A New Year! Now what? January 5, 2024

35:24That's the return, right? So I'll make that point. Just in regards to banks before, you reminded me of saying the bank is someone who will lend you an umbrella when it's sunny and ask for it back as soon as it's raining. Yes, 100%. And that's the kind of strangest thing. It's like you don't believe the bank can't change. The bank can absolutely change the rules on a heart rate you should adjust to. I've got to tell you another little anecdote as well. It's when you go see mortgage brokers and banks and real estate agents and they start asking questions and you're silly enough to sort of say, oh, well, actually all my money's in shares and Bitcoin.

35:59If I could take a photo of the face, like the reaction, it's like I've just got two heads. It's like - The YouTube video on that. What? But it's a thing. The other thing with banks is as well, which I heard this the other day, which I thought, oh, this is a great saying. I don't know where it comes from, so I won't be able to properly attribute it. But it was like, if you owe the bank a small amount of money, it's your problem. If you owe the bank a large amount of money, it's the bank's problem. Yeah, it's good. And I thought, oh, that is good. It is very good because a lot of people owe the banks a lot of money at this point in time.

36:35So speaking of too big to fail, I would be very surprised if they don't receive very generous support even when the case is needed. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

36:53So, man, let's keep looking forward. We have a market that's done at least for the first 11 and a half months of this year, averagely well, by which I mean not. Yeah. Average has become, words are funny, averages kind of become substandard, right? Oh, that's pretty average, as opposed to, well, that's average. That's, you know, average is good. So an average year, i.e. a good year, a very creditable return, the sort of return that if you were to get every year on average from here out, would be very, very, very nice. Thank you very much. Yeah. The economy is somewhere around getting close to a bottom of some description.

37:26Maybe it takes a couple of months, a couple of quarters. Maybe it gets worse. Maybe it gets better. Maybe rates have peaked. Maybe they haven't. the RBA's commentary frankly out today I don't know mate I would have said I said that this morning actually I said I was radio again I recorded this on the 9th of December I had a radio interview this morning where I kind of said look I hope it might be the last one the commentary was more bullish than I thought more hawkish to use the phrase than I thought it would be from the RBA that sense of actually inflation's kind of a bit too high and I thought the new bit was you know inflation wasn't going to return to target until late 2025 was what we already knew now they're saying the top of that band, not the midpoint, by 2025.

38:06So it's kind of like this thing. Wait, they changed a forecast? That's unheard of. They're normally so spot on and consistent. Except that. They're going to make decisions based on that forecast as it exists at the point of time of the next board meeting in February. So I don't know. I said this morning I would have thought it was a better even chance that they were done. I'm now probably, who cares about predictions? It's a parlor game. But for what it's worth. Yeah, for what it's worth. Yeah, let's do it. I think there's now a better chance than not they'll increase rates in Feb. I'm not saying they will.

38:36It's not a prediction. If you're asking me to frame a market and you said, what are the odds? I would say the favorite now in my reading of those minutes, if they're even close to accurate. And look, anything can happen with the data in the next two months, right? So it's easy to try and predict. Even if you were going to predict, do it two months out. Yeah, don't add us on Twitter. Right, exactly. You said this. Exactly. But we're aware that our predictions are rubbish. But their commentary seems to suggest that an increase in... if things work the way they think they're going to, the commentary seems to me to suggest they've got one more in them.

39:06Let me reframe it then. Go for it. Because I actually don't – I'm not a mile away from that. I would say we are much closer to the top than the bottom. Oh, gotcha. We can debate whether there's another one, maybe another two, if things change radically. But then I think it's then it just sort of plateaus for a bit and then it goes down. So when I say we're done, I feel as though we're either done or very close to almost kind of done. And so I don't want to argue against what you said because I think that's actually not a mile away. I think this is what's going to be interesting. I can foresee – I'm not predicting, but I wouldn't be surprised if we see an environment where the economic landscape deteriorates in a real way in the sense that we either see – we see basically unemployment go up.

39:52But we also see asset prices tear. And it's like, what? That can't be – how does that – Well, I think we're at a situation where this is – you pointed out before what this late stage rally for 2023 in the market, 15 % since the start of November, was it? Yeah, yeah. You know, it's a huge rally. Why? Why was that? Did all of a sudden corporate earnings go through the roof or were there big, bold consensus estimate changes for what the next 12 months was going to bring on the corporate profit front? Nah. oh they're good the fed's gonna roll interest rates are gonna go down that is what did it yeah and so you you got it's it's this it's this weird surreal world that we live in where you where markets go yay well they're only doing that if things are getting real right right and and and so it's not something to hope for as much as i would wouldn't it be great if the rba slashed interest rates in half it's like well it would be all else being well actually not even then i mean it feels as though it'd be good, but then we're going to have a massive inflation problem and that's going to be bad.

