How do companies create wealth for shareholders? July 24, 2026

19:48Scott:Now, not with saying your point about discounting cash flows, we're not going to go back down that path, But as long as you get it soon enough to make it worthwhile, then that's worth doing. Amazon, I own shares. Another example. Lost money for ages. Building the world's largest retail company and still growing it absolute like the clappers. Investing in Amazon web services. When they kind of went, hey, we should do some data center stuff, let's do that. The retail profits went into buying or building that business. And so reinvestment is often in the same industry. And Amazon's a great example here.

20:14Scott:Zero's a great example. We're going to take the profits we make and throw it back into more R &D, back into more programming, back into more marketing. and grab customers, or it can be investing in the same company in a different area like Amazon saying, we've got all this extra compute capacity. We're just going to build more data centers because we feel we can sell this compute capacity and we should be fine. And that combination of reinvestment is how, in theory, if they do it well, it's a multiplier. You literally are trying to multiply the money. It's compounding effectively. It's how compounding.

20:41Scott:Right. It's compounding at work. Yeah. Yep. I mean, it's everything. We say reinvestment, but everything you said is true of investment. Even like when the company was formed, you know, Bezos said, I'm going to do this thing. And it's like, well, someone had to put some money in. And what was the calculus? Well, I think more money will come out. Now, we're now talking after the fact where the company is self-generating money internally, but the calculus is the same. In fact, it's the only, it's why it always comes back to what the job of board and senior management is. It's really just capital allocation.

21:14It's just a fancy way of saying, look, you've got your hands on the purse strings here. All you have to do, all you have to do is if it's easy, but all you have to do or the lens in which any decision that comes across your desk, the only thing that really matters is what do I do with my finite resources? If I can't get a good return relative to the risks that I'm taking and better than alternatives out there in the market, I don't want to jump to 0.3, but I should pay a dividend. Like what else are you, you're not paid to do other things, right? Other than that. And again, not big, I don't want to bring the moral dimension into this, but that's, that's why you were employed.

21:57The shareholders got together, they elected a board and they said, hire someone who's going to run this business in the most, that's what they do. And it feels really evil and corporate-y and stuff. Yet if mum and dad were running a lemonade stand somewhere, it's like, yeah, yeah, we're not buying more lemons if no one's buying any lemonade, right? Like it's just, it's very, very, very obvious kind of stuff. So absolutely, absolutely. And the other thing we've got to get rid of here too is the silly notions. By the way, it's a huge edge for any long-term investor that's out there of getting too obsessed over particular reporting periods.

22:32Because when we say profit or loss, I mean, you have to draw the line somewhere, right? Yes. So I get it all the time because I invest in a lot of loss-making companies, right? Well, they're making a loss. I was like, yeah, but I don't think – I think when the final obituary is written, it will be, yeah, they bled money for a few years and then they gush cash for many decades afterwards. Like that's – you know? And so like, oh, but – you mentioned Amazon. The gold standard of examples here is like, yeah, how did that work out? It worked out incredibly well. But the person who went, I only invest in profit-making companies, you miss out on those kind of opportunities.

23:10And again, I'm not trying to make fun of people who only invest in profitable companies. There's actually a very good reason to do that if you're risk averse and rah, rah, rah, rah, rah. But the point is, just to hit what you said really hard, as hard as I possibly can, I've got this money. It's a completely fungible liquid form of capital that I can crystallize in any number of ways, in capital equipment, in human capital, just a cash dividend to shareholders. What's going to give the owners of the business the best bang for the buck? And my job, and this is note to all CEOs and boards that are out there, right?

23:45Your job is to only prosecute investments that you uniquely have the opportunity to prosecute. I would be very upset if one of the companies I had, even if it was a very profitable company, said, you know what? We're going to start buying, we're going to start acting as a private equity venture company and we're going to start buying shares in other companies. Now, on one hand, you go, well, why not? isn't the goal to multiply your capital as best you can. Maybe they think that's the best way of doing it. It's like, maybe, but if they're not a private equity company in the first place, you're really getting outside of your wheelhouse.

24:19I would want to have some very strong assurances that you have some ability that gives you confidence in being able to do that better than I could or better than the people who focus purely on that could do it. Maybe you can, Maybe you can. But I tell you what, when I rocked up and bought a online retailer, I really wasn't thinking about someone making private equity investments in China on my behalf. That's, you know, so maybe you can do it. But gosh, give me a bloody good reason to do it. And that is, in fact, if you can't, give it to me and then I will either do it myself or then I will give it to the private equity.

24:54I mean, I'm going with a private equity example, but that's just it. Where it gets very interesting is when you have companies only – I'm trying to think of an example. I mean, Amazon – let's just stick with that. Amazon has a really – it has a higher degree of chance of success than I do or people new to the industry do in investing in data centers. Why? Because it's got scale. It's got experiences. It's got IP. It's built up. It's got the people. It's got the know-how. Well, you know, it's just like, no, no, no. Customers. They can't be a challenger. Absolutely they can. And thank God there are, right?

25:31But it's sort of like that's where I want you to allocate capital or to reinvest that capital to stick to our point because you're closer to it, you're an expert in it, that's your thing, that's what I need you to do. One other level of abstraction here, which is very much worth mentioning because this is the Motley for Money podcast and we are contractually obliged to mention the B word. So let's mention it. Not that B word, the Buffett B word. The B, I had you worried, didn't I? Now Buffett - I'm going to check contracts for a second. Buffett has a very, the lawyers are drafting up a new version of it.

26:08Don't you worry. Buffett has this really interesting model where what he does is he basically says to all of the businesses in that conglomerate is if you've got any spare money after running your business, send it my way. unless you've got an incredibly high-quality reinvestment opportunity and you have to make the case to me. If you don't, I'll do it. And what makes Berkshire such a force of a powerhouse is that it can say our candy business over here is great, gush is cash, just not a lot of growth opportunities. Actually, we could reinvest it, but there's not really a lot of high-quality things.

26:51Why didn't I take the cash from that and put it over here in a railway business or something like that? And there is the power of a conglomerate with a very savvy capital allocator at the helm because they can now use cash flows from disparate entities. And it's not just a question of looking internally to sort of say, well, gosh, can Seize Candy open up another production line somewhere? It's like, can I have reinvestment opportunity in my broader stable of enterprises? and that, and again, the key thing here is having a competent capital allocator at the helm. But if you've got, and shout out to Wesfarmers, I mean, not a mile away.

27:29Shout out to Solpats, not a mile away whatsoever. And they're not Robinson Crusoe on this, Berkshire Hathaway. They're just the best at doing it. So that's a long ramble, but hopefully it sort of makes the case as to why reinvestment is so important and where that reinvestment needs to be focused for it to be sensible. I guess.

27:50Scott:Yeah, I like that. I think it's really important. I think you've nailed it, mate. I think conglomerates, the irony of conglomerates is run well. These things are great. We went through a stage in the 70s and 80s where every company was a conglomerate, right? I used to work for Heinz way back in the day. At one point they owned Stanley Wines. And it's kind of in the event or after the fact it was poo-pooed is what was Heinz doing running a wine company? And the honest answer is there's no reason they couldn't or shouldn't run that. I mean, they're already running, Heinz is a brand across multiple categories already, baked beans and frozen vegetables and tomato sauce and ketchup and whatever else.

28:26Scott:Why couldn't they own and run Stanley Wines really well? There's no reason why not. In fact, to your point, taking money from one and putting it in the other if there's excess cash makes perfect sense if there's a great reinvestment opportunity. The problem is that conglomerates got built as empires rather than as genuinely cash-generating businesses or businesses that could use a heap of capital. And you make a great example, Rem. I'm going to take it a step further. Not only is Seize Candy throwing a lot of cash, they tried to expand it to the east coast of the US. It didn't work. It's a California business.

