An investment opportunity in offices? March 22, 2024

32:41Now contrast that with, I don't know, something like Dubber, for example, which many people may not have heard of. They do software that sort of does call recordings and that kind of stuff. They did incredible sales growth for years and years and years and years, but just never came to any profitability. Share price went to the moon, you know, but then, you know, just they're having troubles now, right? And there was those underlying cash flows. Appen, right? Another great example as well. So my point being is what were the dominant factors that wrote the fortunes of the investors in those companies?

33:11Was it the macro landscape? Well, the macro landscape impacted both of them in both extremes, but it was the ultimately it was the fundamentals that did it. And the other thing I'll say is the you reminded me there with when trying to sort of forecast, you know, like you might want to think, well, what's an average P of the market likely to be in five years time? there was this study I'm gonna get the details wrong but it was basically looking at the accuracy of building quotes and so there was two schools of thought there was this sort of the younger generation have I still got you there I might keep going you may have dropped out there was there was the younger generation that would add up all of the various components okay I need this much cement I'm gonna add that up there's gonna there's a margin on that I'm going to put in the timber here.

34:01Then there's labor. I'm probably going to need this people. And they go through this ostensibly fairly scientific, rigorous process in coming up with a quote. But it was always off. It was always off. As we always know, like everything runs over cost. The more experienced builders did it in this fashion. And the way that they would do it was they would just basically say, how many square meters is it? What's the overall quality of the build? And I'm going to multiply those two numbers together. And it gives you this, it turns out to be fairly accurate. And then, you know, I think there was something like, I always add 20 % myself to it.

34:38Just because I know that there's going to be that cost over. And so it's analogous to business forecasting. The more granular you get, it feels more specific. That's right. But for these kinds of things, the rules of thumb tend to be far more accurate. I mean, in both cases, specifically, you're going to be probably wrong. But if you just got to go with, and I've talked about that with valuating a company before, like thumbs suck what the earnings per share is going to be in five years, thumbs suck a PE, multiply the two together, you've got a target price out there. You know, it's a nice, elegant, easy way.

35:11And it's sort of, it's frowned upon by a lot of people because it is overly simplistic. And you're not going to know what the PE is any more than you know what the price is going to be in five years time. But that's cool because I'm not trying to, I'm really just sort of saying what is a reasonable kind of number. and rather than trying to anticipate that it's going to be at a high end of the range or be have my investment returns predicated and reliant on a specific number it's kind of like if i just go with the average i'm probably going to be wrong but i'm not going to be far off i hope all of that makes sense no it does i think i think that's it's the roughly right rather than precisely wrong the idea of that's you know the the human need i've said so many times mate you know investing is successfully reigning in our biology that that's literally definition is being able to say well my my brain is who wants this and and knowing that it can't happen and so how to manage accordingly is actually the answer it's why buffett has been so incredibly successful because he said i know people want me to do stuff i feel like i want to do stuff um i'm going to go and sit myself in a corner in the middle of the midwest of the u.s get away from wall street get off new york because you know everyone's trying to make me do something or tell me to do something just to sit and think and do my thing and that is not instinctive for most humans we just we're not very good at it so you're right making sure you can kind of say well roughly what does this look like and am i going to be roughly right more often than not um the the desire the deep desire for if i just had a bit of software if i could just do another couple of equations if i could just chart this differently if i just had more data and you're right we've talked before about the behavioral psychology thing of you know the the research that was done where you give people five bits of data you're asking to make a prediction and and then give you a level of confidence you give them another 20 bits of data and do the same thing their predictions are no more accurate but their confidence goes through the roof yep and it's you know that and just just got more stuff and so we just are so inclined to think if only i have more information i can make a better call it's i really honestly think mate the the longer you and i've been doing this certainly for me i imagine for you too the more i strip away that stuff you know the the you can get to a pretty good yeah i mean you've got to have done it for a while because this is a lot of this is heuristics and things you learn on the way so i'm not saying you could you know be an 18 year old leaving school all of a sudden use you know spend five minutes and pick good stocks but that idea of just like you know how likely is this to keep going you mentioned some of the tech companies i and you mentioned you know what what drove them the answer is actually just sentiment fundamentally you know we talk about rates what why was that well because rates are cheap money was free anyone could get money and so people were prepared to bet that if you throw enough money at this thing eventually they'd make it they'd make it work and i'm going to say so to be really fair to those people it may be may have been true yeah the thing was the money being thrown was never going to be thrown forever and so there was always a race against time whether they acknowledged it at the time whether they knew it at the time or not this the you know it's musical chairs you've only got a chair until the music stops then we're all scrambling for a chair and if you're if you're if you're in the business of i'll worry about the chair later i'm just gonna try and grow my business and hopefully when the music stops i'll have a chair that was always that was always a dangerous game and again i'll remember i'll remind our listeners it will happen again It's happened before.

