In the shadow of a slump. February 28, 2025

25:00There's plenty of people out there going, look, it's super, super, super safe. Whatever happens if this thing, I'm not going to lose half my money, right? Never say never, but it's very unlikely. likely. I'm going to get some regular income along the way. I mean, it's probably a little bit better with franking credits than a term deposit. And I've got the upside with the equity, you know, so it's not. So, if you're looking at this going, yeah, it's low return, but it's not no return. And it's super, super low risk. And I'm 85 and I've got$5 million that I'm trying into prison, you know, whatever the situation is, it can actually make sense.

25:40So I think for a lot of people, it's sort of like, there's a lot of money that's just looking for a home that's sort of like, I'll take a lower return. I just need to be safe. I need it to be there, given all the shenanigans that are happening out in the world. It can make sense. But if you're a holder or you're looking at it right now, I think that's the circle you've got to square or the square you've got a circle, depending on how it goes, in the sense that I actually wouldn't criticize you at all if you're going into this knowing or expecting a pretty mediocre average total shareholder return.

26:16But 20 bucks, mate, I'd be backing up the truck. I'd be liquidating everything and piling into this thing. But it just doesn't make sense. On the results themselves, how do you have, what was it? Three and a half, 3.7 % revenue growth and a 20 % fall. I, you'll be surprised. I didn't have to drop the kids to school yesterday. So I didn't get the shout at news radio. Oh, no. I know. But in my head, you'll correct me if I'm wrong here. I imagine that the media picked up something about however many billions in profit. We're all doing it tough and look at those nasty so-and-sos. They are, look, there's a lot of criticism you could level at them if you wanted to.

26:57But I think any allegation that they are price gouging is just nonsense at this point. I tweeted out this exactly yesterday, mate. It absolutely shows it as a complete fabrication for some headlines and some politicians to try and avoid focusing on anything actually that's important to people. They haven't passed it. They're facing higher costs for their warehousing, their management, their logistics, particularly their staff. Yep. And by the way, this is across the board. And they can't pass them on. They would have passed them on if they could have. Look, they will. That's stupid. I think they will.

27:24I think they will eventually. I think they're very politically attuned. And given the current state of things, given coming into an election, again, this is game theory, right? No one has to have a meeting behind closed doors. You can game it out in terms of what's going to happen. And I'm sure they're thinking, you know, if we pass on prices right now for this particular period, it's not going to look good. The politician is going to get angry. The public is going to get angry. We're going to get regulatory oversight that we just don't want. Let's play the longer game here. Let's cop this one on the chin.

27:56And boy, did they cop it on the chin. They have not passed on prices. I suspect at some point they will have to because the pressure from shareholders will say, you're going to have to take a bit of hate because our margins are rapidly shrinking. But anyway, for this point of time and this period that's being measured, absolutely not. They took on higher prices and they not only didn't pass it on, they wore it. Totally. I'll tell you about choosing not to pass it on, mate. But I also think the problem is for everyone who believes this is a duopoly, and it kind of is, they are desperate to lose share to each other because they know – I'll get back to Marge in a second – but they know how tight this thing is.

28:35And I suspect maybe neither did and neither did. But I also think if one of them tried to and the other one didn't go with them, they'd lose a fortune. Yeah. And this is – I've worked for Woolies in the past. I've worked for suppliers in the past. For all of the – this is – it's so easy to sit on the couch and go, ah, the bus is screwing us. It's all a conspiracy. It's all that. their price goes and their profiteering. I, you know, these guys aren't not putting prices up only to make the government happy. I'm sure that's part of their thinking. But if you're willing to put your price up, and Coles doesn't follow, and you're selling more expensive Coke and nappies and Arnott's biscuits and those known value items I mentioned before, I didn't think we'd come back to it, we ended up doing it.

29:16I mean, you can't afford to. You can't afford to just wake your price up 3%, hope no one notices it versus your competitor. And so there's that as well. I think, you know, we'll see Cole's numbers when they come out. They may well be up by the time we have this podcast go to air, actually. So we'll see. But I just thought it was an interesting approach where they didn't feel like they could, for political or competitive reasons or both, probably both, actually cover their costs. And to your point about shares, I think this is right, mate, because I have a lot of people say to me, oh, they're still profiteering.

29:44They're just hiding the number. They're hiding the profiteering in their balance sheet somewhere. And it's like shareholders, the shares were down on the news. if this is 4D chess corporate style then who do you reckon is winning from this one because Woolies shareholders aren't winning and they're in the business so there's no other serious third parties getting all the money here they're delivering less profit so management aren't getting their bonuses the shareholders are not getting higher prices who do you think is winning here where's the conspiracy I find it really fascinating from some people probably not people listening to this because they get it which I appreciate but just that idea of like are they hiding it somewhere and this is all just they do this, do that.