28:53Scott:It seems to be always stuck there no matter every time they try to expand it. No one else wants it, but the Californians love the hell out of it. So what do they do with the money? Well, they bought a railroad. They bought Burlington Northern Santa Fe, BNSF. And that business literally needs ongoing capital reinvestment. And Buffett's going, well, hang on. I've got a business that throws off cash. I can buy this business, and I can reinvest in that business cheaper than anybody else can. So I can make more money doing it. Why? Because we've got an internal source of capital. And so you start to see how not only can you allocate according to need and desire and kind of, you know, you're the sharpshooter, right, looking at different targets all over the place and choosing one, you can actually genuinely create a business that needs that capital and can then generate returns on that capital, which is the very idea of reinvestment, and fund it internally.

29:37Scott:I mean, well-ranking governments are wonderful things. There's tax advantages in them because it's all inside the same corporate structure. More companies shouldn't have them except that there aren't as many great capital allocators as you'd need to do. And this is the downside, by the way. We'll get to acquisitions. Let's do it because this is a great way to segue into it. The idea of acquisitions is fantastic. If you can find an asset that's just straight out cheap or an asset that you can buy and add something, you mentioned things you can do uniquely well, you make an acquisition. Why would that acquisition make sense for my business?

30:07Scott:Well, it turns out I already service those customers or I'm already in that geography. Or the flip side might be I'm not in that other geography yet and so I can be in both places. is I can harness the opportunity for both. I can use that scale and that breadth. I can bring a particular manufacturing capability. I can vertically integrate. We've had a lot of conversation about that with people saying BHP should make its own steel. Now, BHP has decided we can't get a good return on steel, so they divested it. That's the other way, by the way, you can create value is actually selling assets. We're not going to probably touch too much on that, but you could do acquisitions and demerges or sales at the same time.

30:39Scott:But the idea of being able to say, what is it that we, how can we create value? Now, Buffett is largely, frankly, He's doing acquisitions. Most of them don't have any or many at all opportunities to help each other. He owns a railroad. Synergies are the cool kids would say. He owns a railroad. He owns a chocolate company. He owns a trading business. He owns - Insurance. There is no synergy at all, right? So Buffett is just literally saying, there's a dollar I can buy for 90 cents. And because my business are throwing off cash, the more dollars it throws me, the more 90 cents dollars I'm going to go and buy because why the hell wouldn't I?

31:12Scott:So there's just purely an investment return that is just objectively cheap, at least according to the businesses buying it. More often than not, though, most trading businesses that aren't investment conglomerates should be looking for acquisitions that make sense for them, that they have a particular opportunity to utilise, because don't forget, everyone else can buy that acquisition as well. If straw man's on the block and the Motley Fool decides to buy it and you guys don't have anywhere near enough money, we go, yeah, sorry, that's a good point. But let's assume it was. The Motley Fool, anyone else can buy it.

31:41Scott:You know, it can be bought by anybody anywhere. But in this case, you know, the idea is I will pay more for it, or if they're lucky, we're the only buyer who knows it's for sale. We're going to make a sweetheart offer and see if we can buy this thing. But we're only going to do it. We should only do it if and when it makes sense. And the same for RAM. You're going to buy Motley Fool's as well. Guys, I've got this customer base, and I've got this great website, and I've got this great programming work that I'm doing. And spoiler alert, that's coming out soon. And so there's all these things. I'm really good at this.

32:08Scott:What I want from the multifool is those extra customers or those people or whatever it is. And I can justify either paying more for it or I can generate more returns from it than somebody else can for the same price. So it's worth me doing. So acquisitions in that case, as long as you're putting down a dollar and getting more than a dollar back in value, that's going to be the seminal kind of idea across all four categories here, then acquisitions can absolutely create value for shareholders. I mean, it's so obvious if you think about it from your own perspective. True. We're all little corporations, if you want to think of it that way.

32:44And I've earned some money by doing a job, or maybe I've had some luck with some investments, and now it's like, oh, I've got some money. What do I do with it? I can consume it right now. Nothing wrong with that. You've got to live, got to enjoy your life. Or I can reinvest it in my own little investment enterprise, right? And so what are you going to do? I'm going to look around at my opportunity set and I'm going to go with the, well, at least if I'm rational, I'm going to allocate to the best risk reward proposition as I can discern it. Now, that's what you're doing as a person. It's also what a company should do as well.

33:19Frankly, it's what a government should do. Frankly, it's the only rational thing to do it. Exactly, yeah. It's the only rational thing to do it. I'll walk that back a little bit. There are some things that just don't show up in monetary unit. There's some broader societal goals that we can have. So I definitely don't want to diminish that. But generally speaking, just to keep things clean, that's exactly what it has to be. Because think about it. Those who were successful at it were successful, again, because you created a lot of value. Who do you want allocating capital? Let's put it more simply.

33:53Who do you want deciding what future value will be created? It's like the person who has had an incredible track record of creating incredible opportunity and wealth for people or the person who every time you give them a hundred bucks, they screw it up against the wall. Like, oh, okay, I'll take it together. And that's, there's a Darwinian sort of degree to kind of this. Yeah, creative destruction. Yeah, in a good way, though. It's sort of like if we want to, if the gazelle wants to get faster and faster, you know, it's got to evolve in a certain direction. If businesses want, in other words, if we want to have more and more value and more and more prosperity, we need to evolve in a certain direction where those that are really good at creating value and then reinvesting that created value for more value.

34:39There's a wonderful flywheel that, you know, just don't, don't, for goodness sake, do not interrupt that, you know, because that's going to make everyone sort of better off. So, yes, I think we've done the first one. reinvestment is the a great way to create shareholder value because if you do that it just means more money on a per share basis well actually maybe we need to unpick that let's let's let's stay away from let's stay away from uh share dilutions and that kind of stuff but but yeah all else being equal that's like yeah if you do that make more money on a per share basis pe's are mean reverting like that you they will never go up forever like just they will never go down forever, but earnings can go up forever in theory, right?

35:23And it's sort of like, so ultimately it's simplistic to say, yeah, share price go up, but share price go up. So therefore, what makes share price go up? Profit per share. Increasing makes share price go up. Therefore, the more profit per share, the sooner that comes, the more share price go up. I want share price go up, make more money per share. Make more money per share, reinvest the money that you make in a compounding fashion because compounding is always the best form of growth. And to do that, reinvest sensibly. So I think we got that one.

35:52Scott:I think we nailed that one. I did go acquisitions though, mate. You've kind of gone back to reinvestment. So did you have other thoughts on acquisitions in particular? Yeah, only that they are the same, as I said before, the same kind of thing, just a little bit external. But it's the same consideration. Reinvestment is just the same business, same operations. Acquisitions, I buy something and bolt it on or run it separately as an additional piece of my business. But yes, otherwise it's the same idea. So statistically, most acquisitions don't work out. The rough rule of thumb here is that a third work out, a third don't, and a third are just a wash.

36:25So in other words, you've got a one in three chance of creating shareholder wealth. Humans are human. You know, we're all, and people running corporations prefer to run bigger corporations. Why? Because it's better. Why is it better? Do I need to explain it? Like, what do you do? Oh, I'm the CEO of a company. Wow, what's your company called? Oh, it's Mom and Pa's corner store in downtown Barrow. Okay. I run an international conglomerate that employs 10 ,000 people and generates$400 billion in revenue. There's a certain appendage being measured here, and it's all stupid. I'm not trying to make it less stupid than it is, but I would put a lot of money on the fact that most people would prefer to run a bigger business.