40:58But more to the point, if they're doing it, it's because something is broken or something has gone wrong in that sense. So I can see a scenario, particularly in the US, where the deficit is just completely out of control. The front runner for the 2024 election is a, choose my words carefully, an interesting character who's, you know, And it's between that and a senile octogenarian who can't – people in glass houses – but can't string two words together, right? It's sort of like it is – and you kind of – the math is very interesting here because the U.S. is getting to a sort of emerging market kind of levels of dilemma where it's kind of like we have so much debt that so much of the tax and revenue that we have as a government is used just to service the debt that we either stop paying our employees or funding programs or we default on our debt.

41:58I mean, they're just, neither of those are ever going to happen, right? So you get to a scenario, it's like, well, we do QE again. QE infinity is how it's been framed. I think that's broadly speaking, again, unless you think of massive austerity or massive increases to tax, or, you know, which things I just don't see happening, or maybe insanely huge productivity boosts, maybe that would be the best outcome of all. But if that doesn't happen, I think we get, well, we potentially get to a situation where things get really tough, but rates fall away. And again, the tale of two economies thing comes back.

42:34And so anyone with capital or easy access to capital, i.e. people who have a lot of assets and reasonable incomes, actually just where else am I going to put my money? I'm going to put it in the market. I'm going to put it in the ETF. I'm going to put it in the property. I'm going to put it into gold. I'm going to put it into all of these, whatever way I want to diversify my portfolio. and you have this bizarre scenario where assets rip and the economy falters. And I think... I think it's up there as a possibility. I think so. Honestly, mate, we're not going to go into property because God knows we're going to spend another 25 minutes there.

43:07Don't we? Well, no. But maybe one of the stronger bull cases for property prices is actually that nominal price, real, was it nominal price, real debt, or vice versa, whatever it is. The debt is in today's dollars, but if prices increase thanks to inflation and other things over the next two, three, four years, there is a scenario where property goes up by the value of effectively, if nothing else, wage increases at the same level of debt. It makes, I'll say more affordable, I probably should say less unaffordable. In any case, once you have a fixed dollar, you know it makes your payments a whole lot cheaper at some point when rates go stop going up and start going back down at some point um i think i think the central banks will roll anyway mate because i don't i think we know that the current level of rates is is dramatically contraction we've seen that across the economy in the last three months so whatever whatever real rates are or should be uh until and unless wages meaningfully increase to catch up with this this is contractually this is painful and the rba will let the pain off at some point when they feel like they can, when inflation's under control.

44:18So at some point, and probably too late now anyway to do the investing, but it may well be that people who did buy two years ago, three years ago, not even based on what happened between then and now, but just in general, that inflationary element, which pushes up wages, pushes up prices, but your debt is stuck at 2020, 2021, 2022 levels. It may not have been in the event the world's worst outcome. I don't want to say it was a good decision. You might've been lucky. You might've been, you might've tried to predict it. maybe you got it right whether you deserve to get it right or not it's a whole different thing but there is something to that i think to your point about the economic circumstances uh we see the tax take go through the roof and it's largely a combination of well it's so it's everything right more people employed more people earning more money more companies having more profits commodity prices right exactly that that kind of that kind of combination of things has seen that the income tax you know now and again you know on one level as individual i don't love that on the other hand though at a government level i kind of on behalf of the nation because we kind of pretend government's them not us government's us it's just a representative group of us yeah they work for us right forget that and the reality is that you know the budget surplus a budget deficit would have been i mean the structural budget deficit is bad enough as it is it wouldn't have been shockingly worse had those things not happened.

45:37And so we kind of, again, as a country, got a little bit lucky and the Yanks may well, I don't know if they'll be lucky enough given the precarious nature of where they're at, but a similar style of result over there may actually get them out of jail, whether they deserve to or not. Just because inflation tends to, that tends to inflate away debt. We know that. That's kind of why the phrase was invented. And we're seeing exactly that with the tax take. Governments on their own selfish behalves, uh the individual is getting stuffed but the the corporate group the you know the selective group the the bank account with our all of our names on it you know there's 27 million of us under australia inc um we've actually done pretty well out of it yeah we're very lucky we always seem to get saved by by unpredictable you know like commodity price demand or whatever we are so fortunate yeah like i don't like there are parallel realities out there where things went very differently for Australia.

46:32The thing I want to point out, and again, it's not to be doom and gloom, but just to, I'm just going to lay some facts out there. Like the US, like the biggest, deepest, most liquid, most massive capital market in the world by a fair degree, suffered its second largest banking collapse ever in 2023 and just got no headlines. And the only reason it didn't collapse was they came up with the, what was the biggest the bank term funding program, which they lent against their bonds that had fallen 30 % as if nothing had happened. So there is some accounting rules. It's like, I know this asset that you held is down massively, but we're going to pretend that that's not true and we're going to just lend you money against that.

47:16And don't worry, you don't have to report that on your balance sheet. And it's like, so that put a band-aid over a problem that is structural in nature and hasn't gone away. Those assets are still being held. To maturity, granted, but they're not worth what they're worth, what they said they're worth. And the other sleeping sort of giant there, things didn't unfold at the speed that a lot of people thought, but they haven't gone away either. And the other big one is the commercial property in the US. Now, we've got issues here too, but a lot of these properties were purchased and financed under very different valuations and at very different rates.