30:23It's like, well, good luck trying to because shareholders hate the fact they've done it. So if you think they're trying to do someone a favour, I'd love to know who that person was. Yeah, yeah. Well, this has just been released. This is hot off the press. Coles has just released. Oh, is that? There you go. So they had a 4.3 % jump in their supermarket division. Now, stripping away the big W and other stuff from Woolies, I think their food sales score was 2.6, 2.7%, something like that. So Coles has sold more compared to last year. So I guess by definition, they've taken market share there. Yep.

30:58And let me just check this. Their net profit. Oh, no, it was down a little bit. So only a little bit. Yeah. 2.2%, I think, according to the numbers I can see. Yes, yes, yes, yes, yes. Oh, I shouldn't do this live because it's always, it's always. But what about. Yeah, correct. Anyway. But again, they're not making out like bandits. Right? That's the thing. And that's the thing. I'll check their gross margin. That's where they're profiteering. It's like, well, you don't bank the gross margin. You're still going to pay your costs. If you're increasing gross margin to pay for higher costs, that's called business.

31:31That's profiteering. I find the whole thing just... People find themselves in knots to try and justify their preconception that somehow they're price gouging. Yeah. And this is, you know, prices went up. Like, why did prices go up? Because Woolies' costs went up. The cost of the product they bought from suppliers went up. Their insurance went up. Their labour went up. Their electricity went up. Their transport costs went up. So they put their prices up. It just, on one level, I don't absolutely blame anyone who says, geez, those prices have gone up. Someone's making some money here. And they are, but it's not, and it's not coal, it's just not.

32:02Anyway, we won't spend too long. It's just an interesting number when you look at that and go, well, you know, if they're trying to screw, if they're trying to pull the wool over our eyes to benefit shareholders, shareholders are not benefiting. This is not a win. I actually, speaking of which, Before we move on, I want to correct some mistakes I made. So the share price, I mix my timeframes and my prices up. It was$35.60 in August last year. It was$42 back in August 2021. Okay. So I don't want to leave that unsaid. That being said, over the past three and a half years, the shares have fallen 25%.

32:38Even your five-year number, you're right. It's flat, in fact, down 7 % in the last five years. Once we roll forward, it's not going to look particularly great for Wally. Now, it doesn't mean the business is bad. It means people pay too much for shares. It's not the company's fault. Maybe in part it is because the results are pretty ordinary. But if you paid$42 for Wally's in 2021, it's not the company's fault. We don't say it's a bad company because the shares are down. It's like the shares are down because someone overpaid or the business got worse or both. But that's kind of the reality, right?

33:06I'll give you another example of a great company that's been a mediocre investment. Oh, yeah. CSL. Yes. CSL is below where it was pre-COVID. It's crazy. It's crazy. hey now and now whoa wait it don't hey see it's a it's a much loved you know share market favorite and for good reason as you mentioned at the start such an incredible success story you know and look they've they've grown their per share earnings over that time let's quickly look it up now in fact their dividends in 2020 were just under three dollars now they're just under four dollars right so that's that's been increased earnings have gone from 670 to a share in 2020 to 840 uh the last full financial year.

33:47We'll see what it is for this year. My point being, my point being is there's nothing wrong with CSL dot, dot, dot, except maybe the price. And, and, and again, it's just worth beating this drum is just like, I too often I come across Investor, oh yes, but it's a great company. It's like, yeah, you know, my house is a nice house. I think I'm, I'm really happy with it. I'll sell it to you for a billion dollars if price doesn't matter. I like, but that's too much. Yeah. But it's a nice house. It does. It's a silly kind of thing. Everything has a kind of price. The other thing I just wanted, before we move on from Woolies, is just that, you know me, mate, we've got to be a little bit doom and gloom here.

34:22And I think it's just so, and this has been another theme. It was last reporting season, one before that, this one as well. It is tough out there in retail. And reading through Woolies' results there, so any discretionary spend was in the toilet. Basket sizes are down. People are only buying on promotion. I'm generalizing here. I have to generalize because I don't know what every individual in the country is doing. More people are buying on. The proportion of sales on promotion are going up. More sales on promotion going up. Basket size is down. Cross, what are they? There was a name for it, but basically they're saying people are shopping at other places.