37:11And we know that that's true. And so you get a lot of executives who's just like, well, partly it's our fault as shareholders and the board that represents us in setting very, very poor remuneration policy and long-term incentives. We'll give you a big fat bonus if you grow EBITDA. They're like, okay, I'm going to go buy these 10 businesses because that's going to boost EBITDA and I'm going to get a big fat check and shareholders can just deal with the consequences when I'm on an island sipping a mojito somewhere. By the way, the board of shareholders want the same thing.

37:41Scott:Right. Even at their own cost. often is like, well, yeah, I want to be the director of a big company. She'll say, well, I think bigger should be better. So, yes, go and grow. You're right. I mean, it's a huge – I mean, I love that you brought it up because this is a huge part of that whole debacle, right? It's exactly that. And it's all that stuff which is just straight out, you know, growth for – I won't say it's own sake. No one thinks it's for its own sake. But we never kind of stop. You mentioned Perchere. We're not going to get into that today. But, yeah, growth for its own sake. None of this says just grow regardless of the cost, right?

38:11Scott:This will generate more value for shareholders. That is not the same thing as growing. And it sounds like - You can actually grow and create less value for shareholders. Or shrink and create more value. Yes. Yeah. I mean, I say this a lot to my wife because it makes me feel better and sound better. And it's trying to put a positive spin on what might otherwise been. Strongman is actually far more successful than most companies on the ASX. I love to throw that out there, right? It was like we're like so a pimple, like we're a pimple on a gnat, on an elephant, like we're just so irrelevant and tiny, but we make, you know, we stand on our own feet, right?

38:49Yeah, yeah, yeah. And most ASX companies don't. Now, I'm being a little spurious here. But nevertheless, there is truth to that kind of thinking. So acquisitions are absolutely an incredible, incredible opportunity to create shareholder value. But it still comes back to the same boring calculus. Whatever you paid, you must get more. You must get that back and then some. Otherwise, what's the point? We made$100 billion acquisition and, you know, it boosted our, that example doesn't work. You know, we got$100 billion bigger in terms of market cap, but the per share profit is exactly the same. That's right.

39:34Well, great. That actually makes zero difference to me whatsoever. So, yes. So acquisitions, you know, I like, and there's two types of acquisitions. There's the big game-changing, structurally differentiating acquisitions, like, well, let's go back to, oh, no, let's not go. So many exceptions to the rule. You know, it's like completely out of left field. But we're going to do that thing. Okay, great. Okay, I guess it makes sense. And they tend to be statistically more unlikely to work. I love what they call bolt-on acquisitions. You know, it's just like, oh, we're doing a thing. And that other company over there has built a part of a thing that, gosh, I wish.

40:19Now, we could go spend 10 years in the lab trying to develop it ourselves or we just go buy that. or gosh we've got such a great product or service wouldn't it be great to have a presence in Estonia it's like well we could set up a greenfield site and try and convince everyone how great we are or we could just buy a player over in that space that has the customers already and there's a rationale for all of these things again if it comes back where it's like okay cool as long as my per share profit is growing as a consequence of that then absolutely do it and grow to an extent that's greater than other opportunities that may have presented themselves with an equivalent risk there's lots of backfilling.

40:53Every time you talk about this stuff, you've got to say, oh, this, oh yeah, as long as this, this, this, and this is true. So I know I'm throwing a lot at you here, but hopefully that in and of itself makes sense. It is the same with reinvestment. It's the same with acquisitions. I've got money. Where can I spend it? Will I, if I spend it on this, will I get much more back than I otherwise would or otherwise could elsewhere?

41:14Scott:Absolutely. Yes. I will very quickly mention divestments because we kind of alluded to it before. is not really part of what we intend to talk about. Give it about acquisitions. The investments are exactly the same for all the opposite reasons you just mentioned. They're a different side of the same coin. Exactly. Because when you sell it, you're going to get money. Correct, correct. And I can pay a dividend with that or I can reinvest it internally or I can buy another business with it. Correct. And as long as you're getting more for it that it's worth you, then you should get rid of it. This is the other thing.

41:38Scott:Oh, yeah. We mentioned individual shareholders, mate. Anchoring is not very useful. There's a whole lot of companies. I own Treasury Wine Estates and they have fallen over themselves not to write down on the value of these really crappy wine brands because they have to have a loss on the balance sheet, right? And so, frankly, they've also probably got bank covenants which are based on ridiculous valuations of existing legacy assets anyway. The whole thing is silly. Not a shareholder, by the way. But they've tried to sell these things, couldn't sell them. Now they're going to try and slowly wind them down.

42:10Scott:They'll have to write them down. There'll be some value of the Lindemans brand on the Penfolds balance sheet, right? Lindemans? I think it's one of those. Wins certainly is. The Wins brand on their balance sheet, right? If they're going to stop producing Wins wines, they have to acknowledge this is worth zero because there was no brand left, the brand is gone. And in doing that, we'll have a write down on the balance sheet on the profit and loss statement. Now, that money has disappeared years ago, right? So a reasonable manager would say, let's get whatever we can for this bloody thing and get the hell off our minds.

42:38Scott:Not for the balance sheet, just stop wasting our time and energy on this thing that's not making any money. But for all the reasons, they're just like, no, we're not getting enough for it. It's like, guys, this is worth nothing. Just shut it down, close it down, move on. Focus on the brands that make sense. And so in that case, even though it would be reported as a loss, why would you sell something and make a loss on it? Because all we're talking about is the accounting treatment now. At some point, this is literally just, and you mentioned timing periods, right? The time, they wasted the money years ago.

43:06Scott:The money's gone. The fact they're still pretending there's money there, I don't know what the wins are worth on the balance sheet. It may be zero by now, frankly. But the company over multiple management teams just spent years and years trying to keep this stupid thing alive because, in theory, it would have meant a loss if they'd written it down or sold it. It's like, guys, you're actually going to make – again, this sounds stupid, right? You're going to be better off by recording an accounting loss, which sounds stupid. The realisation is the money's gone. You're wasting time, energy, effort, attention on this thing.

43:35Scott:Get rid of it. You will add value by divesting something and making a loss on it. I'll give you an example which everyone will get. If you're holding a company and you're down on it and you sell it, you will crystallise a loss. Yes. Is that a good decision? Well, if it's on its way to zero, it's a great decision. It's a brilliant decision. You preserve the remaining capital that was there. If it was just a temporary hiccup and it was actually worth a lot more and was soon to be recognized as such by the market, then, yeah, that was a terrible decision. It's the same exactly what you just laid out there, but it's so much more obvious when you bring it back to the individual kind of level.

44:10It's like, yeah, you know, like why sell it if it's going to realize a loss because you could lose more? because you could sell it for money now and put that into something that's not trending to zero or trending down. Like it's really obvious, right? And it's sort of like once you get ego out of the way, there is a lot more room for rational decisions on that. Even for things that should have or could have been good but just weren't. It's like, ah, bite the bullet, move on, right? It's just like it's not a question of what could have been or what should have been. It's just a question of what could be.

44:43And this is not looking great. And so let's just take our medicine and move on. I actually, the media and shareholders tend to lambust management teams that do that. I actually applaud them. Totally. Well, I mean, it depends on the circumstances. And, you know, maybe you were forced to do it after dragging your heels for years. And, you know, in that case, it's very much of a slow clap kind of applaud. But I actually, I love the capital allocator who can just see things for as they are and go, yeah. I'm going to look stupid. I'm going to be a little bit embarrassed, but it's the right thing to do.