48:01And we have seen the cost of funding go up dramatically. Now, you don't, this is another little issue. And this is another way I make myself super unpopular at barbecues is when people, it's Australia, and people are talking about their properties and I go, yeah, you don't really know what your property is worth. Oh yeah, I do because of this and that. You don't. You know when you know? When you sell. Until you sell, you don't know what the damn thing is worth. You can guess and you can have a reasonable guess, but it's a guess. And the reason I bring that up is because there's plenty of listed REITs and other big entities out there that have a balance sheet that says we own$830 billion worth of commercial property.

48:38It's like, well, do you? That's what the valuer said. By the way, the value that you pay to tell who wants to be rehired again in the future. And they're basically going to deliver on what you say. But we've already seen instances where some of these entities have been forced to sell. And guess what? They took a 30 % haircut. So in other words, that is not worth what you think it's worth, right? And also, half the things are vacant. So even if you take away what you might write it down for or not, the thing is not generating the income that you thought it was. And these things are all based on what they call cap rates.

49:13And think of dividend yields as a way to sort of understand that. um they have not there has not been a reckoning that maybe there won't be because maybe you can hold it all together but we do enter 2024 in an environment where there is a lot of structural issues with banks both in terms of bonds and hard assets held there not hard assets i should be careful with my language assets that are held there and with the commercial property sector as well. And it's just, it's not necessarily all doom and gloom, but it's just something to acknowledge. And I think the other thing, the big thing that really changed this century is that we, for the best of intentions, have wanted to minimize pain.

50:01That's what politicians get elected to do, right? And so there's nothing wrong with that idea. But in minimizing pain, we just kick cans down the road and we lay the foundations for the next crisis, which gets worse and worse and worse and worse. We had the dot-com, we had the Asian financial crisis, we had the GFC, we had the Euro crisis. We've now sort of get the unfolding in bond markets and all this kind of, and it just, the problem just gets kicked up a notch, you know, sort of starts in the private sector and it goes to the public sector. There's nowhere left to kick it anymore. And again, I know I'm painting an extraordinarily bullish picture, but I am mindful of that, that Turkey story where it's sort of like, look, everything's fine.

50:38Nothing's happened yet. What can possibly go wrong? This, the good times are going to last forever and i think history at the very least suggests that not that we start being chicken littles and running for the for the hills but that we are mindful that things can go the other way in fact it's healthy for things to go the other way from from from time to time and i i'm just i'm i guess i'm just aware that the issues that a lot of people were worried about didn't unfold in the way that a lot of people had expected yet at the same time they haven't gone away it's um it's tough mate i think i think that's all right i think the hardest part and let's take into investing for a second is trying to work out where to draw that particular line or where to where to net out the the so what it sounds trite i mean it sounds trite or kind of cliched but no it's that's exactly the question well yeah i mean what do i do what do i do with Well, not only that, mate, but that's not necessarily any more or less real than the other 85 problems of which 12 in the last 20 years have come to pass.

51:43The other 72 haven't. And so you kind of end up in this position where, or maybe they come to pass, but between the concern and the coming to pass, I mean, as you rightly said a bit earlier, I don't make this all about property, but others and other very, very, very smart people said, hey, in 2006 or whatever it was, this looks dangerous. It might go badly. the those people would have been better to have held right through and suffer whatever eventual loss they they they expected would happen and probably some miles ahead given what's happened in the meantime and so i think i think it's you know i again you mentioned that i've um i mentioned last time we chatted about the article i wrote back in in mid-december basically you know when the market jumped 15 in seven weeks there was no bell rung at the bottom and people who said yeah well this might be bad because dot dot dot who weren't in the market lost a year and a half's worth of average gains in that six or seven week period because i were trying to be too clever and try and work out what was coming next and i think that's that's kind of the hardest the hardest part of all of this stuff is maybe those those those risks are real those concerns are genuinely held and that's the first point this goes back to kind of where we started and then you say so then what well there's two other happens or it doesn't okay so there's probabilities of each of those we can't know them but there's two outcomes and let's say it happens okay well then it goes somewhere between the market shrugs to the we have another great depression and and that is exactly as large a an expectation as you think it might be and by the way to your point you might have a scenario where people say oh good what's finally happened it wasn't as bad as we thought so actually that's actually a good thing for asset prices and we go oh wow okay that's amazing we'd expected x and now it's something yeah x less something well that's even better than we thought and so you send you see that again continue to happen uh and and i'll throw in quickly the other one of your uh i think you talked about a lot of times which is the you know the tina there is no alternative if or given all that given all that what is the best way to go about investing in 2024 what is the what is the opportunity what are the themes what are the ideas what's the style what's the approach uh that our listeners should consider when it comes to thinking about an economy that's kind of bumping along the bottom, some very real risks, which are no less real than they were, frankly, 15 years ago, bigger, because they've kind of been let to go for 15 years.