38:12It was the dot-com boom. Effectively, I think tech didn't crash quite the same way in 2022, was it, or 23, as it did during the tech crash or the dot-com crash. But frankly, not far off. If you look at some of the companies, not the whole sector, obviously, the Nasdaq fell 80 % during the dot-com crash. So this was blood on the streets across the board. But if you exclude, I don't know, the top half dozen companies, Technology One, Zero, a couple of others, and then you look at the combination of the afterpays, dubbers, appens, the sexy hot stocks of 2018, 19, 20, 21, 22. A lot of those, did they have decent models?

38:51Yeah. Was it possible they could be successful? Yeah. But a lot had to go right. And I think people tend to suspend disbelief when money's free and you can keep throwing money at it. That's where, again, back to the macro thing, that's why I think it was worth thinking about the macro of what has to happen for this to continue. Yeah. And is it likely? And I think it wasn't... We'll move on in a sec. The service I run, Motley Fool Share Advisor, is not an ad for Share Advisor at all. What I will say is during the go-go years, Share Advisor underperformed. We didn't recommend Dubber or Rappin or any of that stuff and we look like deals.

39:26There were people getting 40 % annual returns, buying that sort of stuff because that was going to be the next big thing. And I'm sitting there going, well, I don't know, but I'll just keep buying the stuff that seems to make sense. Now, I'm happy to say subsequently, we're sitting here in March 2024, We're beating the market soundly. The recovery's been good. And as those things crashed, we kind of kept going through too. And that's not the only way to invest. That's not even the right way to invest. I'm just saying, you know, there will be times when you can feel like you are missing out. The grass is growing.

39:51Everybody else is making money. They're having fun at the party. You're sitting at home going, well, this is miserable. I'm doing okay. Or maybe I'm even going backwards. I mean, this was Buffett in 99. I think Berkshire lost 25 % while the NASDAQ was up 80 % or something ridiculous in that year. And you kind of go, man, how is that possible? And it was just because people said, well, Buffett's boring. I want the exciting stuff. And then the exciting stuff went badly. People went, oh, that Buffett, like he knows a few things. Now I'm not, I don't for a second want to compare myself to Buffett.

40:17My point is boring investing can seem boring and even cost you money or seem to cost you money when everyone else is getting overexcited. But to your point about the fundamentals, you get that bit right. And by the way, there were some great little tech companies with great fundamentals that still haven't come back. So I'm not for a second saying that they're all bad businesses. What I'm saying is the sentiment that drove them can go away as quickly as it comes. What matters in the long term, and that's the point you've been making, is it's the fundamental value of the businesses. Are they going to be profitable or not?

40:45They're going to get bigger or they're not. That's what drives the long-term returns. In the meantime, it's just an opinion contest, just a beauty contest. Have I done the walking the dog analogy recently? No, not recently. Do it again because I like it a lot. Let's trot it out. Let's trot it out. I love it. It's my favorite. It's from a US fund manager, and I've gone blank on the name, but he said, I'll localize it. Imagine there's a man with a dog on a leash. It's a very long leash and the dog's very excited. It's a Kelpie or something like that. And he's starting at Central Station. He's walking to Circular Quay and he's walking at six kilometers an hour just as he makes his way down sort of George Street.

41:22The dog, though, is obviously going to be distracted along the way. It's going to see, you know, a pole that it can mark its territory on. It's going to see a poodle walking by. It's going to, you know, chase a rat. You know, it's just going to if if you watch that dog, it is going to go in all kinds of directions. and you're never going to be able to predict what is the next thing that's going to catch its eye. You know, someone dropped a sausage on the street and it's going to dart off that way. But he is tethered to the man and the man is walking at six kilometers an hour from central to circular key.

41:54So what most market participants do is they watch the dog and they try and predict where the dog is going based on where the dog has been recently. So it darted left and it's like, okay, it's probably going to keep going in that direction. Oh, it's running backwards. it's okay, it's going to keep going in that direction. The more fundamental oriented investor just goes, is no, I'm going to watch the man and the man is moving in that direction. Now, the obvious metaphor here is that the man is the company and the dog is the share price. And it's such a nice, neat little one because it really describes it very well.