45:19Because here's a memo to all CEOs out there. It's not about whether you look smart or not. No one really cares about that. What really matters is that you're just a prudent, sensible allocator of capital, you know, recognizing the limitations of yours and anyone's own ability in a highly uncertain world. Not everything's going to work out. Who the hell do you think you are to think that you see around every single corner and make the right call? It's just like, Just the recognition of reality, I think, for me, speaks volumes to the character of the person. And even though in that particular instance it's worked out that, oh, you guys did a thing that's actually left me poorer on a net basis, still the right thing to do.

45:57Still the right thing to do. So, yeah, I agree.

46:00Scott:I think that's right. I would say, mate, you said no one cares if you do this or no one thinks it's good or whatever. Wow. Way too many people do, right? That's right. Part of the challenge is that's – I mean, And every fund manager who wants their quarterly number is like, for God's sake, put an announcement out that will push the share price up because then the shares will go higher and therefore I can, you know, give out my fund investors. Then I can dump on dumb retail and get the hell out. Right. Or individual shares. Like, well, I just want my shares to go up. I don't care if BHP's make money or not.

46:25Scott:I just want to be richer. So if BHP shares go up, that's good for me. And there's so much of that for conflicted reasons or for naive reasons. Yeah. No one should like it. No one should want it. Way too many people do, which is, again, a whole thing we can unpack separately. but it's not nothing, unfortunately. Well, it's a favourite talking point of mine. By the way, so yes, you're 100 % right, but I am very, very firm in my opinion and every year goes by a firmer in it that a company gets the shareholders they deserve. If you've got those kinds of shareholders, it's because you were making promises your butt couldn't cash.

47:00Scott:That's right. And very rare, rare as hen's teeth, you'll get to see who just tells it as it is. Like if you want this, then you're in the wrong place. Don't invest with us. You don't get the hot money, but you get the patient capital. You get the sensible capital. You get the forgiving capital. You get all the kind of things. It's just like it's like you get fellow owners. Exactly. Well put. You don't create a rod for your own back. The company that goes out there and makes a gazillion announcements to pump the share price. Point to one example in the history of forever where that has worked on a sustained basis.

47:37Yes, correct. You know, after a while, the market just calls BS. It's like, I don't believe you anymore. So at best, you get a temporary pump, and then it just all collapses in a heap. So how about just -

47:47Scott:For cost and make work and stress and shares you don't really want. I mean, look, your point is that no one cares. Again, you're right. If you're there for a year and you're a professional CEO and you just want to say, I took the share price from five to six and I left. Yeah, right. Yeah. Self-interestedly and frankly, cynically, you can do that. And that person, this is where - Yeah. They'll do very well individually. Right, and you're right about the shareholders you deserve. I think shareholders also get the CEOs they deserve, and it kind of is a little bit of a round-robin, right? And this is where it's culture.

48:17Scott:We talk about culture and capital management. Now, I think you're in a really rich vein here, mate, because if your fellow shareholders don't want this and the new CEO may want it but not be able to do it because the shareholders are in that place, it's kind of, you know, they say you become most like the five people you spend most time with. So true. And it's kind of like that a little bit. Like if you're going to buy shares in a company and you want to be a long-term investor, you kind of owe it to yourself a little bit. We've never talked about this, I don't think. You almost owe it to yourself to investigate the culture of the company and the culture of the shareholder base.

48:47Scott:And it's not saying what exactly you're getting. What are you buying into? For everything that – and you mentioned AMP. You can be a great business and have a terrible share price. You can be a great product and have a terrible profit. You know, you can screw up even the best business if you manage it the wrong way. I've invested personally in companies where the fundamental business was sound, but it was basically run hot. It was run 110 % for too long and then fell over in a heap. Again, back to Treasury. They say, oh, it's going to take us two years to right-size the amount of inventory in our wholesalers' warehouses.

49:18Scott:The unsaid version of this is previous management and sales teams sold a truckload more stock into those warehouses that the warehouses needed. And so the wholesaler is like, guys, I've got two years' worth of stock. I don't want any more. So, yeah, but I need you to buy something. He said, well, I bought it from you last year when you gave me a good deal because you wanted to pump your numbers. Well, guess what? And this is not just share price. This is business. You got your numbers. Congratulations. I'm not going to buy anything from you. And so the new manager walks in and goes, well, hang on.

49:42Scott:And so, you know, to me, I hope they're being logical and clear with us. They basically said, look, we're going to report on depletions from the warehouse from now to give you a sense of how the business is tracking because the business itself, revenue-wise, is cactus for a couple of years. What we can hopefully share with you is how customers are drinking our wines. In fact, we're not selling any of them because already in the warehouses is a problem made before. The best we can do is help you understand what's going on. And actually not a big problem. So let's say, and this is why you've got to look beyond any individual reporting period.

50:12I'm not close enough to it, so this probably isn't true. But there is a world where it's sort of like we did all of that and then everyone just stocked up on inventory and then we're just not selling anything because people work through the inventory. Now, there's two sort of versions. One is the only way the people at the retail level are clearing the inventory is by heavily discounting it and just selling it at a loss or nearly the margin that they thought. The other reality is like, oh, no, people are still buying heaps of it. And we're not discounting it all. We're actually putting our price up.

50:42That's actually like, holy crap, that's a wonderful sign. Because you can engineer or anything you like in terms of supply chain management in inventories. but it's like at a point, if there is no one at the other end of that little production line, it's like someone has to be drinking the stuff at the end of the day. The stuff somewhere. Yeah, exactly. So if that is true and people are still drinking it and there's no heavy discounting and that going on, this is actually brilliant. Maybe it is. I don't know. I haven't looked at it. I'm inclined to look at it now that you've got me interested because if that is the case, and as you like to say, if is the biggest little word in the English language, But if that is the case, wonderful, wonderful, right?

51:24Who cares? Oh, your profit was down. I don't care. I don't care because at some point that warehouse is going to be empty and they're going to restock. Maybe they overstock or maybe they don't stock enough, but all that matters is what's going into down people's gullets at the end of the day.

51:40Scott:You know. But that is my hope. I'm not going to shill the stock, but that is exactly my hope. Is it? Okay. That makes sense. The company looks fairly-ish valued on the current level of profit. If in the future sales do pick up and profit does pick up, then it's going to look cheap on the basis of that. Now, if, again, if, if, if, if, if all over the place. That's kind of the idea. We'll see how it goes. China's a risk. There's a whole lot of risk. So don't buy this here. Do your own research. Wait, you don't have a risk-free investment? That sucks. Well, it depends on what I'm selling. I want lots of money with no risk, Scott.

52:12Scott:The other people are selling that stuff. We've got to tell the truth. Scott, that's so true. Let's go to the last two, mate. And they're kind of two sides of the same coin. So we've talked about - We're only halfway through. I know, right? Right, okay. Well, I think they're the important ones, right? Because we've talked about how to grow the business. And that was reinvestment. We've only done the easy ones. Oh, man. Settle in, everyone. The last two, they're kissing cousins, right? Because the last two are, what if you don't have enough opportunity to utilize the money internally? So you can't make a well-priced acquisition, bolt-on or transformative or anything else.

52:46Scott:And what if – I mean, this is true for a lot of companies, by the way. The reinvestment opportunities aren't there. You don't need – once you're making a profit, unless you're investing in long-term capital kind of investments like machinery or big advertising campaigns, you're going to be able to invest in the current year. If you're a software company making 80 % gross margins, once that turns into profitability, you've got so much cash. Well, you can, but very, very hard to need even more capital. So you've got more cash flowing through to you than you need and you can reasonably spend. By the way, that's the hardest part for some of these growth companies is working out at what point you stop throwing good money after bad.