54:05I'd like to think our politicians have a handle on it, but I'm not that silly or optimistic or whatever. How do you factor that into an investing strategy, to an investing set of actions over the next 12 months? It's easy. It's super easy and yet super frustrating. So I just warn people. Before I do that, though, I just want to make the point, though, that I think what you're saying is right in a certain lens. But I would point to a couple of things. So let's look at ostensibly the people who are the experts in this, right? So I'm going to pick on poor old GPT, General Property Trust, one of the biggest REITs on the ASX.

54:47They have a huge basket of properties. they were$19 in 2007 and in mid 2008 they were$2 today they're$4.53 in other words that the collapse there has been brutal and like that you are so miles anyone who invested in GPT gosh my chart doesn't go far enough back anyone who invested at any point prior to 2008 all the way back to 1994 is underwater in a massive way so the people who don't why and why why was that you've you've hinted at it leverage right and and and they recapitalized and so i bet you when they look at their presentation look what our our rental income has done this yeah but let's yeah okay einstein let's do this on a per unit basis and see how that looks you recapitalize you wish it a bunch that's that's how you're still standing and every shareholder got absolutely wrecked in the process.

55:47So I'm not trying, I'm actually in agreement with what you're saying, but the people who suffer the interim, quote unquote, unrealized pain and then go on to longer term success, do so because they're not the forced sellers or they're not forced to recapitalize or these kinds of things. And I would just point to this as a great, again, because these are what many would lord as the experts at property investing. You go, well, they wouldn't make the same mistake twice, right? Like surely the board, this is for me once kind of thing. Exactly, yeah. Well, in 2019, the share price was$6.50 and then COVID hit and then everyone decided to work from home and then, and then, and then, and shares are down massively.

56:29And, you know, so there is, so what do you do here? I just, the tagline I have on my straw man portfolio is hope is not an investment strategy. And I've always liked it, right? It's a great line.

56:47I don't want to have any investment where I need a very specific set of circumstances to unfold as I foresee it for me to do well. And I could be and probably am wrong on a whole bunch of things that I see in my crystal ball. But if I am wrong, I'm not going to be wiped out. I think a lot of people and a lot of big businesses are potentially facing being wiped out because they're only not wiping out if this set of circumstances happen. But if this happens or that happens, then they're in big trouble. And the reply, because I've asked CEOs the question, oh, yeah, but that's not going to happen.

57:18Yeah, but it might. Yeah, but it's not. It's not going to happen. Yeah, but it could. Yeah, but it's not going to. Yeah, but what if it did? But it's not going to. Yeah. Like that just strikes me as the height of hubris, arrogance and irresponsibility. And don't be that person is what I'm saying. And so very, very long tangent there. To get back to your original question, what do you do? And I said it's easy and unsatisfying. And that is you find good companies that are trading at good prices and you buy them. That's super frustrating. But that's what you do. So what does that mean? Does that mean I'm going to go out there and find a REIT that's 90 % levered to commercial property?

57:54No. Am I going to go invest in the big banks that are trading at historically reasonably high multiples and a balance sheet that is entirely leveraged shawzi residential real estate and uh uh completely mature businesses with very little sort of you know um beyond system growth opportunity like no i'm not i want to find i want to find some we were talking about pro medicus we had a big pro medicus love in the other day and not to revisit that too much other than to just use that as the example of a company that has incredibly dependable revenues no matter what whatever whatever happens they're probably going to get paid because people are going to need scans and to view those scans.

58:33And has$90 million of cash on the balance sheet and has zero debt, you know, and runs at very, very high net margins because they run very lean. Now, that fulfills the first thing of a good business. Is it a good price? I think you and I both agree. No, it's not. It's insanely high. But there are other examples of companies that meet that criteria. And I'm not going to tell you what they are because I don't know for sure. I I'm trying to do and I think we started off by talking about the problem of talking about the economy in aggregate and the same lesson is true for the market in aggregate so I am that's why I say I'm not going to do anything different as I head into 2024 I'll be turning over rocks looking for good quality businesses it probably be a lot of the time it'll be businesses that I already own because I already know them I already like them and I still think they're cheap so so you know new isn't always better but that's what I'll be doing and I know that whatever happens I'm going to hopefully try and focus on those kinds of investments that if things don't unfold in a fortuitous way or as I see them, I'm still going to be okay.

59:38I'm still going to be standing at the end of the day. And if things do go okay, this company is going to go incredibly well. There's that asymmetry again. Heads, I don't lose too much. Tails, I win. I'm looking just to make as many of those bets as I can. And sometimes I'll be doing it in frothy markets. Sometimes I'll be doing it in very depressed markets. Sometimes I'll be doing it in recession. Sometimes I'll be doing it when the economy's ripping. But that is the lesson I've had every year. It's like each year, it's like, what do I do? What do I need to rotate in and out? I was like, I don't know.