42:26And sometimes that mangy mutt will be just so crazy. You know, the dream will be running ahead, like super keen to get to the desk. Otherwise, like, nah, it's just dragging its bum as you have to drag it on the leash. And it's really diabolically hard. But again, once you see that, that that's what's sort of going on here, it's actually, as I always say, it's a wonderful thing. It sucks to kind of go through it, but it's only with the benefit of hindsight you recognize that those challenging periods when everyone is seemingly buying Ferraris and, you know, flying business cars all around the world.

42:57You think, what am I doing wrong? Or, you know, or everything I've bought has not gone well, but it's like, well, just bear in mind if you put your money on, you know someone who's walking in a fairly straight line in a fairly obvious direction to a fairly obvious destination bet on that bet on that person right and forget forget what their pet is doing and by the way uh the reverse is also true if if the bloke holding the lead is a maniac who is you know i don't want to yeah some some down and out drunk who's a ne 'er do well criminal yeah i don't want to be serious i don't know what i'm saying either that right if the dog well if though the dog's running ahead of million miles an hour it can disguise so you know the volatile dog can disguise a very good sustainable long-term business which you've just described it can also mask a rubbish business that looks better because everyone's excited about it and when that excitement happens you you are tempted to look at the dog motley fool money for more subscribe to the free newsletter at fool.com.au forward slash listener

44:00I tweeted during the week, here's my first tweet reference for the podcast, the Tesla share price. Now, Tesla over the, I wasn't going to go here, but it's a good opportunity. This is not about Tesla at all, by the way. That's happening looking up the share price for God knows what reason. And I looked at it over a five-year chart and people say, oh, how is Tesla going? How is company X going? It doesn't matter what company it is. And you say, oh, the company's going well, the company's going bad. That's a great investment. It's a terrible investment. Those things, when people talk about those things, tend not to actually be about the company itself.

44:30It tends to be about the share price. Now, that's reasonable. At the end of the day, we only get the return from the share price. We don't get the return of the company in and of itself. But here's what I tweeted. I said, it's important you understand the base effect when people talk about performance. Here's a great example. I said, I was a couple of weeks ago, actually. Tesla is up 830 % over five years. Okay, so keep that in mind. 830 % over five years. It's also flat over the past three and a third years. And it's down 57 % over the past two years and four months. So it's just a great stock or not.

45:05It's all of those things. It's all of those things. Exactly. Exactly. Exactly. And none of them. Because unless you bought them on those exact... And I picked highs and lows deliberately because I wanted to make that point. It's been all over the place. Now, it's just a great stock. Well, if you bought it as high, you've lost two-thirds of your money almost. And you're kicking the dog. If you bought it five years ago, you've almost had 10 extra money and you think you're a genius. Now, are you a genius? Probably not. Are you an idiot if you bought it two years and four months ago because it's down 6 %?

45:34No. But the reality is that you've got to separate the company, your point, the man, from the dog. Is Tesla a great stock? It's actually the wrong question to ask. In fact, looking backwards is the wrong way to do it altogether. What you're really asking yourself is, from today's price, is Tesla likely to be a good investment? That's the entire question. The past is irrelevant. The base effect is irrelevant. The other thing, by the way, if Tesla share price went nowhere, the one-year chart, the one-year return, would fluctuate all over the place because a year ago it was down. Six months ago it was up.

46:09So if the price goes nowhere, it's going to go from this terrible underperforming stock to all of a sudden there's market-beating stock, even if the price doesn't move because the year-ago price you're comparing to is all over the place. That's why it's such a silly idea to use charts. It's such a silly idea to try and look at the past or even one-year highs, one-year lows, all that kind of stuff. All it tells you is what the market thinks now, what the market used to think. It tells you absolutely nothing about the business itself. Yep. Yep. Well said. Have we done that to death? Yeah, I think so.

