Come and see us record, live! March 17, 2024

24:41The other thing too, Max, by the way, is when you think about the declines, you have to work out at what point you would buy. And the bigger the drop you want, the longer you have to wait for that drop. So it is almost, you know, I want to buy shares, Paul, 15%. Well, okay, that'll be once every X period of time. I want to delay 25 % or 30%. You've got to know at what point you're going to buy, how many years of saving you have to wait for that to happen, how much the market goes up in the meantime. You can mathematically try and work it out. You grab some data and try and reverse calculate it.

25:08But yeah, very, very, very hard. Good question. Very, very, very hard to do. Oh, that backtesting doesn't work either. Let me throw cold water on that. That was a big thing back in the day when, it's how old we are, when software for the markets was like sent to you in a box through the mail. Yeah. But, you know, there was a company, like several, that they offered backtesting. So you could come up with a set of indicators and how would have this worked if I had done this over this period? It was like so compelling as a sales proposition because you're like I can find the combination of factors that will lead to alpha, to lead to our performance.

25:38But, of course, you see, you know, there's ghosts in the machine. There's phantoms in the data and you just sort of – you see all these correlation calls and it's just not there. And if it was there, it would then get very quickly arbitraried away. So you've just got to be the first person to know, the first person to prosecute it to do that successfully and make sure that no one else figures it out along the way. And like, oh, I just buy a passive index fund and go play. Well, no, that, mate, that thing you think you see may actually not happen again anyway, even if it's real. and if no one else sees it, you're the only person who sees it, it doesn't mean it's going to repeat.

26:11The causal factors required, the complexity of the economic engine is such that you're just not going to see it coming. It's not going to work that way. No. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

26:29Mate, I want from Andrew who I like this. I like the – well, I like he's saying nice things about us. Hi, gents. Thanks for your weekly podcast. I've been enjoying listening to them for the last year or so and getting a lot out of them. Welcome to the team, Andrew. In particular, I find it interesting when your thoughts and discussions go much broader than just looking at specific stocks, et cetera, and venture into related discussions about interest rates, tax, population, and social policy, et cetera. That's right. We're the finance podcast that occasionally does finance stuff. I have a question that I've wondered about for a while related to Australia's compulsory superannuation system.

27:08We did talk a little bit about that on Friday, Andrew, so I'll try not to get back on that one. Doesn't this, he asks, artificially skew the supply and demand model in the share market? Every week, 11 % of the country's wages bill drops into the market without anyone making an active decision. He says, maybe 90 % of people anyway, if we exclude SMSFs, who might be a little different. Andrew talks about the property market being a Ponzi scheme, but isn't this kind of the same thing? I'm not suggesting our compulsory super system is a bad thing at all. However, what are your thoughts about this artificial or legislated demand where money just flows into the market on a never-ending basis?

27:48Generally and over the long term, does this just keep propping up the system and prices? Does it mean that prices just continue to go up over the long term pretty much no matter what? Or am I missing something? Also, he says, this makes me realise why fund managers and the industry in general are so keen to get their little hands into super. Fingers in the pie of never-ending cash flows. Cheers and thanks again for the great podcasts, Andrew. What can you tell me, Ray? I mean, it's a tough one. Well, let me try. It's hard to argue that someone who's just sitting on the bid, who's completely passive, he doesn't care.

28:30I've not done valuation. It's in the index. I'm buying this much. There's new money. I've got to allocate it. I'm buying it. You know, all else being equal, it feels like, yeah, that'll drive the price up. But also, you know, price is set on the margin, right? And there's plenty of companies in the major indices that have fallen out of the major indices and gone bankrupt, you know, and new things come in. And so there are reallocations and stuff going on. And, I mean, if something got really ridiculous, there'd be some clever cookie out there that would be shorting. And don't forget like price, demand always will find a supply, you know.

29:09It gets to a point where existing holders of the asset, which is too good to be true. I kind of bought shares in CSL because I wanted to sort of have something in my super for the next 30 years, but you're going to offer me how much? You know, things kind of tend to sort of go that way. What I don't know is that can you say over a long stretch of time it's a zero impact. I used to say that actually. I don't know if it is zero, but I don't know if it's meaningful. What do you think? I tend to agree, but I will add some context. So a few things first, I suppose. Andrew, we know that superannuation is split between Australian shares, international shares, property and cash, generally speaking, in different forms.

29:53And so So the 11 % goes somewhere. A portion of it, probably the majority, but nowhere near the vast majority, goes into Australian shares. So the first thing you do is you discount that back by the money that goes into cash or property or international shares in an absolute sense. Think about balanced funds or even the so-called aggressive or high-risk funds or whatever they call them these days. The vast bulk is still, yes, the majority is probably Australian shares, but not by much. So you start there. The second thing I'd then add to that, and I'll get to Ram's point eventually, but the second thing I add is if you look at the market, isn't the market the same way the property market is the property market.

30:35The property market is every property in the country. So Australian property, when we say that, put a capital A, capital P on it, not Andrew Page, but Australian property, we get to the total value of every house, unit, apartment, duplex, villa in the country. The value of the Australian share market is the sum total of about 1 ,500-odd companies out of the probably, what is it, 3 million small businesses or whatever the number is these days in Australia. Big number. And I say that, Andrew, because the money will go into that market, yes, but it's not a static or a closed system that that is all the money, those are the only companies that can ever have money bid on them.

