselves. 100%, right?

1:00:27Yeah, exactly. so and i guess that's just the point i wanted to make was there'll be people who look at this and go see i told you i was stupid i told you it's not going to work um assure you humans i was never going to this that is just so far from the reality and people who are taking a bit of a bit of schadenfreude and the kind of idea of ai is broken you know i was right it's wrong yeah i just i just want i just want this is to remember and they're smart people so they will this is going to to your point about the internet mate this is going to be a thing right i can't download movies over the internet in 1998 therefore netflix will never happen told you told you streaming was dead it's never gonna work you know we're gonna we're gonna blockbuster's fine um ai is going to absolutely take over it's going to revolutionize the way we all work and play and do all the things i'm i last time we talked about this i said i use ai i hate more i've used it i eat more since then than i even did before then right it's just going to one way it's a one-way door right right and so it's you've been riding on a horse your whole life and someone just handed you a car.

1:01:22And a crash was free. Only the horse in the panic. Yeah, well, the car crashed in the street. Told your cars were stupid. They're not safe. I'm never going to drive. I'm never going to use a car. Cars are done. I was right the whole time. Horse riders unite, you know. Yes. Yeah. So I don't have much more to say than that, mate, other than just for all of the, for all the shudder about the whole they've got to pay it back. They used AI. That was stupid, but they absolutely should have used AI. They should have used AI more than they did. They should have just checked it because you know what? Coming up with the content and speaking of consultants paying too much, maybe not in this case because consultants have always got one over the government.

1:01:54But in a perfect world, here's the other thing. Deloitte does it. They check it properly. They use AI well. The government should get the report for half the price because it takes half the manpower to create that report. That's the efficiency and the productivity enhancement of using artificial intelligence in the first place. Now, Deloitte will charge as much as they get away with and government's probably too stupid to get a better price for it, other than the refund. But as a general rule, that is the beauty of AI. I don't have to do the grunt work myself. I'm going to get all the information I need.

1:02:20Then I can ask it to look at it and analyze it and give me some suggestions. Then I can put together a report using AI based on those suggestions. Then I can proofread it, make sure it passes muster. Then I can check the references. Then I can send it to government. And I can do that for a fraction of the price it would have cost me to do had I used the work experience kid and 15 partners and 85 analysts to produce that report. That is the beauty of AI. So rather than looking at this and going, clear AI is not a thing, it's not going to work. Is it perfect yet? Of course not. You've made the point before about, you know, we've got all this great stuff and we're still complaining about the errors rather than like, oh my God, look how amazing it is.

1:02:53It does 85 % of what I want it to do in a fraction of the time. That's a celebration. That's not a, oh, 15 % is the problem. That's the beauty. Yep. It's a tool. It's a tool. It's like a hammer. It's just a tool. You can build a house. I bet that with a hammer, I'm going to go back to pushing them by hand. Yeah, right? It's sort of like - Madness. That's not the problem. Yeah. But what is the problem is that you can charge half a million dollars for this thing without ever having sort of looked at it. And again, the crony capitalistic dimension to all of this is that you would imagine that in a proper functioning free and open market, the government go, well, we're clearly not getting bang for buck because you're giving us AI slop here.

1:03:41So we're not going to use you anymore. And if that had happened, it was kind of like, okay, you tried your luck. You didn't get away with it. And now you're paying the price. Yep. But there is no price because they go, well, okay. So anyway, move on. Can we have a little bit of that back? And here's$30 million more in contracts for the next six months. And that is the egregious part of it. We've also got to just not mistake the means for the end here. And I would say it's not even anti-consultant. If the government has an opportunity to spend a bit of money and get an incredible return on that investment.

1:04:17So in other words, we can get some insight, some information, some strategy, some direction by spending a bit of money and such that it is going to create a great deal of value for the electorate, then you should do it all day long. I really don't care if it's done by the bureaucracy or outside consultants. I don't really care. All I really care about is like, how much bang did I get for my buck? And the North Star is I want as much bang for as buck as possible. Does it matter that you use the internet and AI? No, not really. As long as there is value that is being generated in a value for money kind of way, then what's the problem here?

1:05:01who cares right like maybe there's just like some autist genius that's out there called jan and we just go to jan's house each day and we pay her 10 billion dollars but she just like drops fire you know like boom here's national debt solved boom deficit spending solved like we should be giving jan all the money in the world right because it's just like that's an insane return on on investment and it was outside of government and jan's a consultant and but but but she's doing great work and we're getting incredible value for money. The problem is when it's like, this is absolute nonsense. Turns out Jan is 12 and she's big colouring the pictures by hand.

1:05:42Right, and we're giving her more work. That's the problem. Like be angry, but be angry for the right reason. Jan, this time can you ask your mum to help? We'll give you the work. Just ask mum for help this time of your day if you don't mind. So I mentioned before, my wife's a teacher. She's in the process. It's school holidays at the moment, New South Wales. She's doing a bunch of marking and just like so many of the kids are using AI. And her response is, and I think the guidelines are pretty much along this, it's like, well, again, you're going to use it. I don't really mind. It's just like you're not checking it.