46:36Mate, can we go to... We were talking about macro before and I kind of want to go back there a little bit. Only because I... It's a hobby horse of mine, frankly. So maybe I'm overly focused on it. That's fair enough, maybe, or maybe it's not. um michelle bullock was asked about inflation and population growth at the press conference on tuesday and she said that inflation had been boosted by the levels of immigration and population growth we at the same time we heard during the week that housing supply is likely to hit decade lows and stay there right through until 2026 at the end of 26 by the way so two and a half years away why do we know that because we know what the housing approvals have been we know what the commencements look like based on those approvals and we know how long it takes to get the completion so we have this you know um effective it's not exactly a crystal ball but if the housing hasn't been approved there hasn't been started it's not gonna be finished we know that much yeah short of short of dropping shipping containers having people live in them uh we kind of know what this looks like we can kind of see 2026 mate and i think i think you know michelle bullock kind of said the quiet bit out loud at least you know on on the behalf of the government which is for a government that says we are doing everything we can to deal with the cost of living and for all the fact the cost of living is a cliche and all that kind of stuff these days when you say we're doing all we can and yet you've got uh you know population growth that exceeds dwelling current dwelling growth, let alone future dwelling growth over the next 18 months.

48:10When you have, you know, pressure on both food, electricity, energy, general prices, and housing prices, I don't know, I don't know whether I have a point other than sharing my ongoing frustration that regardless of what you think about how big Australia could be in 10, 20, 30, 50 years, the simple reality now is we are, you know, my 11-year-old could do the maths and tell you this is not sustainable. And I don't actually know how this finishes. I don't frankly know what to do with the information. It seems like for all of the obvious maths the rest of us can do on the back of an envelope, the government simply chooses to ignore it for reasons of their own national interest or self-interest, and you can have your own view.

48:54The opposition kind of raised a little bit and then kind of shrunk back from the question. The government's announced more housing, housing target of 1.2 million homes, which is just not going to happen. They've announced a review of immigration levels, which is maybe going to happen at some point, potentially between now and whenever those things eventually happen. I find it really frustrating, mate, because I feel like for all of our conversation we've had lots of times about the financialization of housing, about the issues around taxing of housing, all that kind of stuff. It just seems that, you know, you and I can disagree or we can agree but disagree with others about ideology and philosophy and politics and, you know, the priority you put on certain things, the policies we'd all put in place would be slightly different.

49:36You'd have Bitcoin as a national currency. You know, for all of that, this is just math, isn't it? I don't know. I feel like I'm shouting at clouds, but I feel like I'm in this alternate universe where the answer seems really, really, really, really, really clear without any ambiguity or argument. And yet it's almost like, are we living in the same world as them? What's going on? Yeah. Yeah, I mean, well, there's a couple parts to that. The first one is, well, what do you do? Well, you slow the rate of immigration, right? Because the supply side of things is going to be much harder and much slower to kind of move.

50:12But, you know, every action has an opposite reaction in economics usually. And the thing that they're mindful of there is that it'll actually take away the population growth, you take away the GDP growth. And we've talked about before, we're actually in recession and no government wants that. So there's that. There's also, you talk about the financialization of housing. I think we're, and I've long talked about affordability constraints and we're getting, I mean, I've said many times and we'll say it again, that the cure for high prices is high prices, right? And we know that there's a huge demand for housing.

50:48We know that developers like to make money. And we know that the government, you know, at least in, you know, rhetorically is aligned and behind sort of alleviating that supply constraint. So why isn't it happening? Is it purely a planning issue? I think that plays a big part in it. I think we should cut a lot of red tape and keep all the appropriate stuff. but i also think my broader point here is that i don't think the margins are there for the developers in other words it's like all of our building materials cost this yeah right and so so look at this as a bit well it is a business look at it like a business right i'm a developer well if i build if i build some houses and some units there's no trouble that you know there'll be people who will want them at least at a at a certain price if they can afford them so i add up my all my costs my building materials the land the workers all of that kind of stuff and it comes and i i'm not gonna i'm not a charity right nor should they be so i want to make a margin to make it worth my while to even bother taking all this risk and doing it right like it's yep everyone does that um yep and so they do it all and they go okay so we'll have a house and if we sell it for three million dollars we'll we'll it'll be worthwhile but you're at the point now it's like most people can't afford that right so you're butting up against it's it's a an immovable object meets an unstoppable force in a lot of ways here it's sort of like we don't we we just don't have the economic incentive even if you cleared the decks and and and the government said right you can build wherever you like and you can do this and whatever and you know and as long as there's some kind of eye to building standards or whatever it's it's like i don't know how you solve it and it comes back to really you know one of the the other solutions is is for prices to go down or nowhere for a long time that's we always come back to that point again it's not everyone must feel as like i'm gunning for that i'm not gunning for it i can assure you no i think we should be i think i think we should be i think that i think that's actually i think you're right that that is for everyone who every politician talks about affordability that throws more fuel on the fire affordability either either wages go up or prices come down They are the only two things, or both if you want to, they're the only two things that make things more affordable.