31:17So while we say the market or the ASX and we do the index of the totals of the market capitalization. When Ram lists straw man for$84 billion in six months time. Any day now. Any day now. That's a new company. So yes, there's new money going in, but there's also new businesses going in. And it's worth kind of keeping that in mind because this is a subset and it's a really amorphous subset of Australian business. The same, by the way, overseas with international businesses, same thing. So you're not necessarily putting the extra super money into the same 200 companies that we had 25, 50, 100 years ago.

31:51There can be more businesses. There can be less, by the way, as well. But I guess I'm just making the point this is a – it's not a closed system. It's not a closed loop. And so that's – You know what? Sorry, mate. Don't go. Sorry, I thought it was a bit of a lag. Go for it. The other thing that just occurred to me too is there's probably a demographic bulge argument in the sense that at one point in time, I'm putting money into super compulsorily. Did I say that right? But then people come out the other end and they retire and they start drawing it down. Now I wonder as the boomers who are, you know, an outsized generation because of, you know, the war and that whole thing, they will go from contributing to withdrawing.

32:38And I've got to – I'm trying to do the maths in my head here, but I guess it depends on the extent. But if there are, there's a lot of wealth that's there. And a lot of that will be drawn down in the next decade or two. And I wonder if you really wanted to take a broad view of it, is it more trying to measure the demographic bumps? Like when a new cohort, generational cohort's coming in, how big are they? How much are they saving? What's the rate that they have to contribute at? All of that kind of stuff. But again, I mean, it's a fascinating question. I do think it's not, it's still at the same time, I don't think it changes the MO for any investor who wants to be sort of a self-directed stock picking kind of investor, not just purely passive.

33:21And if you are purely passive, I guess it's, well, it's a little bit of extra wind in your sales of anything. And if you're not, it may mean, look, at the margin, it might mean that you don't want to be, you might not be realistic and expecting very low multiples when there's always a bid on a lot of these stocks, maybe. But even then, I can't see it being radically different to what it would otherwise sort of be. So great question, but I don't think there's a practical so what to it. Yeah, I don't think so either. And I wouldn't, by the way, rely on Super to say, well, I can't lose money in shares because we've seen the volatility of the market over the last few years.

33:55I guess my last thought on this one is if you look at long-term historical multiples, we're not miles away from that, particularly in the Australian market. The US market is very different and, frankly, probably deserves to be because of the types of companies. but if there was this wall of money that was somehow pushing up price earnings ratios higher than they deserved to be, you kind of see that and there's no evidence that we are structurally higher in any meaningful way than we used to be. Yeah, I don't – it's a theoretically great question. Practically, to Ram's point, there's no evidence, I don't think, of it being meaningful.

34:27It kind of should be, to your point, Ram, I think. By the way, I would seriously encourage people to invest overseas as well because at some point in your own super or elsewhere, it makes sense given that potential issue and the quality and diversification opportunities. But yeah, there's no evidence. I don't think there's been a change to that degree. Mate, Tom, are you going? No, interesting question. Great question. A female question. Thank you, Jenny, for throwing your question into the mix. Always love hearing from our female listeners. Hi, Scott and Andrew. Thanks for the pod. My question relates to how companies that are doing a capital raise determine the price for that capital raising.

35:06If the options are priced at what I perceive as a low price, is this an indication of what the board thinks the shares will be valued at come option exercise date, or is it used as a sweetener to get shareholders to participate in the current capital raising? Many thanks, Jenny. Go for it, mate. Well, it sounds like there's two parts to that. There's raising money by selling shares and then some share purchases or some capital raises have an options component to it. So let's just start with the share part of it and how they price it. It's actually the market that prices it really. I mean, they can put out, you know, I could put out a capital raise amongst my investors and say, I'm going to raise money at a million dollars a share and no one's going to be interested in it.

35:50If I say one cent a share, well, maybe we'll get a few bites. So the company is going to set the highest price it think it can get away with to raise the amount of money that it needs. So it usually starts with a dollar value in mind, like we need$10 million for whatever reason. Okay. The shares are currently at this. That means we need to sell this many shares. Okay. Well, we're going to be diluting people probably in the process here. So we need to make it a little bit sweeter. So we need to attract new money in. So they'll often make it more attractive that way. And this is where the options come in.

36:22Sometimes you'll get a little bit of a kicker. It's like, oh, by the way, there's an options here that you can exercise if the price is above a certain amount. But the whole calculus is what can we get away with? And it sounds Machiavellian. I don't mean it to. It's like when you sell your house, what price can I get away with? Get away with is the wrong term, but what price is enough to attract buyers of that? Because we've seen it before where some companies, I've actually seen it recently where some companies are trying to raise money at a price that was higher than the market price, you know, and just completely didn't get away.

36:55Now they announced the price before the share price dropped. And then lo and behold, no one took up the offer because why would you? I can buy it on market cheaper. So there is a skill and an art to it, but basically as much as we, the goal is to raise, well, let's be technical for a second. The goal is to reduce the cost of capital as much as possible. So you can either do it through debt and we'll be familiar with interest rates, but there's a real cost of capital when it comes to issuing shares. It comes in the form of dilution. So it's just like there's a cost to that. And again, you can just like, let's take any random company.

37:27Let's take Woolies, right? Let's triple their share price. Let's say they want to raise$100 million. Well, if their share price was triple what it is now, they have to sell a lot less shares to raise that money than if it's at the current price. So you usually find, I actually think it's, a lot of investors get their knickers in a knot about this, but I think it's not silly for a company. A company's North Star should be, what do we think the business is a fair and reasonable value for the business? They should have their own intrinsic value calculation in their head, a loose one as best you can do.