1:06:12You're just cutting and pasting whatever got spat back out. If you can use this tool to find the answers right, understand it, and then write it in your own way, no problem. No problem whatsoever. Use AI all day long, every day. In fact, it would be a competitive disadvantage for you not to do it. Eventually, these kids are going to go into the workforce, right? And we're going to say, hey, here's a tool that can multiply your capacity by 100. And everyone else in the world is doing it, but you're not allowed to do it. But what? It's pretty hard out there. No, you're not allowed to use this. You're not allowed to use this incredible technology.

1:06:52So it's like the genie's out of the bottle. The genie's out of the bottle, right? And I am of a certain age that I was going to say school, but that's not true. In university, the internet became a thing. That's how old I am. I remember walking to a computer lab and seeing Netscape Navigator. Yes. And someone was looking up something. And someone else was actually using the old discussion chat boards with a kind of the, what are they called? The international internet chat. Yeah, no, it was the chat. It was like the bulletin board. Bullet boards. Bullet boards, yes. No, bulletin boards. Yeah, yeah, yeah.

1:07:24Well, that was about as imaginative as we are. If you look back in the 90s and people are saying, there's this thing called the internet, what can you do? It's like, well, it's kind of like a bulletin board that you can access. That's right. Right? This is what the mind-blowing thing of these technologies is that it's not that bulletin boards weren't a thing and still are a thing. It's just that the actual real value created was in ways that we just couldn't imagine. Anyway, my point is with that is at the time it was like students are going to be looking stuff up on the internet. They should be going to the library.

1:08:00Like what? A copy or paste out of the Ecyclopedia Britannica is not real research. Yeah. Yeah. And it's just sort of like clearly that's – and it's the same argument again. So, I mean, screw you, Deloitte. You know, all it does is show – I mean, not because you used AI, but because you did it in such a terrible way without you. And screw your government as well for accepting that and rewarding them for it. Like, it's outrageous. I honestly don't know. What point do we, with all the stuff that we've discussed and there's five hours worth of topics we could delve into here, how are we not marching down the street with gallows right at this point?

1:08:41Just like, I don't know what you need to do wrong before people go, well, actually, it's already happening. We can see the fringe parties gaining ascendancy and we can see people being more politically disconnected. I said to you earlier, but I went to an event last night, some people in their 20s there. I'm just just nihilism, you know, and I don't get it. And like I did everything that I was told to do. I studied hard. I got a degree. I'm not buying avocado on toast. You know, I'm saving every single cent I can and I will never, ever own a home. my only hope is that mom and dad have a bit of money and if i don't have that that i am absolute and even now it needs to be grandma and granddad as well as mom and dad because i can't do it yeah and he's like oh you've got to save dude i'm paying 800 a week for a crack den you know it's like i'm spending 75 of my disposable income no no 75 of mine and my partner's disposable income yes yes and i'm saving every cent i can and i've got 10 grand and the crappiest crappy house that I can possibly buy just to quote unquote, get on the property ladder is now worth$800 ,000.

1:09:48I'm just, it, it's so far out of reach, right? Like how, and this is what breeds very bad things, very bad things. And again, as I say, there's no free lunch and our political class seem to misunderstand that. And we are, every, every crash, every revolution, you know, the seeds are sown well before the actual event itself. And I'm not, I'm not being, I don't want to be too hyperbolic here i'm not saying australia's on the cusp of a revolution or any you know it's not it's not that stage yet but directionally that's the path that we're going on and it's it's very easy for people of an older generation who have had much more advantage to go oh they're just not working hard enough or this or that i just like you you really don't you really don't get it and all this is going to do is is just foster huge amounts of it is it is fostering huge amount of resentment and what else what else would you do other than just go well screw it yeah i am going to go to bali yep i am going to start gambling on crypto or some nonsense you know i'm gonna i'm gonna i'm gonna do that because what else am i gonna do i have to i just have to like take ridiculous risks you know um god it's depressing and it's all because of this kind of stuff, man.

1:11:02It really is. It's all downstream of it. It is indeed. It is indeed. I'm not happy, no? I'll try and be positive next time. You know, I mean, the education stuff you talk about, this is not our remit and I'm not an education expert. My wife's also a teacher. So we're supposed to talk to them rather than us about it. But there is, I think there's some, there's some really big questions to answer actually about what the education system needs to offer. Because there was a time when knowing facts was useful. And realistically, the combination of the internet and AI, knowing how to use these things, knowing how to ask good questions, yes, some sort of common knowledge, developing the brain, working on critical thinking skills.

1:11:42And part of that, part of the education at school, part of the curriculum is actually just application of those skills, just dress up around content areas. But there's some really significant changes. I mean, 13 years of education where the world is available in the internet and AI. How much do I actually need to know and what skills we need to work on on when and how should I do them. I don't know, mate. I'm no expert and I'm glad I'm not the guy who's got to design the education curriculum. But I dare say if you started from scratch, you wouldn't look like this. Nope. No, no, no, no. All right.

1:12:17Shall we come back on Sunday? Ah, please. Yeah. I mean, we'll see what other misadventures our elected representatives get into between now and then. Oh, it could be that too, couldn't it? Oh, man. Stay tuned. Yeah, stay tuned. Talk to you then. For a long time. Cheers. The Motley Fool and people appearing in this program may have positions in the companies mentioned. General advice only. Please speak to your financial professional to understand how it may pertain to your situation. Subscribe to the free newsletter at fool.com.au forward slash listener. The Motley Fool operates under Financial Services License 400691.