1:00:09If I've got a good asset at a good price, I'm going to hang onto it for dear life. And I'm only getting rid of it if it's no longer a good business or the price no longer makes any kind of sense. And that's very unsatisfying, but it is, that's the quote unquote secret. And if you can do that and do that consistently, it's, can't use the word guaranteed for legal reasons but it's about as close as a guarantee as you can get to doing well as an investor over the long term i think that's right mate i think i think as i go into 2024 um you and i fish at not opposite ends of the of the pond but but relatively different ends of the pond but we take relatively similar approach yeah and i think i think you know for me i suspect that you know we've talked about fund managers who end up at the top of the pile just by being not at the bottom of the pile ever and not going broke in the meantime you know the statisticians talk about survivorship bias as if it's it skews the data and it does except if you're actually literally measuring for that you know if you're measuring for long-term success surviving is kind of the first point right ignoring survivorship bias or trying to allow for is like no no that's that's kind of the point uh and over the long the super long term it is no surprise to me that and these are two i own berkshire hathaway and salt pats right a u.s based company and an australian one these are big diversified well-run conservative conglomerates that just keep doing the right things the right way more often than not for a long period of time yeah and you said being boring before and i i find this i don't ever change because people want excitement and they want they want big wins and people see it as a you know they'll never admit to themselves they see it as a casino or a racetrack but you know that's the way a lot of people see the ASX deliberately or consciously or subconsciously.

1:01:54It's what it feels like. I love the sport of analyzing businesses. I love thinking about the way companies make money. I love the challenge of trying to find the best businesses, trying to break them down and work out how they tick and what works and what doesn't. You're the same. But that should be the only interesting, exciting part of it. The share price movement is hard to get away from, but that's the gambling bit that's the racing bit that's the whatever and you know i want people to love investing i want people to love businesses i want people to love the opportunity to really get your teeth into it and find some fun or buy an etf or either of those two extremes is fine what i don't want people to do is is kind of give up on companies because they're not exciting because the share price isn't going up because they're not getting their buzz they're getting their dopamine hit or their whatever um from owning these stocks you know there's long periods of time when berkshire was persona non grata there are long periods of time when sold pats that went from 40 to 24 bucks at one point i think from memory i remember um you know oh what's wrong with sell pats oh i thought i was gonna make money uh i'm gonna sell because i'm really looking for something that's gonna make money have you got any other ideas scott you know the ones that the money-making ones and i don't blame people again for thinking this way because it's it's the dominant narrative around investing right it's the share market casino racetrack choose your analogy rather than the place where businesses go to you know have parts of their ownership changed hopefully relatively rarely from people who want the money or people who don't want the money people who see the opportunity don't see the opportunity that's what it should be you know the the buffet conversation of you know the market you open one day a year you get you know um i'll i'll see you to my soul pass you want to give me 50 bucks no thank you okay cool i'll come back next year we'll have another chat see you next year right as opposed to i was down four percent it's up four percent i i was trawling twitter between we recorded two pods today man in between them i had a look and to protect the the guilty i can't i can't remember which company it was comsec had this tweet i'm comsec sheldon i don't mind comsec they're fine they work for me uh company x come on what it was has had its biggest intraday gain of 2.48 percent since july 18 this year oh guys as if it's a thing right and i and you know what it's not even that well partly they say it it's why other people care that they say it i can't decide you know what's worse but that idea of like somehow a two point not even two and a half 2.48 percent gain and it's the biggest one in five months and so somehow it's notable and somehow means something and somehow i need to know that and somehow it's you know it's just it's a complete nonsense which is a long run-up mate to say that you know i i think as people we will have another fomo outbreak at some point if i want to make an outlandish prediction here's my outlandish prediction we will have some fomo outbreak before the end of 2024 why because it's been a while and someone will get excited about something and we'll be off to the races again because it happens every so often and we don't learn our lessons very well we haven't really had one since 20 was it 20 or 21 um that was kind of the tech kind of jump around around the covid kind of you know winners and losers from covid idea rolling forward i would land is stupid prediction just for the just for the sheer fun of it uh if i might operate at some point in some some market or some sector by the end of the year this is the stuff that is designed to take your money away from you you know not because anyone's necessarily trying to do that just because that's the way these things work they just work that way the pattern of these things gets repeated every few years and it's always the same thing meanwhile the boring businesses the soul pats the berkshires the the whatevers some of your small caps which are a world away from these companies but are just doing their thing growing their businesses you know i've said lots of times my one of my favorite kind of ideas is you know um serving more customers uh was it more i can't remember now i've gone blank uh more people more often with more products whatever it is you know that idea of yes of you know just just doing just doing business right that's what it is and when the ducks quack feed them right and so you kind of go you know i and so what i want to i guess impress our listeners is i don't know what the next lot of economic data will look like what i do think is that the boring businesses that are going to be bigger and better in five years time than they are today if they're available good prices and and here's the really important one which you kind of alluded to mate have the wherewithal to make sure they make it they will be the winners of the survivorship bias problem right yeah there's no point in your business that if things go well in five years time they could be double if they don't they could go broke you just don't we don't know you don't want to make a bet where one of the outcomes is zero right anytime zero is still zero as they say so yeah i just i guess i would i would exhort our listeners to put away the dopamine put away the i'm looking for something exciting put away the where's the next big winner that i can make a fortune on and go with the what are the what are some great businesses available at half decent prices not even spectacularly great price just half decent prices that'll continue to be great businesses for years because the compounding here's the other thing and you know this if you're a long-term investor the price disparity right now any any discount you might get maybe it's 10 20 30 cheaper than it should be if you hold that for 10 years that's 3 a year now that's not nothing it's not over 3 right because it's compounded but let's just make it easy probably two actually over 10 years that's not where you're going to win if you're a long-term investor long-term shareholder and you hold businesses for multiple years you are going to win if the company itself manages to find ways to grow and to win in its markets for extended periods of time that's where your returns are going to come from the business analysis yes you want to pay a good price you pay too much for any business pay a million dollars of berkshire share you're still going to lose money but if you pay a decent price half decent price for a really great business that has a really bright future that's where the that's where it is so buy businesses with good balance sheets buy businesses with good cash flows buy businesses that aren't going to run the risk of your circumstances change like half the tech sector that went but we thought you're going to keep giving us money so we didn't bother making a profit so well guys guess what it's time to pay the piper guys they see you know the music stop there's no more chairs you deal with it and were they wrong i don't know maybe it's worth the gamble but it was a gamble.