53:21Scott:You say, well, hang on, or bad money after good, I should say. You've invested in marketing and R &D. You've built this thing. I can double my marketing budget, but at some point they're diminishing returns. So I've got to say at some point, all right, we've tapped out the opportunity here. We'll keep marketing, but we don't need to keep growing it because we're just not getting the incremental return on it. We get excess cash here, guys. Is there anything to buy? No, we bought a few things last year. There's not much else left out there. They're all pretty expensive. Now, what do we do? And the answer is you return the money to shareholders.

53:46Scott:And you should, right? If you haven't got to use for the cash, give it to me. Your point about Buffett is kind of ringing true again, right? That's inside the conglomerate. But outside a conglomerate or individual company and shareholders, you can't use the money? Cool. Give it back to me. I'll go and invest it anyway. I appreciate you making the effort. You've done the best you can. You've optimized your business. That's wonderful. Congratulations. Seize candy in California. You're selling as much as you can. You're pricing as high as you can. You've updated the machinery. You're as efficient as you could possibly be.

54:11Scott:and you've still got money left over, cool. I'll have it back. Thanks very much. And then you've got a choice. Do you say to your shareholders, hey, here's some of the extra cash. I'm going to give it to you. I'll send you a check all these days. Drop it in your bank account. What are checks, mum? What are checks, dad? Don't worry, kids. We'll send it to you. We'll put it in your bank account. We'll do that. Or instead of giving you the money, we're going to buy other people's shares because you want to keep holding. But someone else over there doesn't want to hold anymore at this price. We will buy those shares from them and we'll cancel them.

54:41Scott:We won't grow the pie, but as we cancel more of those shares, your slice gets just ever so slightly larger. You end up with more and more of the business, a higher proportion of the business, which means proportionally a higher profit. Your share of that profit is higher than it was previously. And so the dollar value you are getting as a proportion of that is also higher. So two sides of the same coin, dividends on one hand, here's the cash. The other is here are me buying other people's shares, so the value of your shares increases over time. Let's do dividends first, mate, because it's a relatively straightforward one, I think.

55:15Scott:I don't think we need to spend much time on this at all. Why would a company pay a dividend? It's the only point of a company. I wrote an article a few weeks ago called Destination Dividend. If you want to Google it, it's hardly war and peace. It's a 500-piece thought bubble. But it's that, I mean, I think people love to say, I'm an income investor, I'm a growth investor, I'm a disinvestor, whatever. And they're all true. And I'm not trying to throw shade at them at those terms at all. I'm a growth investor, right? But the ultimate goal of a company is to pay a dividend at some point. Because if you'd never reached that point, you might not ever choose to.

55:55And you might not choose to because you've just got such incredible and enduring reinvestment or acquisition sort of potential. but if you, at a point where you couldn't do so if you wanted to, you're an absolute failure from a capital allocation perspective. So let's go back to where we started this pod, you know, like what is investing? It's putting some money in and getting more money back out. Now, if I am the founder, founding shareholder of this, so again, before this is, I'm just swapping shares on the market here when I'm actually putting money into a business. If I never ever get money out, not because they choose not to because of the incredible compounding opportunities in front just because they're just never able to do it.

56:32They're a complete failure, an absolute failure. Definitionally, no other way, absolutely no other way of looking at it other than supporting the livelihoods of the people on the inside. But again, for me as an outside investor, it's not what I'm here for, right? That's right. So it's kind of, it is everything. It is everything. I think as a business, that should be your goal, even if you never realize it. Because then what? What are you doing, right? Now, the example I gave in the article was Berkshire. And it feels like a really – I may have talked about this on a recent pod, so I'm sorry if I'm repeating myself.

57:07But Berkshire Hathaway has famously never paid a dividend.

57:11Scott:Paid it in 1965. Oh, sorry. Sorry, okay. Buffett paid one and then cancelled it the year after. Hasn't paid it since. Yeah. But that misses the point. He could. Yes, correct. He could tomorrow. And if he was, if he was just to take the free cash flow, he would be able to pay a really good dividend. And if he was to tap into his cash balance, he could pay an insanely good dividend. And he should the second that the investment opportunity, I've said before, I think they're getting to that point at some stage. And probably when he's no longer around, they will probably make that. But that's the point.

57:43They could do it. A company that never can do it is just a failure. Now, again, like Amazon, just because you can't now is no problem. But again, Amazon bled money for ages. Now it's making a bunch of money. I don't think they've, do they pay a dividend? I don't think they do. Or a very tiny one. Yeah. So they don't, they don't, they don't, they don't. You're a shelf, mate. You should know. But, but yeah, so, but, but they could, and that's the point, right? And it comes back again to the same, the same bottom line. The bottom line is, do I have any internal opportunities or external in case of an acquisition to, to, to deploy this money for great?

58:22And if I don't, then I'm giving it back to Shell. I can give it back in cash or I can give it back in buybacks. We're focusing on the dividends here at this point. Absolutely, you should. Woolies is a very, very, very mature business. There's not a lot of great growth opportunities in supermarkets. I'm not saying that's not a bad thing. I'm not saying it's a bad thing. There just isn't. There's a Woolworths in every single suburb across the land, virtually speaking, right? And so, lo and behold, when you look at what's called the dividend payout ratio, the percentage of net profits that are distributed back to shareholders, what, 78 %?

58:57Close enough to 80%. They pay the vast majority of their dividends out. And they should. And they should. Now, there would be uproar because people are people if they didn't. But if the CEO turned around and said, actually, we've got an opportunity to buy Coles and the ACCC is not going to get in the way and we're going to be able to buy it at an in an absolute steal, but it means no dividends for the next five years. I would be as a shareholder, I'm not a shareholder, but if I was, I would be, please do that. Please stop paying me a dividend. People aren't like that. So they would, no, my dividend, my dividend, they get all pretty like, no, let me, you will make so much money here.

59:33Your eyes will bleed. I don't know what to tell you here. Again, marshmallow experiment. Just cool your jads for a moment.

59:41Scott:I give you a dollar a year for five years or I give you$10 in five years' time. Do that. What do you want? Do that. Which one is better, right? Yeah, it's not hard. So, yeah, I'm waffling it at this point. Dividends, really obvious. It is the ultimate destination, at least in principle, because if it isn't, you definitionally have a machine that just sucks in money like a black hole and never spits it out again. Yeah, and it should be the default option, right? It's like, we will do this unless we can find something better to do with the money. Just for fun, mate, just literally for fun, Berkshire's cash is 38 % of the company's total market capitalisation.

1:00:21Scott:Wow. $400 billion US dollars. It's 180, and it makes sense. 38 % is no matter where you do the numbers, but just for the fun of it. In real numbers, the price of a Berkshire share in US dollars,$487. The cash,$184 per share. Just remarkable. I mean, there's more money than most countries. Oh, yeah. Yeah, stupid amounts. sovereign nations. Like it's just, like if there is, whenever there is like some kind of correction on the market. And I don't say that as some evil foreboding that, oh, I know something. I don't know. But I just, all I know is there will be a, because there is, there always is.

1:01:00And I also have got 60 odd years of Buffett doing Buffett things. He's going to go, oh, look, look, who's got all the money. Look, look, who's going to be able to pick up things at an absolute steal, you know? And it's really the only, and maybe that's part of the thinking, but it's the only sane explanation as to why they aren't paying a dividend. It must be, or I can't think of any other, it must be, not in the mean, he's not predicting anything, but it must be that it's like, I just love having that optionality there because whenever it does come along, I will be like, what do you buy Bank of America in the GFC for pennies on the dollar?