35:01In other words, Aldi, right? I'll put my hand up. Often the place where we go, it's right next door to each other. So we get everything we can from Aldi because it's just cheaper. And then we go into Woolies for things we can't get in Aldi. Aldi even advertises that. Like we know you see other people, right? And it's sort of like, but all of this is to sort of say, when things are super good and you're super confident, you're just, we're all a little bit lazy. We don't go to that extra effort. So it is really telling on that front. The cost of living crisis, as much as I bemoaned that phrase when it came up.

35:38You know, it's real. It's very real. And it's shown very much in these numbers. The other thing that just shows you how bloody pernicious inflation is, whether you're talking about Sydney Train Network or nurses or teachers or warehouse workers at Woolies, like this was, it just came through loud and clear. We are facing all kinds of costs associated with our employees. Now, it's easy to get political on this. You know, there's always this ongoing forever battle between capital and labor, right? I get it. I get it. But I would say that it is very notable in this country and around the world lately that this is why it's so dangerous because it hurts everyone, really, you know?

36:27And it's even Woolies, which is the most defensive company you could possibly think of. A big part of that 20 % drop in profit was they had to pay everyone more. And the workers, I'll say it, they're not being, when you're pay, when you've had a 20 % pay cut through inflation since COVID, 23%, it's more than that, right? Yeah. It's like, so I just, I used to, in real terms, I used to earn, let's just round numbers, I used to earn 100 grand a year. Now I earn 75 grand a year. You're going to, the unions are going to have a point. It's like, you need to pay us more. Not only has my pay gone down, not only has my savings account diminished in purchasing power, but all the things that I need to buy, I've just gone, I mean, it's just, it's so, so, so horrible.

37:10And it's just sort of like, it's, it's something to, I guess, I don't know what I'm saying here, but I, I, I think it's something to be mindful of if you're looking at investing in a company that has a big labor component, particularly one that has some degree of bargaining power, not to sort of say bloody unions are going to ruin your, shareholders. I'm not saying that. I'm definitely not saying that. But it is going to be a feature and it has been a feature. And of course it has been a feature because people are all, workers are always going to demand more. Companies are always going to say, we want to pay you less.

37:41But when things, when we're in these kinds of situations, it's just harder to argue, you know, that, well, no, you don't deserve a pay rise, right? So here's the thing though. So you're right to the point, except for the word deserve, in my opinion, right? Yeah, that's a loaded term. And I know you know this, but I'm going back to not workers or employers here, but why inflation is so bad. Because the only way I deserve a pay rise from my boss is if I'm more productive. I don't deserve a pay rise. We might decide that workers deserve a standard of living that allows them to pay the bills. So I deserve an amount of money in my pay packet because I deserve a decent, respectful, what's what I'm looking for?

38:20A decent life, a life of dignity. right so so so you know i i deserve dignity and that that probably has some sort of underpinning minimum wage deservedness about it other than that do i deserve more money because because inflation's gone up no unless i'm generating more value for my my boss now i'm not saying shouldn't what they shouldn't give workers more what i'm saying is if they then do that if pay rises actually exceed productivity growth then the economic engine starts to starts to kind of cough and splutter because you've got the boss isn't making any more money the workers want more money that works for a while because well he's making enough money they can pay their workers more and you know as you say there is justification to say well you know economically nationally at a total system level people don't deserve to go backwards purchasing power wise because that's just kind of crap and we want to be more prosperous not less prosperous and that's what that purchasing power falling means we're less prosperous that's exactly what it means exactly what and so you kind of go well well you know workers deserve or workers should let me try and use the right words here as a country we should not want our workers to go backwards in purchasing power.

39:20So we want them to maintain that purchasing power, which means they would have to be paid more in that circumstance. Except companies aren't making more money, at least not more relative to that inflation rate either. So we're chopping up a smaller pie. And that works. And we can argue about that. There's people listening who say, oh, bloody, well, not many probably. People outside this podcast saying, oh, bloody companies make money. We should be socialists and communists. Everyone should share the money. And they're all making too much profit. I had someone on Twitter this morning told me Commonwealth Bank was making too much profit.

39:47But, you know, because it was a large number, you know, big number, bad, stupidity. And that's – but again, that's kind of the problem. So where is the issue? Well, where inflation exceeds productivity growth, we go backwards. That's the only equation that matters, right? Yes, well, we can argue about the shares of the pie. I've made the point before. I think the capital share of National League was growing at the expense of labour. I think that's a good thing for the country, right? Yeah, that's an interesting point. But that's a different point. I mean, it's a good point. But overall, the pie can't grow when inflation exceeds productivity growth.