1:07:51Let's be really, really clear. And they got caught. You don't want to put yourself in that position. Yeah, you really don't. You know, the other thing I was going to add there as well, I think the real hack here is we focus too much on the returns that we're able to generate. Now, we need to focus on that, right? At least have that, you know, in our sights. But again, we've mentioned this a number of times, it bears repeating, The thing that really moves the dial, particularly if you're sort of south of 40, and I know we have a lot of listeners that are in that category. And even if you're not, this still holds true.

1:08:27Yes, that's right. But the thing that really moves the dial is how much you tip into it. Just build a spreadsheet yourself. You'll see what I'm saying, right? You muck around. What's the difference between 8 % per year versus 12 %? Oh, guess what? Small differences compound out to be a huge difference. Yeah, yeah, I get it. I want to have a high rate of return. But then what if I save$20 a week? What does that same analysis look like? And then change it to 50 bucks a week. Right. Like that is going to blow your socks off over 30 years. You will not believe. In fact, I would much rather a situation where I'm able to, my earning capacity is greater, but my investing capacity is weaker.

1:09:08Yes. I'll take that. Yes, absolutely. Any day. Yep. So if you say to me, you can be buffetesk and get 20 % per annum on your investments, the only caveat is you can never earn more than 40 grand a year. That's right. Like, okay. Or you can have 5 % compound per annum, but you can earn 350K a year. What do you want? Well, another extreme example. So maybe I could have made it a bit more subtle. But I think that is the thing that we all miss. And you'll find too that that has a huge dollar cost averaging capacity just when the times are tough and difficult and things don't go your way. It's actually a good thing for a long-term investor because you're actually adding, more for every dollar invested over those kinds of sums.

1:09:51So it's just something that is also bears repeating. I think it actually makes for a happier life. I'm trying to instill this into at least my oldest who's getting to that age, which is just some of the teachers that are like, oh, you want to do this? Because that's where the best money is. And I'm like, listen, buddy, don't listen to your teachers, right? Like I will support you in whatever you want to do. the only condition I have is that you enjoy it yeah and that's not that I need him to become an interpretive dancer and live on the street in a cardboard box with a you know with a skill set that no one values um but I do think generally speaking and apologies to any interpretive dancers I don't reckon if you are listening do hit us up on Twitter hey I'm glad like I'm all for the arts like I'm thank goodness there are people out there doing it but I think anyone in the arts will tell you it's hard it's tough right like it's it's hard you don't see you don't see too many interpretive dancers driving Ferraris.

1:10:46But my, it probably sounds like terrible investing advice to a lot of people, but my view is if you do something that you love, it's not work. And you'll probably be really good at it because you're interested in it and you'll do it a lot. And you're probably not good at it too, right? It's that, there's a pretty good feedback loop there. It's a really, I like doing it. It's hard to love something you suck at. So I'm going to do it. Right, exactly. Yeah, and so I'm going to get better at it. And then so I'll get more rewarded at doing that. And I would say to him and my daughter as well when she's a little bit older, which is, I mean, you're going to like, I know this is like so far out in your future and it's hard to comprehend at this stage.

1:11:25But do you really want to get up and work 60 hour weeks for the prime of your life and have a big pay packet and a big house and a fast car, but be miserable, miserable in what you do? And like every day the alarm goes off and you drag yourself out of bed, you iron your shirt, you go into the city, you're ready to, you know, just bang your head against the wall at every opportunity. And but earn a lot of money. Or would you prefer something which is much more modest but incredibly rewarding in your life? And if you can do that and then just live within your means, whatever those means are, and invest the excess, I think that really is the key to happiness.