37:59And whenever the market is excessively above that, I think you take advantage of that, you raise money. I think provided, of course, you think you've got a good chance of doing something useful and productive with it. When it's well below that, that is the time for buybacks, right? Like that is the time. And I'm desperately trying to think of the company that's done this extraordinarily well. Is it Constellation Software? Constellation Software, yeah. Which, by the way, just Google that, Constellation Software, and read the story about that. It's one of the best capital allocators in the world.

38:30Teledyne in the past is the other example. Yeah. Henry Singleton, I think, from memory. Made a$1 million from opportunistic share sales and buybacks. And again, no one's being – it sounds like it's taking advantage, but it's not. The market is saying, we think you're worth earning. oh, okay, great. Well, here's some extra shares and I'm going to take that money and I'm going to get, if I get a higher return on investment than the cost of capital and, you know, it's more than just a, you know, a basis point or two in it, job done. And even as a shareholder with the dilution, you were like, yep, please keep doing that.

39:03Mr. Magic management team, you know, that can just take my money and magically turn it into more money. So it's, the more I've said this before in the pod, but the longer I've been doing this, the more I'm just convinced that capital allocation is the core skill of management for these big companies. And you know, if that, that is your, that is essentially your job. I say set culture potentially and, and invest the capital. You're not there to run, you're not the chief operations officer officer. You're not the bean counter, you're not the CFO. You're, you're setting the strategic well, the board, I guess is setting the strategic direction, but you are always sort of looking through that lens of, I have a finite amount of capital and I have a world of opportunity.

39:45What is the best risk return that I can do right by my shareholders and get the best return with the minimum amount of risk? And managers that look through that lens and think long-term generally tend to create insane amounts of wealth for their shareholders. And they're rare. They're very rare. I'm glad you did that last minute, mate, because we can define the right, perfect, best role for a management board, the reality is a lot of it's done terribly, terribly badly. And it is one of the challenges of corporate life is when you have to pick someone to run your company, for your point about strategy and culture and capital management, none of those jobs are the jobs of the head of sales or head of marketing or head of HR or head of operations, head of IT or head of the Australian business unit if you're a multinational, you don't have those jobs.

40:37It's a very, very hard thing to recruit for and train for because you literally, probably the biggest change, any other part of the organisational hierarchy, you join as the assistant marketing manager and you eventually become the assistant marketing manager and the brand manager and the marketing manager and the marketing director and then the head of marketing and then the whatever. So you kind of build on that skill set. Then all of a sudden someone says, now your job is strategy and capital allocation and culture. like well i hope i pick something up along the way but i've not done this before this isn't this is new to me and it should be and that's even even a cfo you know yeah probably have know the numbers but you know these are new these are new jobs and new skills i um i you i'm gonna be the cynical one for a sec ram because i the market determines the price jenny as ram has said that's absolutely true because there's no point offering shares at too low a price, too high a price, except that.

41:31We also know there are conflicted incentives. So a fund manager who might be a large shareholder in your business, if you kind of give them a sweet deal by maybe pricing options a little bit lower than they might have otherwise been priced or your share issuance at a lower price, they're going to feel pretty good about you because they might want to flip those shares for a higher price later. So you can make your life easy rather than saying, I'm going to offer these shares at exactly the right price where supply and demand meet where I can absolutely just get enough shares that I need to raise the money I need to raise if you own the business outright that's exactly what you do if you were a professional CEO professional board or professional something else and again I don't mean to disparage people who are very good at this and do the right thing but if you are not that person if you are someone who's like well I could try and make it a dollar 87 and a half but dollar 80 is close enough and they'll be able to flip it for a dollar 85 and they'll make some money and I'll be happy and I'll be popular and it'll all be fine.

42:24Don't believe that doesn't happen. And again, think about who's advising the CEO. Well, look, you need to raise some cash. I'd really price a dollar. Just to make sure. You think? Yeah, I really do. Oh, okay. You're the expert. Okay, I will. The expert might also be the person who owns the shares and who is going to benefit from getting a very cheap price on those shares they're purchasing. So that's absolutely possible. Absolutely true. A couple of things quickly to add. If you're raising more capital, you're diluting current shareholders, that dilution actually has a value. Particularly if you're raising money to pay, if you're not buying a business or buying another operation or growing, but using it to pay down debt, for example.

43:01If your shares are worth 10, or selling for 10 bucks, and you're issuing 10 % more shares, mathematically, you're at$9 before you start. If you're not going to add value or add earnings, you're just diluting people further. So by definition, 10 % more shares means a 10 % lower share price. So the starting points matter. But I've actually seen, I want to say it was corporate travel. It may not have been our own shares. So I don't want to overeg the pudding on this one if it was. I'm pretty sure they actually issued shares at a higher price or the same price as the current share price. Why? Because they were buying a business that was going to add value.

43:34It was earnings accretive. Pro-rata. Right. So it was making more value by buying it. Sorry, pro-forma. Yeah. So the company said, well, hang on. If we're going to buy this business, but it's adding more value than we're actually outlaying, we're not going to discount this. We're going to add value. we're going to issue at the current price, the higher price. And the more the market likes what you're doing, the more they're going to pay for that because they see the value in doing that. So it's a really messy one, but RAM's 100 % right when it's done properly. It's just a case of how much can I get from the market for this thing that I want to raise money for.