40:18It literally cannot. All we're doing is argue over smaller and smaller pieces. And that's to your point, mate. When it gets ugly, why were there not as many strikes and claims for more money in the last 15, 20 years? Because post the kind of 80s price of wages accord, for those who are nerds and know that history, post that, things were improving. So you didn't need the payrolls. It didn't need to be that argumentative. What's the word I'm looking for? Demanding? Right. Well, it worked out. It worked out because business made more money and workers made more money, and that's a really good thing.

40:53Again, we can argue about the shares, but broadly - Everyone wins. Well, two different degrees, but you're still ahead, right? Everyone's getting ahead. That's the key. Now, all of a sudden, as a society, we're going backwards, and we're fighting over the fewer and fewer scraps on the dinner table, and that's the really interesting about inflation. That's where people say, oh, it doesn't matter as long as my wage goes up in line with inflation, then inflation doesn't matter. I'm like, well, it doesn't until it does. And when it does is when we run out of scraps on the table. Well, it's so much bigger than an economic discussion as well.

41:24You know, it's just I was getting, you'd be so unsurprised to hear, a little heated discussion with some family members the other day, you know, about thinking, why do you care so much? And it's like it's not a finance thing. I mean, it is a finance thing. It isn't an economic thing. But that's why we see increasing disparity between the haves and haves. That's why we see more political divide. It's why we see more – it manifests in very, very real ways that impact society and our cohesion. You don't see much terrorism in societies that are very prosperous with a small gap between the rich and poor.

42:06Unless internally, yeah. Unless crime and all those crime things as well. about that. Yeah. And whenever there's bad stuff happening in the world, there's usually an economic, I wouldn't say cause, but a factor. Let me rephrase it. There is always an economic factor there. I can pick an extreme example. And apologies to anyone who's from here, not to be too stereotypical, but I can imagine that things are a lot more peaceful in Afghanistan, for say, if you didn't have crushing poverty and corruption. I don't know if that's an outlandish statement but there's more for people to lose why are crime rates higher among poor people not because they're worse people because they just A.

42:48they want more stuff and they see that it's unreasonable other people have it and B. they've got nothing to lose oh what would you do right what would you do if you like you know oh god I don't even want to start touching the Middle East I won't but I mean like you're going to it's very easy from the comfort of our first world vantage point to go why would anyone do that and tell you what when half your family's been killed and you're desperate and you're crushing just so brutally poor and there's nothing to lose. It's like that's when you pick up a gun. That's when you pick up a bomb, right? It's sort of like that's why these economic decisions go well beyond how's my portfolio doing, right?

43:27It's the point, mate. No, and that's why, yeah, we all benefit. We benefit from a prosperous society, right? Yeah. You mentioned the gated community stuff before. We just have less crime. For all of that, when the kids and the poor people actually aren't so desperate that they're prepared to risk jail to, when they're not so disenfranchised, they see no other way out, they don't bother trying, because why would you try and not get ahead? That is the root of this stuff. And we can make, it gets ideological quickly, you can make value just, oh, they're terrible people, they're this and that. It's like, you know, imagine your position is reversed.

44:02Imagine you spent X years. Walk a mile in someone's shoes. Right, exactly. Think about that, yeah. Otherwise, the joke goes, at least that way, you're a mile away and you've got their shoes. That's a great joke, by the way. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

44:21Let's get back to one last company for earnings, which is in Qantas. Okay, yes. It's earnings on Thursday, and it was a, yesterday, it was a really, a very, very strong result. Underline profit was up. I think it was 6%. They declared a$400 million dividend made up of$250 of a not ordinary dividend and$150 million of a special dividend. Interestingly enough, their international prices, airline prices, have actually fallen 6.6%. Domestic was up just a touch under 1%, I think. Their net promoter scores were up. They trumpeted that one, to which I might have mentioned on Wrecky TV yesterday. That's what happens when you're so disliked.

44:59You've only got one way to go, and that's to come back a little bit. So they're less unpopular than they were, which might not surprise anybody. If you're already plumbing the depths, the only way is up, as the cool kids say. Who's saying that? Was it Gaz and the plastic population? That's the one. There's a nice 90s reference for anyone. Yeah, so I thought it was interesting, mate. Just my initial thoughts, and I'll get yours. Domestic is still, you know, domestic duopoly. Speaking of duopolies, by the way, if you want to start somewhere, start with airlines. They hoard the landing slots. They pretty much set the prices.

45:33They forced Rex out of Metro. Rex probably should never have got there anyway, a different thing. But they forced Rex out of Metro, which meant they could jack the price back up 13%, which they did as soon as they could. This is absolutely scarcity in action, right? And, you know, you and I disagree a little bit on different things. What we do both agree on as governments, kind of one of the central economic role is to encourage and create and ensure competition. There is none in domestic air travel. It's a duopoly. they have maxed out their seat usage by basically artificially restricting supply.