1:01:36You know, he bought, you know, he's done it after the tech wreck, he picked up a bunch of stuff. Like, just these are the things that -

1:01:42Scott:Through$10 billion of Google to invest in AI too, by the way, over the couple of weekends ago. Yeah. Oh, gosh, that's a whole other thing. Yeah, Buffett doing that. Wow. Well, Greg Abel, which is interesting. Yes, sorry. Yes. It may well have been Buffett's call, but it's interesting they're doing it, yeah. Oh, man, let's not - Anyway, that's my point. I think - I like it. Yeah, nothing left to say. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

1:02:14Scott:Now let's get to share buybacks because this is the one that is frankly controversial, but mostly by people who don't understand and who have ideology rather than actual experience. This is where it's really important to separate the two. Or incapable of basic reasoning and thought. Yes. If we could be so negative. When you start with a presumption, that you all do is prove the presumption, right? So you can twist yourself in knots rather than actually trying to understand, which is, again, one of those things, if you find someone who actually doesn't want to understand, even if they disagree, that's fine.

1:02:40Scott:They're not trying to engage with the actual issue, but just kind of bang on the drum, they're so bad. So buybacks. We kind of referenced it already talking about dividends, right? And the idea basically is that in some circumstances, it is better for a company to buy back its shares than pay a dividend. Now, you say, hang on, you're going to give me the money or you're not going to give me the money. You're going to use to buy back other people's shares. Why don't you buy mine back and what's going on there? And I think most of our listeners are probably pretty across the issue here but it comes down to and it's a bit self-referential right so this is really important to try and you'll do a better job than me matt but i'll give it a go and you can give the proper answers a company has a certain number of shares and like we would say we said with acquisitions if you can find something that is worth more than money you've got to pay for it go and buy it what if the company you're going to buy is actually your own company now that sounds weird right how can a company buy its own buy its own company how can you buy your own shares that sounds a bit bizarre.

1:03:35Scott:And it does sound a bit bizarre, except think about what a company is. A company is an entity. And again, let me go with a pizza because it's just too easy not to, right? A company is a pizza, right? And so Ham and Pineapple Incorporated, although pineapple shouldn't be on pizza just for the record. Ham and Pineapple Incorporated is in the pizza business and has 20 shares. So there's 20 slices of the Ham and Pineapple Incorporated, right? How much is the pizza worth? Well, it's worth 20 bucks. Okay, 20 bucks, 20 slices. I can do that. maths, dollar each, that sounds good. Now, let's say for a while, the pizza market goes, heaven forbid, goes into a bit of a bear market.

1:04:08Scott:No one's eating pizza. They're all eating chicken wings and they're all eating donuts and all the other things. The burrito boom. The burrito boom. Sucking up all the capital of the burrito boom. And so all of a sudden people are only prepared to pay$15 for the pizza. And you look at that and go, well, hang on, this burrito boom's a short-term fad, right? And at some point, someone's going to pay$20 for the pizza again. Now, if you're Hammer Pineapple Incorporated, you'll just go, well, hang on, I've got I've got a pizza I think is worth a dollar a slice because I've done the maths, right? But at the moment, this is why my maths falls down, three quarters.

1:04:35Scott:There we go. But at the moment, it's only going for 75 cents a slice. Now, as an investor, I can say, I'll buy another slice of that pizza because it's so cheap. I want two slices rather than one. So I can do that as an individual. The company can do it itself. And the company simply says, what I'll do, I'm not going to buy an actual slice. I'm going to buy the ownership interest of that slice back from somebody else. And I'm going to pay them 75 cents. That's what it's trading at at the moment. And I know it's worth a buck. So it's like, this is a slam dunk. I'm going to get a 33 % return. If I'm right, we'll get to that.

1:05:02Scott:If I'm right about the intrinsic value or the underlying value or the fair value of the pizza, I'm going to say, well, I'm going to buy that slice 75 cents. I'm not going to do anything with the slice. I'm going to redistribute that slice among the people who are still owners of those slices of pizza. And let's make it really big just for the fun of it. Let's say you can buy on market 10 of those 20 slices and you've bought them all for 75 cents. They're worth a buck, right? And all of a sudden, everybody else has now got one slice still, but the slices are twice is big in proportion. And all of a sudden, those slices are worth$2 each.

1:05:33Scott:Now, they might still be trading for$1.50, so$0.75 each, but you've got two of them. So it might be still trading cheap, but you know what you think. It's worth$2. And so as a shareholder, you haven't paid a single cent, but the company has managed to create massive value for you by buying up the slices from the other people and sharing those slices among the people who are left. Now, if they paid a dividend, they might have paid a 5 % dividend and it might have been lovely. It might have been$0.10 a slice of pizza. That sounds really good, right? So I've got a dollar slice. I'm getting 10 cents back.

1:06:00Scott:That's a pretty good deal. But if the other slice are trading for 75 cents each, the company buys them instead of giving you a dividend and your value, you've gone from$1 to$2 worth of, again, work with my example here, $1 to$2 worth of pizza instead of a$1 slice plus a 10 cent dividend. And so in that case, yes, they could have given you the money and you could have bought the shares and they could. It's actually no different in that context. But the company looking at the capital saying, where is the best use of my money? It's like, I can make my shareholders a 33 % return by buying those dollar slices of 75 cents.

1:06:30Scott:And that is the fundamental value of a buyback. Add some more context and make it make sense, man. Well, I think you nailed it in the first instance where you'll basically frame it as an acquisition, just happens to be yourself. So everything we said about acquisitions, still true. Yes. It's still true. Like you've got to believe in the value of the business and that it's cheap and it's discounted. But if that's true and it turns out that you're... And frankly, you're on the inside of the business, so you know how good it is. Like, you know, you've got a much better, I won't say you know, but you've got a much better judgment than elsewhere.

1:07:06It's like, listen, I'm on the inside. Yeah, okay. I know our revenue dipped a bit this year, all these things, but actually there is nothing wrong with this thing. And the market has got this wrong. And I don't, I can go and trade over there and look at that business. And I'd have to like go from zero to a hundred and figure it out. And where is it worth that much? It's always hard to know from the outside, ask any investor. But, gosh, I do know that mine is cheap. The effects of the business. And I'm going to do it. Here's the other thing. So, yeah, I think that's the way to frame it. The other advantage of it is there's no tax.

1:07:36You get to compound your entitlement to future dividends, if we go back to our other framing. There's no tax on it. The people who participated in the buyback, they'll have to pay tax. Not me. I just doubled my ownership. I didn't pay a cent in tax. because I get to keep it compounding inside the company. That's a nice thing as well.

1:08:04I'm really – I mean, I so fundamentally agree with it. Some people will say, yeah, but in Australia you get franking credits and that changes the calculation. It does, but direction – yeah, exactly. It's still a point. Even with franking credits, a buyback is better. It depends. It depends on the degree of the discount. You know, if Woolies went to a dollar and nothing changed, I don't know how this would never happen, but, you know, and it's like keep the bloody franking credits. I'm getting to buy this at 1.37th the value of what it was trading at yesterday. Like keep the bloody franking credits.

1:08:40This is so, so much better off. I mean, you're right. Franking credits is a consideration. All I care about is how do I look after everything is said and done? But there will be absolutely points on the curve where the line's cross. And it's like, yeah, buyback is their better determination for shareholders. I mean, I'm trying really hard to not get into a hard money ranch here as well. This is exactly why deflation, productivity-driven inflation is such a wonderful thing because it's more for less. I'm not going to go down that path, but it's the same argument. People get it when it comes to shares.

1:09:12They just don't get it when it comes to money. But yeah, it's exactly that. My ownership has increased and that is a good thing, providing I want to increase my ownership of this business. And if I don't, it's like, why the hell are you holding it for in the first place?