44:05If it's a non-value accretive thing, you're going to have to put your hand in your pocket. The other thing, by the way, is there is, to be less cynical, but also very real, there are some circumstances where you need the money you know we've seen significant allocations significant problems where businesses have said we're we're in the we're in the toilet here you know we're in some real trouble um you know we we really need to raise some money that that is cap in hand stuff and that's where you go if we don't raise big companies do it too we've got a bill to pay we've just made a billion dollar acquisition i need to make sure i collect a billion dollars if i can only collect 900 million dollars i can't make the deal so they've put themselves over a barrel which is stupid it happens all the time where they say, I really need this money.

44:48So I can't afford to just fall short. I got to absolutely make sure of it. What does that mean? It means you're a forced seller. You are absolutely over a barrel. And so the buyers can effectively not quite name their price because there's competition out there, but you are desperate. You're going to give them a sweetheart deal to make absolutely sure you raise exactly what you need and not a cent less because you can't do the deal otherwise. So that's important. Yep. You see, I mean, it's something to really pay attention to in the small cap space because many of these companies are not profitable yet.

45:19They're not cashflow positive. They're in, they're in that sort of growth phase and it's not a bad thing. I mean, it's a natural part of the life cycle and, but you are, you are reliant on the kindness of strangers. And we go through periods where strangers will just throw money at you and you'll get to other periods where we're kind of been recently and maybe coming out the other side of it, but for a lot of people, they just can't get arrested, you know, and it's sort of like, and then it becomes a question of, it's existential, right? Correct, exactly. And you've got no negotiating power and then the company might survive, but, you know, any existing shareholders are diluted to everything, so.

45:59Yep. Mate, let's move on to a great question. I really like this from Charlie. He says, Dear Scott and Ram, love the pod. Thank you, mate. I have been tuning in for the past few years and have benefited a great deal from taking steps to follow your advice. Thanks for all you do to improve the world of financial education. Thank you, mate. A question for you to consider. I love, says Charlie, the idea that the next wave of millionaires could be ordinary people who save sensibly, live within their means, invest wisely. He says broad-based, low-cost index funds for most of us and let time and compounding do its work.

46:34Therefore, I am following as closely as I can to that strategy. My wife and I have maxed out our super contributions each year for the past few years. Well done. Split between low-cost US and Australian index funds. We're also investing in low-cost ETFs, mostly through a family trust. We aim to continue doing both for as long as we can. Given that folks who follow this kind of approach for a number of years could potentially achieve wealth in the millions of dollars in their lifetime, I have the following questions. Firstly, how much net worth would you be comfortable holding in ETFs before you would think about reducing your exposure and or consider investing in other assets or other asset classes too?

47:20To put it another way, what risks and or opportunity costs might one need to consider if they were to hit a million dollars plus before retirement age? Let's assume this million dollars is divided across four ETFs, say Vanguard, total US market, NASDAQ, Australia, emerging markets, and a couple of solid listed investment companies, and Supo with a similar makeup of holdings. Is there a dollar amount past which you think someone might need to consider alternative places to invest other than ETFs? What might that number be and why? And where else might you invest? I'm genuinely interested to know how you would think through your options.

47:58Perhaps some planning now might improve outcomes later. Charlie says, general advice only, of course. Thank you, mate. Thank you. Keep up the great work and straw full on. That's from Charlie. Good question, mate. What's the calculus when you start to diversify away from broad, low-cost ETFs? I'm going to come at this probably completely differently to the answer that most would give, which is I would say the more money I have, the more I would have in the ETF. And the reason being is that, well, think about it. Let's say I've got$10 ,000 saved. I'm young. There's probably cost obligations on the horizon.

48:43If I'm starting a family, maybe I want, you know, put a roof over my head, these kinds of things. It's like I just can't allocate everything to something as volatile as the share market because I don't know what's going to happen. now let's go the other end of the spectrum let's just be stupid i've got a hundred million dollars and i put it all in etf now one of the great things about an etf especially these big index etfs is they can absorb pretty much anything you can throw at them yeah now there's very few assets that you can do you try allocating a hundred million dollars to fine art that's right you know or maybe you just buy one mona lisa or something but generally speaking or wine or you know bricks of gold like it's that that's one of the great feats of financial engineering i don't even mean it in a negative way.

49:25I mean, ETFs are a wonderful sort of portal for people just to get you on instant low cost, broad-based exposure to the biggest capital markets in the world. Yeah. Click here. How much have you got? I mean, unless you're Warren Buffett, they'll take whatever you can give it. And when I've got a hundred million dollars - And you get the money out the same way, by the way. So when I've got a million, let's say the market drops in half. Now let's say I'm the first example, I've got$10 ,000, I've got nothing in the bank account for any emergency. it gets cut in half and then an emergency happens. The fridge goes on the fritz and I have to buy a new one.

49:58It's like, it's gone. I'm selling at the bottom. I've got a hundred million dollars and it drops by 50%. It's like, it sucks. It's not a good day. But, but, you know, presumably unless you think their world is over that the markets will eventually come back. And I've still got all the money in the world for caviar and private yachts. Like it, it's in inverse to what you would think. And, and, and, and because it is so liquid, because it is by design, so diversified, I don't think you have to worry about it. So I'm coming at it the completely opposite way. The more you have, the more I would put in there.