46:05Nothing illegal. Again, as you mentioned at the beginning with your sarcastic tax stuff, nothing illegal, right? There's no cartel behavior. They just literally know that as long as they're both acting entirely rationally, they'll make a fortune. If I don't add plans, you don't add plans, we both make more money. You don't have to necessarily agree. You just say, well, I'm not going to do it in case I provoke them. And they say, well, I'm as rational as you. I'm not going to do it unless I provoke you. Again, they don't say it to each other. They just say, well, if I'm Virgin, I'm saying, if I add planes, what's going to happen?

46:31Well, I'm going to add planes. I'm going to steal some market share. Then Qantas are going to lose sales. They're going to add planes as well. So I'm not going to do that. And Qantas says, I could add planes. But if I did that, Virgin might add planes. I don't want to do that. So I'm not going to start that fight. So what do you have? You have a really cozy duopoly where it's entirely legal, entirely proper for all we know. Nothing going on. It's just perfectly rational behavior. That as long as your competitor is also rational. I haven't said for ages, mate. But one of my favourite lines I think I made up is, you're only as profitable as your least rational competitor allows you to be.

47:02Yes, that's a great one. And it's a good line. It's not great. But, yeah, but it's true, right? The flip side is, you are as profitable as your least rational competitor allows you to be. I didn't think about it. They're selling at a loss. That's outrageous. That's not sustainable. Like, yeah, but the consumer doesn't care. And as long as that is on offer, they will – that's how Uber killed taxis. That's right. You know? I mean, it's different now, but that was completely uneconomic. Like they were bleeding cash. And like people, oh, but they're not making any money. It's like, I don't, it's just better and cheaper.

47:33I'm just going to catch it, right? Now it's different now. The irony is it's like Airbnb is like, all of a sudden hotels are looking better, right? How long should you go to Mentos in an Uber? It's been a very long time. No, it doesn't happen, right? Three bottles of water in Mentos for everybody. It's not cheap either. I mean, it's on par with, you know, what taxis probably used to be. But it just illustrates that point that you're making, right? And I guess the other angle to that is like, well, was it irrational in that instance? If it's a loss-leading strategy, like we are just, we've got a pilot capital, we're going to do that.

48:05So in my local area, there's just an IGA. And Woolies is opening up now. Oh, interesting. Isn't that interesting? I'm surprised any space left. I guess you're on the outskirts a little bit, so maybe there's still a great population. Oh, they've got some space. It won't be a massive one, but they've got some space. I mean, I don't mean literal space. I just mean, they've, particularly Woolies and Coles, they've kind of blocked up every population centre. Yes. Everywhere. You know, anywhere that could justify Woolies has got one. I was surprised there was stuff left, but go on. Well. How are the locals going?

48:36Because the Blue Mountains are a bit, you guys like your independent business people up there. Well, it's funny because I think just anecdotally in some of the conversations, like, oh, the buggers. Right. And I kind of get it and I feel for the local, If I was the local IGA, I'd be really worried, man, that sucks. But I guess I look at it and go, oh, it's good there's a bit of competition. But then I go full circle and go, wait a second, I'm Woolies. Wait a second. I probably lower my prices at IGA. Just cannot compete. I just do that for a couple of years. I still make money because I've got such incredible scale.

49:13And, you know, just not as much as I normally make overall. IGA shuts its doors and then I'm the only guy. Is it a monopoly? Yeah, locally it is. In that suburb, it's a monopoly, right? Because there's no Coles, there's no Aldi. There's just at this point in time in the future. So I've actually got mixed. I've gone full circle. I've gone, yay, competition. That's good for everyone. And I'm going, wait a sec.

49:39Maybe we're just swapping one local monopoly for another one. And that's the key point, right? That's where we possibly will use as the bad guy who are going to put something to charge higher prices like well if they don't do it the existing guy is going to charge higher prices anyway so we're careful what you wish for stuff on the Woolies stuff we can't come back to that but I've said ages I'm the least popular bloke in town for saying it but the issue for Woolies and the grocers for me is actually not about the competition I'm talking about consumers it's about the pressure on supplies I've worked for grocery suppliers before I was in packaged goods which is a million times better than fresh because fresh you've got limited time unlimited number of customers and you've got to get it out the door.

50:19In packaged goods, the market is so concentrated these days that when I was working for the company, I worked for a few, so I don't need to give them one away, they couldn't justify on a... They couldn't make money only selling to one of the two chains. Yeah. They had to sell to both in large enough quantities to make money. Not that you couldn't produce... Oh, it was Heinz. No, you couldn't produce baked beans at a price, but the price of baked beans to your competitors... This wasn't baked beans by the category. The price you competitors sold baked beans for was so low because they supplied both.