1:09:25Scott:And that's exactly it. So, yeah, so the difference between dividends, and you're right, this is also, by the way, so I'm going to give myself a wrap. What I will say is when we do our scorecards of the monthly field, we don't include franking credits in the returns. And that's fine because we don't include capital gains tax either, except that the return, that the pre-tax return on an investment that goes from$100 to$200, whether that's dividends or capital growth or both, is very, sorry, let's say two examples, they both go to$200. There's a very different after-tax return on those two depending on what proportion came from dividends, what franking those dividends were and what the individual taxpayer's tax rate is because your capital gains tax rate is very different.

1:10:10Scott:Well, it is on the old wall, haven't it? I'll take my talk to the new world, where there was a 50 % discount on capital gains tax. If you're on the top rate, you pay 23 % tax. Okay, but the company's giving you a 30 % franking credit with a dividend. So you've got to do those maths and work out what the incremental is in terms of who's better under what scenario. And so if you're in a zero capital gains tax environment and you get the franking credits, there's a really different range of outcomes. So the individual decision for the individual shareholder is really important. And this is what my point was getting to is companies that are really good, the really good ones, are actually thinking about their shareholders' return, not just the company's return.

1:10:47Scott:Because you can get financially and theoretically a better or worse corporate-level return by doing either dividends or buybacks, depending on the circumstances, to Ram's point. It's entirely possible that the shareholders get a different return list in order, in other words, the priority order, depending on the individual circumstances. And it comes down to the level of the discount, the level of the tax you're paying. And the companies can't do it for every shareholder, but the good ones will not just say, how can I get my share price to be higher or how can I make my return on equity look better, but actually how will my shareholders benefit most from any of these four decisions?

1:11:19Scott:It's a nice way to kind of guess towards the end of a podcast actually, because that's really what the question is. A really good company management team and board of directors will sit there and say, right, this is not about the – it doesn't matter what AMP does or doesn't do, share price-wise or even dividend-wise. The corporate entity is completely irrelevant other than for bragging rights. The only question you made this point before, Matt, so it's kind of getting back to what you were saying, is how are my shareholders treated? Are they better off? And which of these four options make my shareholders better off?

1:11:48Scott:Not the company profit, not the dividend, not the share price, but overall, which of these combination of options will make my shareholders better off? Or best off, actually, at least worst, best, whichever way you want to go with. Which one should I do if I care genuinely about looking after the interests of my shareholders? And that is the key question. So when you think about a company and what they're doing, just when you get right down to it, not only are they trying to maximise long-term share price, yeah, long-term dividends, yeah, kind of, but really it's about are they really trying to maximise the long-term benefit for shareholders knowing the different options and knowing the way those different options are treated by tax rules, among other things.

1:12:28Well, so, mate, and I'll bring it again back to the individual level and arguments, discussions, let's say, I have with various family members who are of a certain generation who love their dividends. I get it. Bloody hell, I get it. Yeah.

1:12:48But you're holding like really mediocre investments because it pays a high yield, even though it's going to make you less money. And, yes, there's a day-to-day living expense. I mean, I get that as well. I mean, I don't get into all the details of it, but it's just like the number of people that actively structure their investments in a way to reduce their return in a myopic desire for cash or capital growth. It just misses the point. I said before offhand, oh, I'm a growth investor. Well, you could find me a really high-quality company that could sustainably pay a 20 % dividend, fully franked.

1:13:35I'm all of a sudden an income investor. I'm a make-money investor. Let's put that on the – I just – my particular style and whatever temperament, I sort of go that way. But really what I care, I don't really care. Capital gains, value. Give me maximum value relative to my risk. and everything you said there was absolutely perfect in terms of the company's considerations, it's the same consideration for you. And that's not the same. I mean, sometimes, oftentimes, actually, the dividend paying company will be the better total return company than the high growth company. Most growth companies are very high risk and actually terrible return in the fall of some time.

1:14:15So I'm not having a go against dividend investing at all, at all. I'm just saying that in Australia, particularly with our obsession with franking credits and not for entirely bad reasons, They're a great thing to have. But the number of people that choose dividends because dividend, because why? Why? Because why? That's not a because. You're not explaining anything here other than, you know, especially when you can really make a very clear argument as to you are leaving, you know, the future is unknown, so maybe it could have been a percent here or a percent there. Sometimes it's like a really stark difference.

1:14:53Like this is an absolute dog's breakfast of a business. It's just like giving you the most awful return. And you're staying there because of franking credits and that the yield looks high. The yield looks high because the share price is low because no one wants to touch this thing because no one expects the dividends to grow. So they're having a higher dividend now rather than a dividend that might ostensibly be a little bit lower, but it's going to grow like the clappers going forward. So, yeah, I'm not doing a good job, but if all of that makes you scratch your head, then you've got it. And that same rationale should be applied to a company, again, to a government, to any kind of entity that's seeking to maximize return.

1:15:32It's the quantum of the return in a lot of – I know there's some differences depending if you actually need to live on the expenses year to year. So I am, please, I'm waiting for the email. You didn't think, I get it. I really do. But there's a broader point that I'm trying to sort of make here that we need to be less rigid in our thinking. And I think when you look at the why, which is what we've tried to explore with these mechanisms of shareholder value creation, that really you just want value is what you want. And you want the best value relative to the risk. And yes. Wealth creation. Maybe the form of that wealth is going to impact things to some degree.

1:16:16But overall, don't cut off your nose to spite your face because of a particular bias towards one form of return.

1:16:25Scott:Love it. I'm going to give you a quick example, mate, as we kind of finish off. We run a service to the Motley Fool called Everlasting Income. And the idea is on the name. And most of them are, or they're all one, they all tend to be dividend paying stocks. And this is a service that we're not trying to maximise total return. So to your point about these different ways of doing it, this service is specific for those members who say, I know I might be able to get a better total return somewhere else. I want certainty of dividend income and I like the tax benefits. And that's okay. So that's that cohort, right?

1:16:53Scott:If you don't want that, we've got other services. If you want that, this is here for you. Even then, saying that, one of the companies - You're aware of the trade-off, say, right? Correct. And it says it's really upfront and there's no - Yep. It's the only thing that doesn't track the market, doesn't try and beat the market. We're actively not trying to beat the market. We're not trying to lose. and we don't care about it. But it's like if this is what you want, if you want to be able to say, I've got cash flow coming in without having to sell shares, I know I'm going to be able to meet my bills or at least I hope I'm going to be able to with every hope and effort we can make.

1:17:22Scott:We can't promise anything. That's what it's for, right? It's for those people who want that thing. We know there are a whole lot of people who did it and that's great because they don't have to sell small portions of their shares to fund the living expense. They just want to be able to go, you know what? The cash is coming in. The point of raising that though was there's been twice in the portfolio's history, including right now, where one of the companies is not paying a dividend. It's cancelled its dividend. And we've actually kept in the portfolio. And we've had some members say to us, this is supposed to be an income portfolio.

1:17:47Scott:Why would you hold a company that doesn't pay a dividend? And the answer for us has been that we, A, we can meet the income requirements without that company paying a dividend, obviously. So to your point about needing to live, we've made members a, not a promise because we can't, but we've given members a guidance as to what we expect to do moving forward. and that is to be able to deliver a certain level of income without them having to sell shares. This is not mad, by the way. It's just to explain what's going on. So we can do that. And secondly, even though we could sell those shares now and by saying it was paying a dividend and increase the immediate term cash flow for our members, i.e.

1:18:21Scott:a little bit more income right now, our view is if we sold at this low price, we'd be doing members a disservice. If, for example, the shares were to grow by, let's pick a conservative number, 30 % in the next two years, that's 15 % a year. That's well in excess of whatever income they could draw. If it's more than that, we think it might be able to, the current company that's there, then we've done a much better service. Even if they never pay a dividend again, when the share price goes up to a higher level and then we sell, let's say it doubles. I'm not promising. If you remember, don't think I'm doing this.