50:30Why have an ING account, high interest saver, when I've got$100 million? Now I'm just pulling that number out of thin air, whatever number is it. Maybe it's$2 million,$3 million, but there is so much money to meet any short-term kind of unexpected need. And the rest, I want to just work as hard as possible. And I think too often in avoiding volatility or by being clever, all we do is shoot ourselves in the foot. Lean into it. The reason why the share market is the best performing asset class is because it's so volatile. You take one away, you take the other away, right? You get the returns there if you deserve the returns because you're being sensible with it, knowing that this is part of it, knowing that I invest despite the volatility, despite things are going down.

51:17I'm investing when things are going up massively. I'm buying a share in the future prosperity. of the society and the human race. Like it's just, that's what I am, that is what I am going to do. And it's just, for me, it just doesn't make any sense to sort of say, nah, I'll take cash, which I know is going to like bleed me at like the rate of inflation. Let's call it 5 % to be generous, you know, for forever and be charged, you know, and get a pittance worth in interest. But it's not volatile. Like, no, cash is useful for short-term and it's the only thing it's useful for. And other than that, where else are you going to get the liquidity?

51:53Where else are you going to get the returns? Where else are you going to get the diversification? I mean, if you've got a thing for art or you love property, knock yourself out. But understand that nine times out of ten, that alternative probably has a worse long-term risk-reward proposition than equity markets. I mean, well, let's not make definitive statements, but historically that has been true forever. Okay. But let me kind of play devil's advocate, Matt, here, because I think what Charlie's getting at is people, when they tend to accumulate wealth, go from wealth accumulation to then wealth preservation.

52:27So you're right about working your money as hard as you can, but at some point you get to the point where it's like, okay, I've got enough money now. I no longer really want to have my entire worldly wealth tied up with the share market just in case. I might go on to buy some property. I might go on to buy some bonds. I might go on, I don't know, find an alternative asset class, gold or Bitcoin or something else. I'm not sure I'll revoke you, by the way. But, you know, and family offices for high net wealth individuals do this all the time. You know, I've got my$10 million. I've got my$20 million.

52:58I've got enough. I don't really want to maximise my returns anymore. So your point is right for someone in an accumulation phase who is all about maximising returns. But, you know, shares, maybe they are risky. As you say, maybe I'd like to have a farm or, you know, a block of units or I'd like to have some gold or art or bonds because at least I know they're non-correlated. I know the money's going to be there if I want it. And so they kind of – now you can reject the premise altogether and say I wouldn't do that. I would just continue to accumulate, which is perfectly fine. I just feel like Charlie's question is if I have a runway that says I think at retirement I will have X multiple millions of dollars, what else should I be buying now so that when I get there I don't have to reconstitute my portfolio, but I have that kind of preservation angle built into what I'm doing, not just pure accumulation maximizing returns.

53:48Well, when you get there, you can certainly make that choice. But, you know, that's why also no one will remember your name. You know, to quote the great Brad Pitt meme, you know, it's the idea of there's no wrong answers here. You've got to understand in life and in investing and in everything, there's compromise. It's like you want stability? Great, you're going to get lower returns. Yes. Is that wrong? No. I think Charlie's saying that. At what point should he consider taking the lower returns for the purposes of preservation rather than accumulation. Oh, well, whenever that point is that you think, when you've gone from, if you get to the point of I've got enough, then that's probably the point to start going into more stable kinds of things.

54:29You'll regret it. I would very much, I mean, the reason the billionaires of this world are the billionaires of this world is because they didn't tap out when they made their first 20 million, right? True. And I'm being a little bit tongue-in-cheek. I'm not saying we all have to try and be sort of Mark Zuckerberg. That's the Murdoch versus the Packer thing. Murdoch bet the company sure three times. Packer said, I'll never bet the company. Now, Packer still, James Packer now, but this is what I'm talking about, Kerry. The Packers are still extraordinarily rich, but there's a reason they're further down the rich list than they used to be.

54:58And Rupert's running, you know, a couple of very, very large, not running directly anymore, a couple of very, very large media businesses in the US because he bet again and bet again. He's exactly right. They are the two paths. That's how you do it. And so I'm not here to say it's one way is right and one way is wrong. It's a personal question. But to answer your specific point, when you've gone, okay, maybe$10 million is enough. I don't know, whatever the number is. It's like, okay, well, then no harm, no foul. Put some in cash. But there's a cost to that. And ask yourself too, ask yourself too the what if.

55:32You know, if we do have$10 million and the portfolio drops by 50%, I mean, the amount that we're spending in that in particular, maybe we pull back a little bit because we don't want to be sort of selling at that point in time. But does your lifestyle really change at that point? It doesn't. Yeah. So I might be a bit out of the box with that. But I think if you start thinking about that too early, let's say you got to a million dollars and you're 50 and you say, yep, I'm done. I would put it to you that it's like, really? You could live for another 40 years, right? And there's guarantee. In fact, I'd like you to live another 40 years, not if it could.

56:11Likely to live another 40 years. You're likely to, yeah. You know, and a million dollars, I think it depends on your generation, but, you know, this is inflation, right? When I was a kid, a million dollars. I know. A lot of jackpot with a million dollars is, yeah, unimaginable wealth, right? It's insanely a lot. I mean, but now it's sort of like, what are you talking about? Like, it's the median house in Sydney is a million dollars. It's sort of like, and I suspect that that only continues to be a thing. So it's sort of like you're now in the year 2042 with your million dollars and it buys you a Tesla, right?