53:07Everything else just kicks the can down the road under the guise of affordability. And I've got to say it's politically effective because people are so desperately, you know, kind of desperate. They are prepared to say, well, at least it's something. The LNP, we talked about this last week, the 50 grand super. People say, well, at least it's something. And I was kind of like, no, no, you don't get it. This is worse than nothing. But it's still for people who want to believe, who need to believe because they think, well, I can't do it any other way, so this must be worth a go. I'm like, no, no, no, it's possible that any potential solution that's not this, not everything is better just because it's different.

53:40But I get why people say, well, at least give it a go because I'm not going to be able to do it this way. My issue made about the cure for high prices, high prices, I mean, you're absolutely right. The difference is, to my mind, this is not a closed system because we keep bringing more people into the country at unsustainable rates. So you're kind of not letting that happen. I think the cost of the land, the ability to expand the distances away, there are some really significant changes that are problematic, even on top of building costs, which are just the land costs and the available land. Vacancy is now 0.7 % in Australia.

54:16I thought about it 0.9%. Under one is stupidly low anyway. I don't know how this gets resolved. As you said, you're all upset right that the cure for high prices are high prices. the problem is, I suppose, this is not a closed system, right? You've got people able to leave and arrive. And while ever, Australia is better than where they've come from, for whatever reason, whether it's being up with family or socioeconomic improvements or avoiding wars and conflicts or claims for asylum. However, I don't blame you enough for wanting to come to Australia and say, it's better over there. I don't care about the average Australian's affordability problems because it's a hell of a lot better than my problems I had in my home country.

54:50I don't blame you enough want to come here but when you're in that situation it is it is causing this ongoing um uh imbalance i think i think that until we've until we resolve get that sort of back to some degree of um parity i don't know i don't know if it's enough outside that closed system for high prices to be the cure for high prices in of themselves given the the various motivations at work yeah i mean that is the x factor isn't it the i i do question the narrative a little bit and i need to dig into the data myself to to have have the answer but my anecdotal observation is that of all the people coming to live to australia there's not a huge percentage that are you know cranial surgeons and investment bankers and you know there's a lot of students in that is fruit pickers they're not the kind of people who are who are buying up 10 million dollar properties right so absolutely 100 now there is definitely a factor that is there and i'm sure there is a it's just all incremental that's the yeah yeah there's a look there's like we i think we all know it's a factor some people over emphasize it and gets xenophobic very quickly but there is there is a flight of capital from china right and and and vietnam and other places on that and that is definitely a factor right but we were talking at the start of the pod of trying to sort of predict things and And, you know, what do you want to sort of have everything predicated on?

56:20So you're right. It could go crazier for a lot longer if that access to fresh and significant capital is open. But it kind of feels like short of that and just ongoing government stimulus, can you really expect these things to grow or to double every seven years? I don't think that they can. So you're back to the affordability issue. Yeah. It's just the math comes down to it. And again, I always get into this. You get, the debate can get lost over specifics. And where I like to come back to is I don't want to have a question as like, it's at this level where it breaks. Because I don't know where that level is, right?

57:05Yes, exactly. I don't know. But logically, I know that if you just extend the line, extrapolate all of the things that are in place now, it gets to a point where it's crazy. And you might think it's$10 billion for a two-bedroom unit before it gets crazy. I might think it's much less than that. But the point is it gets crazy at a point. And it's only a question of where that kind of is because the path is unsustainable. It just is. And that's just math. Unless you disregard the laws of mathematics, that's just a fact. And so... And you can't disregard the laws of math. So even more fundamental, your point about high prices cure high prices, which is 100 % right, is one plus one equals two.

57:45It just does. That's why I find it, this particular issue, and again, you and I disagree on the long-term stuff. And again, people can absolutely, ideologically and philosophically have different views on that. That's completely fine. I'm good with that. And whether we have different views or not, I'm probably wrong. You're probably right. When the maths are just the maths. There's X number of houses. There's Y number of households. There's families, effectively. And if Y is bigger than X, then people haven't got anywhere to live. I just like, honestly, mate, And I find this so stupidly frustrating.