50:50You couldn't compete and make money on that basis. How is that possible? Well, because the factory runs or this stuff is so finely tuned. We as consumers, we are doing really, really, really well. You know, we get, I got to tell you, Heinz is not making that much, it wasn't making that much money. This is a very long time ago. This is 20 years ago. Heinz is making that much money. Well, he doesn't make that much money. The consumer is benefiting, right? So, does Heinz need more money? As a global multinational, probably not. Actually, they're owned by Buffett these days in Berkshire, so I guess I have a dog in that fight indirectly these days.

51:20But I do think the small producers, these are the guys that have no choice, right? Will he say to you, I will sell it for this price, you will give me this much margin, take it or leave it? And I say entitled in quotes, they're entitled to say that because I guess that's what they do. But the impact of that, that's pretty serious, right? Can a supplier survive without the effectively patronage of the big supermarkets? And if you're going to play the game, going to play it their way i will say just in defense of the supermarkets from all reports willies in particular but also coles i never ever hear anyone say even privately a bad word about willies in terms of the fairness of their negotiations i hear they're tough but fair right they're not trying to put you out of business they're not trying to um they don't ring on their word they do the right thing it's like if you play the rules are clear yeah so you know if you're if you're pit down should the rules be different yes but you know i'm told they are they are tough but fair.

52:13Again, other people have different experiences. But I've got to say, mate, what worries me really is the, you know, the small suppliers, the local suppliers' ability to actually make money in that sort of environment. I don't know how they survive in that environment. I don't know the market power is fair. Yeah. Oh, gosh, there's a lot to say. I mean, someone said it, I forget who, but it's an incredible deal when you think about it. But it's like, here's an entity that will deliver everything you need to live in terms of food. And they'll take a 6 % profit on that. Right. It's a good deal. It's low now.

52:49I think the profit was like 3 % for the line. Again, write down some whatever. Yep. So we get$1 worth of value for$1.03. And we get range, convenience, price, freshness, trading hours, service. I pop in the car five minutes later. What do you people want from me? I've got anything my heart desires. Almost. 99 % of anything I could possibly put in my mouth is just there. Fresh, available, in stock. You have to pre-order it. You're paying three cents more than it costs the supermarket to provide that service for you. Where in life do you get that? It's pretty cool, right? Other than the supplies.

53:27So back to Qantas, right? Yes. Here's what blows my mind just a little bit. Go on. Imagine, or remember if you will, five years ago and what the world was going through. Now, all of the companies on the ASX that you thought, oh dear, this is going to be tricky. Qantas was like, just absolutely going to wear it. Massively capital intensive. They were making zero in revenue for an indeterminate amount of time at that point, right? Yeah. And it was just sort of like, oh, my gosh. Shares went from, what, seven-ish to two-ish at one point? By the way, can I remind our listeners that we collectively tipped in$2 billion?

54:11Well, I was getting to that. Oh, sorry. I've stolen your thunder. My apologies. Well, no, but it's – I mean, that's – now, let's pretend COVID never happened and you went into a coma in late 2019 you're looking at your Woollies sorry your Qantas shares what is 650 call it yeah and you wake up from your camera and you check your portfolio it's like $9 seems like it was a pretty uneventful period that's right in fact a good period pretty good period 50 % gained 5 years it's not great but it's pretty good yeah do we get any of that money back? no oh but we got some equity or something at least we shared in some of the upside oh yeah no unbelievable thanks Gomo good on you mate well genius I wish it was just a party political or individual issue because we're about to bail Rex out and bail out Whale of Steel oh yeah I'll be I'll be I'll be putting the boot into Alba you numbskull oh seriously mate kill me now yeah anyway I mean this is this is what makes this is what makes investing hard right I remember yeah John Hampton and what's his name US dude, I've gone blank now, shorting the banks because of the housing bubble.

55:27Jake Tepper? Jake Tepper, yes. They had a solid feast. I mean, I was on board, man. I was signed up to the newsletter. You guys have got it. Yeah, yeah. Had their, absolutely handed to them. And same, you could imagine a lot of people looking at Qantas, given what was unfolding like that, that is absolutely, you know, hell in a handbasket kind of stuff. Yep. And it's just like it is always, it's what you've got to remind yourself all the time that if ever you find yourself falling into the trap of going, hey, this investing game is easy. Yeah, that's right. Because you do, right? Because even the dumbest things get rewarded for a time.