56:45Like it's like it ain't the money you might have thought it was and you may have preserved that really well and avoided a bunch of volatility for the last decade or so, but maybe you needed to lean in a bit to that as well. So just put whatever is aside comfortable, that is comfortable for you. But I'm not saying bet the farm. I'm not saying bet the farm. But I'm not saying don't take all the chips off your table as soon as you hit some threshold because it will cost you over time. So Charlie asks the two questions, mate. What might that number be and why? But then where else might you invest?

57:15Can you - You know what I'm going to say. You know it. I said it with a straight face. You're not going to invest in Bitcoin for wealth preservation. Come on. Oh, that's exactly why I would invest in Bitcoin. A hundred percent. Yeah. I mean, again, has Amazon shares been a good store of value? Yeah. Well, yeah. Was it volatile? Yeah. But there's no four-year period where that's been done. Amazon in 2000 for wealth preservation though, surely. That would have been in the high growth. You would have been diversifying away from Amazon at that point. If your goal was wealth preservation, you would have missed the upside.

57:49My sense of your answer is I just reject the premise of the question. I wouldn't try for preservation. Why would you bother? You can accumulate and keep accumulating, so why not do that? I'm trying to engage with Charlie's question, which is kind of like he's saying, well, at some point I would like to go from accumulation to preservation. how would I think about what that number would be for me? And if I was going to do that, what assets would I consider diversifying into for that purpose? Yeah. I mean, again, it's personal. I mean, but I'm just giving you my answer. Yeah, for sure. I would. I would put a bunch in there.

58:17And I just, I always come back to the, you know, the, we say it with shares, right? The two most important questions. Is it around in 10 years? Because if that answer is not true, then I'm not investing. And is it worth materially more than it is today? As long as those two things remain true, then I'm in, right? And I'm such a max here at this point, mate. I'm at the point where it's just like I think it's one of the very, very few things that you can be certain will be around in 15, 20, 30 years' time. So it's sort of you have to kind of make your own journey to that point and most people aren't there yet.

58:51And maybe I'm wrong, but that's why I would choose what I would choose. Yeah, fair.

58:59Charlie, I'm probably still pretty close to Ram's answer. I mean, I'm mindful that Bill Gates is one of the largest private farmland holders in the US. And so for a bloke who has built his fortune on technology and investing in the stock market and all that kind of stuff, he's choosing farmland. I get that. And it's very, very common. A lot of high net wealth individuals, family officers, are diversifying for exactly that purpose. Not losing it becomes more important than growing it to its maximum level. And so I get the question. I think you're right. For all of that being said, my sense is that, so here's the thing.

59:42If you're desperately keen to avoid losing what you have and you get to that point, I get why farmland or just land in general is something that people invest in. When your job is not, I want more of this, but I want to make sure it's there. because if there's a 0.5 % chance that the stock market crashes meaningfully and permanently, 0.5 % is still one every 200 years. Now, it hasn't happened in the last 200 years, so now you can't say, well, hang on, it's the old earthquake thing, right? It's every 6 million years, but we've been 6.5 million years since the last one. What price do you put on the odds?

1:00:15And so I get that people are like, well, the land is the land is the land. It could burn, it could whatever, but I can reseed it, I can regrow it. It's there, it can't be taken away by force, I suppose. But I get why people would look at that and say, well, at least if I've got it, I've got it, right? I don't have to worry about what people think Woolworths is worth. If Woolies does get somehow destroyed by Amazon or Kogan or something, I go in both of those, I should use something else, Costco, then at least I haven't, you know, the land will be there and it'll be worth something and I can use it or I can rent it to someone else to use or I can sell it to someone else for their use.

1:00:45It's a physical asset. I get why people would, and same with gold, gold is gold is gold. It's a physical thing. It's there. I can see it. It's in the safe. Do I want everything in gold? No, but maybe the safe gets broken, but Woolies survives. Maybe Woolies goes broke, but the gold is there. Maybe they both go, but I've got some farmland. I get why people who are trying to preserve large fortunes would absolutely look at diversifying that way. That being said, I don't know how big my portfolio would need to be to start making those decisions. I could imagine, this is not going to be me, but in a parallel universe, if I was a squillinaire, I would absolutely have a farm because I just kind of like farms.

1:01:25I'm getting old and I like the idea of a, you know, I would love a 100-acre bush block of land somewhere, you know, an hour away here where I could just go to and be. Not as a prepper, just because it's cool. I'd like to have a campfire and a little hut or whatever. So would I do that with some of my portfolio? Yeah, probably. Would I do it for asset preservation? Not really. I guess I might feel good that it's there if I wanted it for that purpose, I guess. You know, it is diversification to some degree. But I don't know. I don't know at what point I would do that. Yeah. I mean, you're diversifying away from what's already diversified.

1:01:58It's not that companies in the index aren't going to go bankrupt and be terrible investments. You're betting on the continuing longevity of the US equity or the Australian equity market. That's what it is. And whatever companies happen to be the top 20, you'll get them by design. It's possible if you're in Cuba in 1940, you made the same bet. And then the government nationalises everything and you're back to whatever's left. So, you know, there are circumstances in which, I just want to, you know, just to Charlie's point, I want to kind of at least entertain the idea that there are circumstances in which capitalism is overthrown or whatever else.