1:18:50Scott:Let's say it doubles. Well, we've actually been able to then, when we sell it, we can buy them twice as much dividend income future because we held the shares even though they weren't paying a dividend. And it kind of just goes to your point, mate. It's the reverse in a sense, but it's exactly the same idea, which is even in the income service, we're saying we could do it arbitrarily just because we're not paying a dividend. We could sell it at what we think is a cheap price, a too cheap price, and just buy some income over there at 3 % or 4 % or 5%, or we could wait until we've got double the money or whatever number we end up selling at, and then buy you double the amount of income at that 3 % or 4 % or 5 % because you'd buy more shares because the value of the shares we're selling had gone up.

1:19:25Scott:And so whichever way you look at this, it is absolutely – we've taken the view. We actually care more about our members' long-term total return, not trying to beat the market total return, but we can buy them more income with a higher share price of the stuff we're selling. And that's where we've been able to make those decisions. So even in an income environment, selling just because they're not paying a dividend anymore, buying just because they are paying a dividend, which is your point earlier, it's all just about where is the maximum total return going to come from based on the investing strategy you're pursuing.

1:19:52Scott:And so whichever way you do it, that's kind of just a different way of thinking about exactly the same idea. Yep, yep. I mean, my favorite example with a lot of that is Telstra. I think it's been just a terrible income stock. Whenever it goes, yeah, but the yield's really high. I say, yeah, you know what? I just did the math when you're talking. You could have bought it in 2016. Ten years ago, 5.3 % fully franked. Enough to make any income investor stand up and pay attention, right? And it just turns out that since then, dividends have only gone in one direction. In fact, they're now half what they were.

1:20:24In fact, didn't they cut it last year as a one-off? or am I maybe looking at it by data? Yeah, okay. So let's call it, it's half of what it was. Yeah, yeah. You know, it's like, give me, and then there's plenty of other examples of a 3 % fully frank dividend, but the dividend has grown at 10 % per year. Now, who's gotten the most income? You know, you've got to think, you've got to, Peter Thornhill has termed the yield trap and it suckers in a lot of people because it is, it just, we look at, we look at those numbers and go, I want income. Therefore, yield is important to me. Therefore, the highest yield, the better.

1:21:04And it's kind of like, it's true with all else being equal, but it's definitely not true if, if the actual entity that's, that, that's, that, um, whose activities allow for the dividend in the first place is, is not going anywhere or, or is shrinking. Uh, anyway, I think point made it really just always, always comes back to, give me some money so I can make some more. That's it. That's it for the very initial seeding investors or 10 years later in a highly mature or 50 years later in a highly mature business that's deciding what to do with cash flows, always the same. That was then, this is now, I've got some money, it's burning a hole in my pocket, what do I do with it?

1:21:45I've either got a great return opportunity internally, externally, or I just give it to shareholders. That's it. That's it. We could have done the whole podcast just on that, but it wouldn't have been nearly as fun.

1:21:58Scott:Or as boring, depending on if they're still. The three people still listening, thank you for sticking with us. Right. Yes, yeah. No, you're right, mate. And the idea here was to spell out the ways they can do that and to think about not only the pros and cons, but the interactions of those things. So you get a sense of what's going on. Also, hopefully, to kind of remind you when the companies are talking BS that you're kind of looking through some of this stuff, growing in the company, you know, more profit. Good, but, but, but, but. We didn't do share issuances either, by the way. And speaking of buybacks, we won't go into it now, but you can actually issue more shares and create more value.

1:22:29Scott:If you raise a dollar from shareholders and turn it to$2, then you can actually – now, that's creating wealth. It's taking more money from you but creating more wealth for you from doing that as well. It's a whole different thing. But it's a bit like acquisitions and sell-offs or demergers. The flip side of the buybacks is the share issuance, the share purchase plans, for example, or capital raisings. That's really what we're talking about here. Now, they can, to Ram's point before, also turn to absolute tripe. CSL did it and never really recovered, even many years later, from an aborted potential takeover.

1:23:01Scott:So, yeah, they work both ways. Either way, what we're really saying, you did it beautifully, Ram. Take a buck, turn on more than a buck, here are your range of options. As an investor, as a shareholder, understand what your company's strategy is, understand, frankly, the likelihood and the chance and the track record of doing that, and make sure what they're doing is actually growing your wealth, not just on reported stats. Yep. I mean, do you think the early angel investors or series A seed investors, I forget all the terms, you know, in Facebook care that they got diluted a bunch? Like, no, they don't care.

1:23:38Why don't they care? Because all of that extra shares that were created, raised, well, they were created to raise money and that money was then folded into the business and then it created incredible wealth. So, yeah, you actually got a smaller slice of pizza. The pizza was just much, much bigger. Exactly, right?

1:23:54Scott:Yeah, yeah. And we say smaller slice, smaller proportional slice, but a larger overall slice, right? So rather than 1 50th of a small thing, but 1 100th of a large thing, it's a great problem to have. I was going to try and do angles on a podcast then, but the wedge is narrower. But it's very long. It's a very long wedge, you know? So, yeah. I think we did it, mate. I think we covered all the bases there as well. And then just the one, I guess, other point I'll make with all of these kinds of considerations is, and I know we said it before, but just look beyond any one fiscal period in making these determinations.

1:24:28Scott:Yeah, yeah, yeah. Because I do come across people who kind of, yeah, I get it. It's all pretty obvious kind of stuff. And then they'll just sort of look at a narrow timeframe of a business, whether it's some more macroeconomic sort of headwinds or self-inflicted wound or something. But it's sort of it misses the broader point of all of these things, because absolutely the share market investing, wealth creation, your own life journey is pretty much a story of two steps forward, one step backwards. And it's just that I think you could probably say, I think I will say that a very big part of successful is investing is actually understanding whether you are a two step forward, one step back.

1:25:08Are you experiencing a one step backwards in an otherwise forward-stepping motion? Or is this backwards step the first of many to come?

1:25:15Scott:If you're moonwalking, you're in trouble. If you're moonwalking, you're in a lot of kind of trouble. And that is both risk and incredible opportunity. I think it's probably true for you. It's certainly true for me. And I think a lot of the investors I know, it's sort of like you say, what's your best win? It was that Buffettism of we love a great business who's up on the operating table. You know, it's that idea of, yeah, we've had this bad run. Let's not sugarcoat it. There's no way to sugarcoat it. It's been bad. This sucks. We're not happy with this. The question is, that was then, this is now.

1:25:49Here's the capital we've got. What can we do with it? If, again, that little word, if we can, say, take what we've got and allocate it in one of these four different varieties of ways and allow, you know, one plus one to equal three, you're going to be very happy with that. and because everyone else is just focusing on the last quarter. You are the dude who's buying the$0.75 pizza, the dollar pizza for$0.75, and that's a wonderful thing.

1:26:14Scott:That is a very, very wonderful thing. Plus, who doesn't love pizza? Thank you for being with us for this pre-recorded. Next Friday, we've got a mailbag to come. Next Friday, we're back. So I'm looking forward to being back. Well, kind of live. Every podcast pre-recorded, as you like to say. But, yes, we'll be back. So, yeah, thank you for bearing with the pre-records. Hopefully you've enjoyed them. We've enjoyed making them. Had a thoroughly great time. Until on Sunday, we'll give you back for the mailbag. Don't worry. We've got some good stuff coming. Full on. Cheers. The Motley Fool and people appearing in this program may have positions in the companies mentioned.

1:26:49General 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.