56:07And we all have these purple patches, right? And you just start cock of the walk, strutting about town. Look at me, I'm the next buffet. It is so dangerous because you can be, there are all manner of scenarios where all things being equal without that one change, you're absolutely right. You know, you often bring up Steve Keen walking up Mount Kosciuszko. It's like, well, if the government didn't intervene, he would have been right. It's like, but it did intervene. And it will again. And I love Steve, and he's actually a really unconventional economist, but he still fell to the idea of ceteris paribus, which is Latin for all else being equal.

56:42It's like the equation, we talked about this a couple of years ago, the equations in economics say, well, if these things remain true, nothing else changes, this is what will happen. Well, thanks, Scoop. But, you know, actually things in life change. And he literally fell victim. It's like, well, I would have been right except the RBA intervenes. Yeah, exactly. You're not paid to, well, in this case, it was his own money, right? Or his own time. if you risk money or reputation or some sort of bet on, I'm going to use this model and assume nothing else changes and then blame the fact something else changes for it, that's the error, right?

57:16That's exactly the error. Yep. And that is why I'm never going to be a shorter, just because, as you know, I'm not philosophically against it. But, I mean, it's things like that that make it so difficult as well. It's just sort of like, yeah, I don't know. I don't know what my point is, other than you, you have to go beyond the immediate knee-jerk reaction, like the first level thinking, as we like to sort of say. Yeah. You know, and here we are, Qantas, record highs, incredible profits, you know, five years after a global pandemic and they were really on death store. And it's just noteworthy, I guess, if nothing else.

57:52Yeah. And I think, well, as I said, yes, absolutely from that. Thanks to the taxpayer. Anyone listening, congratulations. you've helped Qantas do well even if you didn't own shares and someone else has benefited. So how good is that? But more to the point, well, the other thing I want to say, mate, just quickly on the dividend, they announced a$400 million dividend, right? Of that,$250 million is a first time in more than five years. The first$250 million, that is the ordinary dividend. The other$150 million is a special dividend. Now, what does that tell you? A company, there's no reason to do them differently, right?

58:24So it's just stupid maths. It's all about signaling to the market and it's ridiculous. You could just pay a$400 million special dividend. Ordinary dividends, sorry. Why do they do that? Well, the market likes to believe that ordinary dividends are sustainable and special dividends are one-off when you've got the money you wouldn't otherwise normally have. Right. In other words, Qantas is saying, don't expect it to be this good forever. And that's an appropriate thing to do. They're not wrong to do it. I said, I think special dividends are stupid. There's just this idea. Funny what we value, mate.

58:53The market values regular rising dividends that never go down. So if you want to do that, you've got extra money to pay out. you don't increase your ordinary dividend for a year you announce a special dividend and then go back to the ordinary dividend the year after which is the same as the previous one you get to say see my dividends have never gone down or see ordinary dividends have never gone down it's just silly and that's what people do yeah it really is I mean yeah I I'm actually one of those things where I've got two minds at this go for it I mean as we know this is a very very competitive capital intensive industry they've got some extra cash they don't know what to do with it they've also got 4 billion, 4.7 billion.

59:30No, I'm trying to look it up here. Oh, this is the net debt figure. So take away some of the cash they've got. They've still got more than$4 billion in debt there. So my initial reaction was, we'll pay some of the debt down. Then I caught myself. And then thought, actually, there's far more upside if you leverage this thing. And now others might go, yeah, but that seems riskier. It's like, yeah, but I'm only here as the CEO for a little while, right? Like you can, you can argue, in fact, you could probably argue a competitively privileged position and a politically privileged position. You'd be mad not to take on a bit of debt, right?

1:00:08Because whatever happens, you're going to get bailed out. So why wouldn't you do that? Yeah, exactly. What are your thoughts on that? Are they, are they silly to pay out the cash to shareholders? Does anyone buy Qantas for the dividends? I mean, I'll put that out there. If you're a dividend investor, is that really what is attractive like Qantas no I make it you want the company to do the right thing to actually return some money so there's kind of that like if you've got the extra cash it's good they do it are you doing it because you expect one no you're just pretty happy that all of a sudden you've managed to grab one somehow that's pretty good are they silly to do it no no because they're humans yeah and human nature is human nature and self interest comes first now I don't want to talk about individual people at Qantas because I don't get myself in trouble Managers generally, well, what measure gets done, actually?

1:00:56Let me just start with that. So what does the market want? You and I have talked this a lot. We're getting to go back to the same things. What does the market actually want? Well, in the long term, everyone says they're a long-term investor and they want long-term compound returns. In the short term, just push the price up, mate. I'm a fund manager. I've got a quarterly target to hit. A long-term investment is a short-term investment that didn't work out. Exactly. Right. So if I'm a fund manager, I just want the unit price to be higher in three months' time than it is today. Because that's how I get paid, right?