1:12:01It's not what people are here for, for this podcast, but it's the best I want to sort of spread for 2024 in thinking about what you're going to do as you tackle this year. I'd say absolutely focus on the return, but double down on where your life is headed and the kinds of things that you do to generate the savings that you invest. Just don't ignore that part of the equation is all I'm saying. I love that, mate. I think it's a very, very nice way to finish off this particular podcast. As I've said regularly here and elsewhere, it's analogous. The economy is there to serve society, not the other way around.

1:12:37I think that's the same thing with work, right? Your work's there to serve your life, not the other way around. Finishing a$300 ,000 job with a divorce and a drug habit to show for it is not the world's best way to try and have a happy, fulfilling, and successful life. Dude, I know people like that. They're not happy. They're not happy. I don't see it many times. You don't look back at your deathbed and say, gee, I wish I spent more time in the office. or, you know, it's those things. If only I got that Christmas bonus in 2023 of the 10 grand mile, no one cares. Yeah, exactly. Which, you know, is not to say, the first world problem, if you haven't got the money, you desperately need the money to stay alive and to do those things.

1:13:10Oh, sure. There's a continuum here, but I think you're absolutely right. In terms of investing, I'll echo your thoughts, mate, and just add that you can torture the numbers to put this order any way you want, but in the real world, you know, in the range of possible outcomes for almost everybody. i've written this before mate i don't know what the first two or the order of the first two is my guess is that time first then your savings rate then your returns yes probably um again you can talk you can turn this 180 degrees if you if you put stupid assumptions in right but for in the real world for 99.8 of people time first so the earlier you start the longer you can invest for then you know you put away when you are able to invest and then only then the returns you get are far more likely for the stupidly large majority of people to be the order here so while we spend our working lives trying to do number three both professionally and personally while we spend a lot of time frankly not as much time as other podcasts talking about number three because you know again life's more than just the specific returns on specific companies uh but yeah if i have if i have one wish for our listeners not only is it well the big one actually is your point mate i'll happily jump on your on your bandwagon and say you know live live live a good life frankly like you know investing can come distant second but when you when you've asked you've lived a good life uh start early get your kids news resolution time make it make a resolution to help your kids help your friends help your family don't be that person but also be that other person the person who opened their eyes who gave them the opportunity who showed them the uh the way who told them who broke down some walls for them you know the best thing paying it forward it's why kind of we do this podcast right it's why i do this job um i said before i took a pay cut to do this job why not because i'm a martyr because i just i wanted to be part of paying forward something i'd learned from other people at this company as it turns out but um i think that's the opportunity for for investors i think that's you know start early start as early as you can save as much as you reasonably can without as andrew said living on bread and dripping having a miserable life and then worry about your investing returns.

1:15:13But if you can do that for you, if you can help other people do that, no matter what happens during 2024, we are long-term investors, 2034, 2044, 2054. Hopefully this advice is more useful to you, more valuable to you by the time we hit 2054 than what may or may not happen this year based on predictions that may or may not come true. Yeah, yeah. Nicely said. And just brace yourself for the inevitable drawdowns. It'll come. Charlie Munger, rest in peace, said it really well. It's like, if you're not the kind of person who with equanimity can face 50 % drawdowns in your net wealth multiple times out of your investment career, you don't deserve to be an investor.

1:15:53And you deserve the very mediocre returns that you will get. Very blunt. Very blunt. And deserved not in a moral sense, but in an algebraic mathematical sense. But in any case, it's still very blunt, as you say, and very real. True. Because I'm less blunt than Charlie, I would twist that around a little bit just to say, if you want those returns, you need to get to a place where you can deal with those 50 % drawdowns. Don't start by saying, I won't invest, I can't invest, it'll be me because I don't feel like I could right now. That's okay. The opportunity for us, as Charlie would have said, had he had another couple of paragraphs and had a smile on his face rather than a relatively perpetual scale, is be the person that deserves it because you've learned how to act appropriately in the face of those things.