58:14I get frustrated by people who I don't agree with or who seem to have a different view to me. I think that view is wrong. But when the math is just, when you literally do one minus the other is whatever, it's just, if the number at the end is not positive, then there's not enough houses. Like, it's that simple, surely. Yep, it's really what it is. And again, the danger is to get stuck on specific mathematical assumptions. But the general sort of trajectories of these things, He just – so this is – I'll guarantee you this. I don't know in what way, shape, or form, but the problem will resolve itself.

58:48Like one way or the other, slowly, fast, painfully, not too painfully. You know, it will. I mean, I've referenced it before. Aaron Kohler wrote a great piece recently. He was just basically saying the best case scenario for everyone here is just a very long extended period of sideways prices for houses. That's kind of what we should hope for. Because, and I know people who have houses now will be like, no, no, no, I want it to keep going up. But then there's the second and third order effects of all of that kind of stuff. And, you know, so it's just sort of, yeah, I don't know. I feel like we're covering old ground again.

59:24Yeah, we are. We are. Mate, let's finish off with, speaking of old ground, I find the work from home, work from the office, flexible working thing. um not not as not as clear-cut as as the the population versus housing because that's just maths but there's agl have come out this week and said people must return to work three days a week in the office otherwise it'll impact their performance reviews and their bonuses and so let me let me say up front as long as it's legal a company can mandate its employees to do whatever it wants to do because they're employed by the company the company's paying the bills and you know as again as long as it's legal that's that's completely reasonable i have no issue with agl i have no issue with the legality or the appropriateness of agl mandating where and how its staff work i find though the mandate frankly stupid and i'd be interested in your thoughts now i work from home you work from home maybe we're not exactly representative i i think once you if you if you if if you're mandating it what you're really saying is people wouldn't do it unless we made them so that's the first thing right so people don't want to do this and AGL is saying well hang on if you want a bonus if you want effectively here's the stick right you're not getting your bonus you're going to be arced down your performance unless you turn up if you are someone who works for AGL or a similar company and you prefer the flexibility and your product genuinely productive I'm not just saying you are because everyone can do that if you're valuable to an employer and you want to work from home you're going to be motivated to find another employer who gives you more flexibility now if you're a great employee and you want to stay, then you're probably in the office anyway.

1:01:01So AGL doesn't gain anything from that employee. The good one who wants to work from home more often, who says, well, actually, I'll go and leave and join Origin or I'll join someone else. I'll change jobs. I'll change professional. I'll go and do that. AGL loses that great employee. And by the way, the slacker at home is going to be a slacker in the office because you and I have worked in offices before and we know full well if a boss thinks just by being at a cubicle makes you somehow more productive, uh that is a that is a fantastic uh self-delusion because you know both been there mate the long lunches the coffees the the you know the rumor mongering the scrolling facebook the idea that somehow being in office the manager are omnipresent and can stop any shirking but at home they can't i i find that fascinating and well you know in a bizarre way and i just feel like mate i i've said this before if you gave me a basket of flexible work companies and a basket of mandate work from the office companies i would happily buy the format and short the latter not it won't work for any individual company but the brain drain that this we do our brain drains at a country at a company level a country level if you can work from home and work from anybody why wouldn't you you're going to work for the one where you get to have what you want and if you're a great employer you're going to leave here's i've worked for companies i won't name them i worked for a company that was the morale and stuff was pretty bad for about 18 months and what you've what i've watched happen was all the good people went this sucks i'm going somewhere else.

1:02:22And the bad people went, this sucks, but I can't get a job anywhere else, so I guess I'll stay. Now think about what that does over time. The good people leave, the bad people stay, multiply that over months and months and months and years. You have this massive, massive, just down trading. The average just falls and falls and falls. And I just, I will never understand why someone like an AGL or any other company thinks they can have a better result by mandating attendance, presence, not work, not output, just literal presence. And somehow in the 21st century, in 2024, despite my sons and daughters references at the beginning of the podcast, to believe that the only way you can manage someone and get decent outcome or output is by having them literally sitting in a cubicle.

1:03:04I just, my mind is blown. And people on Twitter say, no, of course you're on it. The best people will already be in the office. Like, yeah, they will. So that's cool. Knock themselves out. Well, they'll be slacking at home. I'm like, they'll be slacking. I just, I don't understand the one-dimensional thinking that says if they're sitting in a chair in an office with a company brand out the front, they're going to work harder and be more productive. I just find that. Am I completely mad? Am I gone bananas? What's going on? No, I mean, look, I class it also as a problem that will solve itself. You know, when there's always a tension between employers and employees.