1:02:33You think, but I had$10 million of shares in this ETF and now that's gone and now I don't have anything and I wish I'd bought some land or I wish I'd had some gold bars or I wish I had some sort of digital currency that was, you know, unable to be tracked and truly multinational and I can't imagine what that would be and I'm sure you don't either, Andrew. No, I do. But, you know, that's why some people own Bitcoin, right, for exactly that purpose. A lot of people. There is, right. And so there's, I absolutely hear it, Charlie. I would have to, but I, this is the thing, right? It's on future in 45 years, someone plays this episode after Australia's become completely communist and, you know, we're all working on, I'm not going to be able to, everyone's working on plots and, you know, giving all their produce to the government to distribute or something.

1:03:17And you go, man, I wish I'd done X or Y. Because it's possible. It's absolutely possible. And if your job is absolute preservation, at one point you're mad not to say, well, the chances aren't very high, but it's not going to cost me much. I've already got$100 million. Why would I not have 10 million of that property just in case? I'm like, yeah, I completely get it. For me personally, given my meager needs. Yeah, but if that happens, the state's taking your land. Probably, exactly. You know what I mean? There are outcomes where maybe shares I never value that highly. and, you know, you were to make that argument at a property ram and property could be, has been in the past, meaningfully multiples less as a proportion of household income, for example.

1:03:54This could be a permanent increase or it could be a bubble that goes back to three times income, in which case people lose 75 % of their assets. Like, well, shouldn't property owners have had something in shares just in case that happened? Yeah, I think they should. I don't know. We're extending the answer. I don't mean to do it other than, I'm not trying to make an argument just for the sake of entertaining the premise of the question, Charlie. For me, what number would that be? $10 million. Pick a number, right? Below that, I'd rather be in a diversified portfolio of Australian and international businesses.

1:04:23I think that would make sense. More than that, I mean, you get an average of 5 % yield from the ASX. If you've got$10 million, you're getting 500 grand a year in dividends. At some point, you can afford to say, that's probably enough. I'm okay. I can go and do something else with the money. And by the way, dividends aren't nearly as volatile as share prices as well. Some great charts that are out there that you'll find, which is just sort of, even when crippling bear markets, a lot of companies have their dividends cut, but they maintain it. And so it's sort of like you're, and then you find that sort of like, oh, the income I was receiving has dropped, you know, 25%.

1:04:57And then two years later, it's back to where it was. And then we're on. That was the GFC experience. There's no volatility. Let me be careful with my words. There's far less volatility when it comes to dividends. And again, when you're getting 500 grand a year in fully frank dividends, It's like, oh, I only got$350 ,000 this year and then I have to wait a year before it's, you know, it's sort of, that's why I'm all in. The more money I have, it's more, it's like, yeah, what can go wrong at this point? Great problem to have. So I think that's what I do. At$10 million, I might buy a half-million dollar bush block and I might - Yeah, but that's not financial though, right?

1:05:35There's an emotional, and there's nothing wrong with it because that's you and for others it's like, why would I do that? the value in the land is always going to be there. I guess I'm just making the point, at what point would I stop with the absolute accumulation and go to some sort of diversification, maybe at that sort of level? And I'm not there. I'm probably not going to be there. So it's not an issue. But maybe that number moves because you get 10 million and you think, well, if it was 100 million, I'd do it. At some point, it's a mindset more than a dollar amount, honestly, Charlie, which is Ram's initial point.

1:06:01Where else might I invest? I would be hard-pressed to go past property. Not because I love property, but the physical. If you want to diversify for preservation circumstances, and you want something physical. So let me take a step back. If I'm not going to own shares, I'm going to take some of my portfolio and some sort of preservation strategy, what would I move to? I'd move to something physical. This is not a go at Bitcoin at all, Ram, but if I believed that I'm relying on someone else valuing my asset at a thing and that was my issue, whether it's shares or Bitcoin or whatever else it was, I know they're different.

1:06:36I'm not trying to say they're the same thing, Ram. I'm not trying to provoke you. Yeah, no, no. But, you know, if I was going to say, well, I'm reliant on someone believing this is worth a thing. If it's not going to be worth a thing, it's going to be worth less than the thing. So I need something that I can touch and feel and know is there. But that doesn't – just to push back on that, like you buy a bunch of land because you think, well, I can touch it so it's different. Yeah. It doesn't mean it can't drop down at 80 % in value. Of course. But, I mean, it's usable and it's a physical thing that, you know.

1:07:04Yeah, you're right. It still relies on someone else having a value for it. Someone's still got to pay for it. Yeah. I mean, you can still – This is the thing. When you really start thinking through this, it's sort of like what really is safe? Actually, not much. I mean, the safest portfolio is to have a GoPack in the garage with a shotgun in it and a bunch of baked beans and some matches because that's the – like when we enter the Thunderdome of Mad Max, it's kind of like that's the only portfolio that matters, right? That's right. So if you're someone who kind of goes, yeah, but that's never going to happen and I'm with you, well, you know, I was like, if it does, it's like, oh, I'll cross that bridge when it comes to it.

1:07:40But my operating procedure is to assume that it doesn't. And I think once you get to that level, it's sort of – that's what the gold bugs do, I think. Too often they sort of make this view on – oh, but I can touch it and it's got 10 ,000 years of history and this and that and it's like – and the world's a dark place. Yeah, well, that's true. But when the zombies are coming and you come up to my house and I've got a shotgun and you've got a bar of gold, there's nothing I'm going to do to sell you that shotgun. right? Like you can have, yeah, I'm just going to show you and take the gold anyway. Right.