1:16:35Yeah. We repeat it all the time because it's so important. I'll tell you a very quick story before we go. A friend of mine, about two years ago, they got to a stage where they'd paid off a good chunk of their house. They're like, oh, I'm kind of interested in this stock market thing. Can we have a chat? I hate doing it. It's generally what I don't do with friends and family because it's thankless, right? So I said, look, I'm happy to have a chat. And I spent probably half of the chat with him and his wife saying, everything like it's almost guaranteed that after we have this chat and after you start the market's going to like fall a lot like just why do i think that only because i'm giving you this advice right that that's why that's why it's going to happen anyway pretty much it happened right and it's just like but if you stick with it and you do this and it'll be fine and so he the other day caught up and he said oh i'm finally back to break even thanks very much it's like so we're selling like what why you've gone through all of that you only just start like you're two years into a 30 plus year journey here why are you just like it was too stressful we couldn't do it like yeah but you but now it's like why are you capitulating now you're anchoring on what you like this is there is like a thousand things that you were doing wrong here and the reason i i i pick on him is that is that i could not have labored the point more when we were chatting like this is going to be tough it's going to be scary you're going to have a draw yeah yeah yeah yeah no i get it no we totally get it so then really what you really want to do is just make sure you save and just yeah yep yep totally totally um so what should we buy i don't know you know buy an etf oh yeah okay okay but what about this well that's on you you do what you need to do just but are you listening to what i am saying here because this is if it doesn't happen tomorrow it will happen soon and if not soon at some stage like it's not like it might happen it is going to happen and i don't want you to email me when it does and tell me how much of a bastard i am for telling you to do this stuff yeah oh yeah absolutely i mean i should have got him to sign something like just for fun and i said like we had this conversation yeah but i didn't know i didn't know you were that serious like oh my god and and it is not an outlier right and i think the easiest person to trick is yourself right because we all say this and then we go oh yeah but when it does i'm gonna back the truck up no you're not guarantee you're not not not because i i am because i'm smart and you're not because you're dumb no i'm not either because i don't i mean i I dribble it in when I should be – we never act in the same way that we do.

1:18:59When things are going up, we only see the upside. When things are going down, we only see the downsides. So just go into this year knowing that stuff's going to happen. It's going to be wild. Maybe it's really great. Maybe it's not. I mean, the one thing that you can guarantee is that it's going to fluctuate. Who was that? JP Morgan's famous quote when asked, what do you think the market will do this year? He said it's going to fluctuate. That is the best prediction of all time. And just going to this year, knowing that that is going to happen and knowing that the person who can face that with equanimity, as Charlie said, and can stay the course, it's a superpower.

1:19:33And you're going to be far better than the person with the 200 IQ and the MBA from Harvard. Again, I can't use that word, but I almost guarantee it that you'll do better. Yeah, I think that's right. We buried the lead as always. Hopefully the last 10 minutes or so of this podcast have been hopefully particularly useful to you and for you. This is the story of long-term investing. It's the story of how you get to the places worth going for investors. And it does come down to being able to do the right things at the right time frequently enough. And I think that's it. I've got nothing else to add, mate.

1:20:07I will leave it with those beautiful words that you finished with. I think, you know, live a good life. Invest well. expect you know trouble but know that for as far as we can go as close as we can go to a guarantee which is not a guarantee it has always worked out there's a very very good chance unless you do silly things it'll continue to work out at least that's our very very strong conviction yeah it's it's so is you actually reminded me of a Marcus Aurelius quote I heard the other day which is the impediment to action advances action what stands in the way becomes the way no oh In other words, in this context, it's sort of like the impediment here is often the fear of the drawdown of the volatility.

1:20:51But what he's really saying here is that that is the way. That is the way that you don't run away from that. Run towards that. And that is something that very few people can do. But if you are able to do it, I think you'll be pretty happy when you look back at the end of your days. I think that's right. I'm only going to add one more thought, one more thing as we regularly do in this podcast. um i think it's worth keeping in mind the opportunities that come from doing doing the doing the modest things well but i also want to i also want to just you know hopefully our listeners if you again if you're at this point in the podcast you're probably a regular listener and we we love your loyalty we appreciate your your the time you spend with us the other thing i will say to you as long as it's within our power and again no guarantees at all on anything.

1:21:40But as long as it's within our power, Andrew and I intend to be here right through that period, right? And we're not going to be able to solve your problems. We have no magic bullets. We can't do things for you. We can't promise you to make it okay. What I will say is that, you know, Andrew at Strawman, me at The Motley Fool and us together in this podcast, you know, we're here for the long haul. We are going to continue to be here. When the market's tough, we're going to keep investing. When the market's going well, we'll keep investing. We'll keep telling you what we're doing. We'll keep telling you what we think you should do.

1:22:05If that is useful to you um then i would encourage you to and we can't give advice but lean on that right a problem shared is a problem halved as they say um whether we can't control the outcomes we can't make it happen we can't make your promises other than to say to whatever extent within our power we're here with you and for you and so if that gives you some extra comfort to say okay i'll do it and i'll know that you know i'll keep listening or i'll you know i'll listen occasionally if you want to when things get tough um come and come and check in because uh because we'll keep doing this and we'll keep trying to help you manage your emotions, manage your temperament, manage your actions as we deal with that volatility we're going to run towards.

1:22:42I think we say it half the time too for our own sake. You know, it's like looking in the mirror. You are not going to sell. You are not going to panic. Andrew, what are you doing? 100 % true. Mate, I reckon we're done. Any parting thoughts? No, other than I'm really looking forward to another year of this, doing it with you, mate. It definitely is a highlight of the week. and we said it at the end of last year. It's a real privilege to have so many faithful listeners and we very much appreciate you and just, yeah, looking forward to being in your ears for the coming 12 months. 2024, our best year ever.

1:23:20What do you reckon? Yes, easily. We'll see you next week. Fool on. Yeah, Bitcoin to 100 ,000 as well. Woo! I really should have stopped the recording before now. To your right to you. 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 Licence 400691.