1:03:38Obviously, the employers want to have the best employees at the lowest possible price. Employees want to do the least amount of work for the most amount of money. That's just rational, right, from both of their perspectives. And they're going to have to meet in the middle somewhere. And meeting in the middle will very heavily depend on the rate of pay. I mean, I will clean toilets all day long if you pay me$200 ,000 a year, right? Like there is a price at which you will attract people. But the remuneration package is just part of it. I think anyone who's worked full time for more than a blink of an eye recognize that there is a lot more about the quality of work and your happiness that is beyond the pay.

1:04:22I mean, there is a certain minimum threshold, obviously, you need to sort of pass. But beyond that, I know a lot of people who would happily take a 20, 30 grand pay cut if it meant that I have much better working conditions and are a much better boss or any of these things. Culture is massive. I've said before that the core role of a CEO is capital allocation and setting the culture because culture is that fuzzy, intangible thing that I can't really get an accurate read on from the outside, but I know that it's vitally important. give me what's the saying it's like you can you can give a bunch of sailors all this you know um incentive in the world whip them make them build the boat but make them yearn for the sea and they will work for you tirelessly i've completely butchered that reference but i think you know the one i this is one of my favorite quotes my wife's a school teacher and a um an education consultant she this is one of her favorite quotes too uh it is if you want to build a ship don't hang on if you want to build a ship don't drum up people to collect wood and don't assign them tasks and work but rather teach them to long for the endless immensity of the sea that's so much more is it how i said it yes oh it is just gorgeous but it is true and you see this it's one of the other reasons why i like small companies is you you have that you know you're not i shouldn't i shouldn't be too general but it's more when you work for a massive you know 20 ,000 employee company, you're just a cog in the machine.

1:05:52When you're one of 40 people and you all know each other very well and you work day and night and you've got a mission, right? You're solving problems and there's a big financial reward for you. And like those people, they don't, they don't need to be incentivized. I mean, they are, they're incentivized already. And, and as you say, that there is nothing more powerful than a capable person who is hungry to, to achieve. And, and. meaning and purpose yes it's it's just it's just meaning and purpose it's uh you mentioned culture peter drucker famously said culture eats strategy for breakfast yes and it just does because you can have all the best powerpoints in the world yep and you can publish them and people go oh that's an amazing powerpoint that's a great strategy does it get executed do people actually care um i'll give my company a wrap i joined the motley fool 13 years ago and i've said before i took a pretty decent pay cut to do it i did it because i wanted to be part of something and the company's not perfect but we're genuinely trying to do this podcast for free right we're trying to help people um you know learn a bit help themselves be better investors have a better financial future that that meaning of purpose is what's getting me out of bed i have not had i might have one maybe in the last 30 years i used to have you know work for other companies rather sunday night you'd be like oh i gotta go work tomorrow you know the week starts at six on a sunday night because that's when you start thinking about works oh bloody hell yeah i love coming to work and not because the work's always great not because i do love all my colleagues but you know because i because i feel like we're doing we're building something we're doing something meaningful we're doing i have a reasonable you know productive positive role in that that that is that is worth meaningful amounts of money i remember just a quick quick behind the curtain for those listening when i worked with you as well i don't think i've got a memory of the boss like forcing you to take a holiday take some time and then you were like still sending articles through i was like what is this doing so you had a long you had a you very much had a yearning for the sea very much so well that's it right and i think if i love your small company example actually mike because to bring back to investing i think that's that's so true you you've talked about the quote professional manager before as opposed to the founder um who kind of you know runs the business they kind of run it as well as they think they can and they try and do all the right things they try and make these businesses successful and i don't doubt their intent necessarily but there's such a difference between someone who you know the hired gun will always do what they can the the person who lives breeze gave birth to this thing think about graham turner at flight center right um frankly mike canne brooks or scott farquard at lassion uh pick pick any i mean i love founder owners you know it's always a shame when someone moves on bezos at amazon i own shares in um give me a couple others mate give me some give me some founder owner companies you like uh jumbo interactive mike uh is it the verka i've gone blank now yeah i mean again there's no coincidence a lot of these companies tend to do pretty well digger data's got a very enigmatic uh ceo but it's done very well um gosh this david dicker yeah it's it's not a coincidence um that's yeah that's exactly right yeah so i think i think that's you know yeah so this is i i guess where it comes oh sorry mate Sorry, I've got a bit of a lag.