1:08:13But even then I can't eat it. You know, I can, I, yeah, okay. I can touch it. Thank you. Thank you for that. I can polish my, my rocks, but I can't do anything else with them. So it's, that's the problem. I think when you, I know you're not, but when you start debating this with some people and they go down that very dark route, it's just sort of like, well, nothing's good in bonds. I'm not investing in bond, not investing in property that will be seized. I'm certainly not investing in shares. You know, it's like there's very few things that'll actually, you know. So, and generally speaking, hyper-pessimism on the human condition has just been the worst investment strategy you could ever do.

1:08:50And if you get to that point, you're prepping. Yeah. Which again is, well, I was going to say - The preppers may have their day, by the way. Right, exactly. Like, you know, maybe, and then they'll be laughing, but, you know, it's kind of like - But that's literally almost the only alternative. If you're not going to own shares, be a prepper. because the in-between is, as you say, gold or land or whatever. It's like there's not much room. If shares go to zero, there's not a lot of chance that gold and land are the assets that save you because whatever caused it to go to zero is probably going to take those with them.

1:09:17So you might as well invest in shares. It'll be a prepper, right? Yeah, absolutely. You know, it's like watching the media come in from the sky and go, whoop, I'm just going to transfer my, I'm just going to sell my index ETF and buy a gold ETF. Phew, glad I saw that first. You know, I was like, well, I've got news for you. You're in trouble either way. Hey, Ram. It's Easter egg time. For our loyal listeners that have stayed this far, we have a pretty exciting announcement. We are taking Motley Fool Money on the road. We are doing Motley Fool Money live. I'm a bit excited. I'm speaking a bit loudly.

1:09:55I don't mean to do that, but I'm just excited about it. I don't really have a good announcer's voice, so all I do is go up in volume because that's what I do. But we are doing Motley Fool Money live on Wednesday, the 27th of March. If you're listening to this in two weeks' time, you've missed it. If you're not, on Wednesday, the 27th of March, if you are on the Gold Coast in Queensland, Australia, no other Gold Coast around the world, if you are in Gold Coast, if you are at the Bandok Beer Brewing Company at 6pm on Wednesday, the 27th of March, you can watch us do Motley Fool Money live. We're going to record two episodes, a regular Friday episode and a mailbag, which, by the way, if you're there, you get a chance to have your question answered live and then on the podcast at the Madoc Beer Brewing Company.

1:10:43Now, you do have to RSVP. You can't just rock up. We do need to strictly control number. No, I'm kidding. You do need to RSVP. So go to fool.com.au forward slash podcasts. Pretty straightforward podcast with an S. fool.com.au forward slash podcast. Hit the RSVP link. You can find all the details and reserve your spot for Motley Fool Money Live. We've been talking about doing this for ages. We've had some listeners who've asked us to do it. I'm pretty excited we're finally getting to do it, mate. Yeah, I'm a little trepidatious. It's much easier sort of just in your little dingy office with the Ugg boots behind the screen.

1:11:23Can you promise us Ugg boots on the night? You know, if it was a different time of year, I wouldn't take much for persuading. Yeah, maybe a pair of thongs and some shorts. We are going to come. So come along to, again, it's on the Gold Coast. So if you're not on the Gold Coast, well, if you want to travel, feel free. I would strongly encourage you not to do that. There's better things to do with your time on a Wednesday than travel to the Gold Coast to watch us do a podcast. But if you, by the way, it's just before Easter too. So hey, if you want to do an Easter on the Gold Coast, start it off on a Wednesday, on the Wednesday, the 27th of March.

1:11:56As I said, go to fool.com.au forward slash podcast. Get all the details. Reserve your spot. Do us a favour. If you are going to reserve a spot, please come. Sometimes these events, that's free, by the way. These events, if you, you know, people tend to reserve their spot and they're not turned up so others can't attend. So if you are going to reserve a spot, please come along. Don't leave empty seats and have other people miss out on their chance to come along. And we'll be chatting before, during and after. So come and say g'day. come and watch the podcast get recorded live if you can't do anything worse then that's cool stay home and do whatever you want to do it'll be on the podcast machine anyway but if you are pretty keen to see whether Andrew Page does actually exist and whether he does have a Bitcoin necklace with a big B sorry big gold one I'd say Bitcoin one but it's digital so it's gold the big Bitcoin necklace make sure you come along on Wednesday the 27th of March to watch Motley Fool Money recorded live I cannot wait it's going to be lots and lots of fun we get to meet you you get to meet us We'll get to have a chat.

1:12:55I'm reliably informed you may be able to buy yourself a beer while you're there too. So a decent chance that I'll have a beer while we're having a chat around. This is such a recipe for disaster. What could possibly go wrong? This is a bad idea. The worst part is we're doing two episodes, mate. By the end of the second episode, I don't know how many beers deep we'll be. We may have to limit ourselves. Yeah, well, I have my concerns, but I'm looking forward to it. If you enjoy the podcast or if you would like to see us crash live on stage, Slow motion car crash. Come along. fool.com.au forward slash podcast.

1:13:27All right. I think that's probably it for us, mate. Thank you for spending some time with me. We have one more to record before then though. So will I talk to you next Friday? Absolutely. Yeah, I'm looking forward to it. Hopefully we'll make it to the Gold Coast. Until then, Fool on. Cheers. The Motley Fool and people appearing in this program may have positions in the companies mentioned. General advice only. Please speak to your financial professional to understand how it may pertain to your situation. Subscribe to the free newsletter at fool.com.au forward slash listener. The Motley Fool operates under Financial Services Licence 400691.