1:08:57I think it would take a lot for me to invest in an AGL or a Telstra. And there's a lot of reasons for that. But a big part of the reason is just the inertia of the culture. It is too – companies get to a size where they are so big and so bureaucratic that they just they get a bloat to them which is very very difficult to to get out of remember when solter here came to go and he's like i'm gonna change the whole structure and then like well how did that work out right like maybe maybe he wasn't very effective or maybe it was an impossible task yeah well yeah you can't you can't turn them you just you know what's like 10 miles turn oil tank or something stupid like it yeah you just it's really really difficult by the way speaking culture that's also why as you're growing a business and maybe most of the listeners won't be doing that but you want to make sure the culture as you grow because by the time you've realized you made a mistake yeah if you if you if you are that by the time you get that oil tanker it's like oh man i wish when we were just a little you know runabout tinny i'd made some changes then because as it grew those things became calcified i've worked for a again i won't name it a very large food company um and when i got there it was just the most depressing calcified experience not even depressing in terms of bureaucracy and management that can be depressing in itself it was just it was almost stockholm syndrome we can't do that here we don't do that here why not we've always done it that way but why literally we just tried that yeah it was like i won't do this we tried that when about five years ago soul destroying all right well let's not let's not try it i made it literally i kid i kid you not this thing was just uh just absolutely miserable and it was such a shame because these had great consumer brands and that was the other thing there was no crisis yet because they were sailing through on the basis of things that they'd done before and that's the other thing for investors is just be careful about some of the competitive advantages you think you see because they can mask over for quite a while you can kind of get away with it right you can ride on the coattails of what's been done speaking of the oil tanker you turn the engine off it'll probably keep coasting for 10 miles too and you go look that's going pretty well all of a sudden 10 miles later it's like stop dead in the water it's like ooh So, you know, be careful of that too.

1:11:10But yeah, as much as I don't do as much small company investing as you do, mate, I think you're absolutely right. I love finding companies run by their founders or people who are, you know, essentially founding a Buffett at Berkshire. The company was founded 100 years before he turned up, but he runs it as if he owns it because he owns most of it. Well, no, large minority shareholding. But people who have it in their DNA is just a huge, huge, huge difference. And by the way, those people are much less likely to want people to return to the office so they can look over their shoulders. They're probably going to say, here's what we're doing.

1:11:41Let's go and do it. They've probably got less fat, less bad people. They've probably hired in the first place too. Yep. I'll give you a great story. This is before work from home was a thing because the technology didn't really exist. But one of the very first proper jobs that I had, it's a big organization. And we'd go through, even in the relatively short time I was there, we'd go through these cycles of like firing everyone because they got worried about costs. And then like six months later, they'd hire everyone again it's just it's crazy i remember i was like four or five years i was there it's like this is really dumb anyway one time uh it came around that it was just like oh you know they're making some redundancies um we don't know if this department is going to be where i was at the time it's like oh okay so what do you want me to do it's like we don't want you do anything right now i was like okay can i go home i was very young at the time right so my 20s like sweet let's go no no we need you to stay here okay what do you want me to do just sit at your desk can i help the mail room can i do something no we just want you okay and then and then i got told off for like because i think i was scrolling the sydney morning herald or something on the computer like no no you can't you can't do that here and like this is madness right this is this is insane this is just suffering for the point of suffering you're Paying me, I get that.

1:13:00Get me to do something productive. And if not, send me home. But the point is, is that I'm trying to be careful not to dox the company here, but it was sort of known as a bit of a trading ground for the industry. And the staff turnover was relentless, partly because of their actions. But also, let me tell you this. Anyone with any capability was not there long. As long as they had enough to sort of on their CV to say, I worked here for a little bit. And so, you know who stayed? the people who didn't have other options right exactly and you know look not that i feel particularly bad for this company they've done very well uh for various other reasons but you know but they they they any talent that they would bring in they would lose very quickly because of not because of what they were paying paying decent industry award rates you know just not just not treating their staff very well it's like it has a consequence so you know from what full circle here.

1:13:55Everything you've said has just made me even less want to invest in AGL. There we go. I got there in the end. Mate, we've rather done for long enough. I reckon we should go back on Sunday and answer some of your, listen to questions. What do you reckon? Yeah, 100%. Let's do it. We will do that in the meantime. Enjoy the rest of your weekend unless you're listening on a Tuesday at lunchtime, in which case you've got a couple of days to go. I'm sorry about that. But until Sunday, full on. Cheers. The Motley Fool and people appearing in this program may have positions in the companies mentioned. general advice only.

1:14:26Please 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.