1:01:23Which is stupid, but that's the way the industry works. And by the way, the industry works that way because individual investors are fickle. And if you don't do it and someone else does, they're going to take their money away. So, you know, they're playing, as you say, play silly games, get silly prizes. They're playing a silly game, but then so are the investors in that thing. And so you kind of think, well, I'm not as strong as you are on, you know, you get what you deserve. But it's also not true. Do you get what you deserve? Kind of. so is it silly to do not if you're incentivized to do it not if your shareholders like that you do it is it a smart idea no it's a terrible idea so is it good for the company no it's awful for the company is it good for the CEO is it good for shareholders they should be the same three questions by the way they're not very different questions so is it silly

1:02:11let me answer it this way around if they hadn't paid out money to shareholders in the previous 10 years maybe they might have made $2 billion from the taxpayer just saying just saying Just, I mean, this is the difference between a public and a private company. This was a family company, you know. Yes. Pretty good company as a family company. But you would be thinking very much about, oh, gosh, I will leave a little bit of money on the table, but I'll have a far more robust business. So when the next thing happens, whether it's a pandemic or a war or anything that's going to shut down the skies or at least severely restrict air travel, which is guaranteed, by the way, Like as sure as the sun will rise tomorrow, there will be something that disrupts air travel in the next 10 years.

1:02:55It just, there just always is. Yeah. You just, you fold it into your business model, right? Just go, look, something bad's going to happen. So we just, we're just going to build up a bit of a war chest so that we survive. And then we can go back to making money when it's all over. As opposed to we're only as, as long as everything's okay, we're fine. As soon as there's a slight wrinkle or hiccup, we are screwed. But yeah, as a, as a public business, it's different, right? You don't have to, it's not, Well, the CEO doesn't own that many shares. Put it that way. Correct. Mate, let's finish off. This is not on the agenda at all, so I'm going to surprise you with this one.

1:03:27We'll do it for 10 minutes or so, and then we'll leave people alone and get back to their days. Today, five years ago, we were a week into the fastest bear market in history. We were about to, or already suffering from, but it was about to get a lot worse, the one-month and four-day COVID crash. Oh, right. And it's funny how quickly - Because it was still just based in China at this point five years ago, wasn't it? It wasn't – had it really come across the borders yet? I have to check that one. We didn't know how – we've got to remind yourself. We thought it was scary, but we didn't know how scary it was.

1:04:01And it was just a Chinese thing. It was an overseas thing at this point. So there was a bit of a wobble, but we weren't in panic mode. A respiratory virus out of Asia. We'd seen a million of them before. I famously said at the time, how bad can it be? It's probably going to be like MERS or SARS, one of those things. It'll just be localized. it won't be a big deal you know don't worry too much about it i'm an idiot um speak speak of the folly of forecasting so we hit a high on the 20th of february and the all odds i'm using those numbers for fun 7 255 points by this time five years ago we'd fallen to 6 511 points we would then fall over the next almost exactly three and a bit weeks to 4 ,564 points.

1:04:47Was that 30 %? 38 %? 38. I could be wrong. That's what I have in my head. 38 % in a month and four days, and we were a week into it. And I want to stop and look at history because history matters, and what we can learn from history is hopefully preparing us for the future. So a couple of things. At that point, it felt ugly and no one was sure how much worse it would get. It got a lot worse. And it was only five years ago. It got so much worse, the market fell, as we said, total of 38 % in that month in four days. Thereafter, we also had the fastest recovery in history. No one knew it was going to happen.

1:05:26It just happened. And five years later, we kind of remember it. But how viscerally do we honestly remember it now? We don't even talk about it. I'll reveal a little bit here. Our little girl's got long COVID, right? And it sucks. Like she's got to, it's not nearly as bad as what you hear that's sort of out there. But it's like, it's not even a thing that's wrecking. Like you have to really jump up and down to sort of like, hey, can we get some help here? Like no one knows anything. Like we just don't research it. We don't talk about it. We've done the collective thing as a society. It was like, that was really crappy experience.

1:05:59It's over, right? Yeah, it's over. Okay, cool. Well, let's move on. Again, I'm not saying lockdowns or anything like that. God knows I'm not saying that, but, but you know what I mean? It's sort of like, it is, it is amazing how quickly we have repressed that, that as a thing, even when I think they still publish results, like infection. Yeah. But they're useless. Cause no one's getting tested. So what does it mean? Right. Like it's sort of anyway, I just, I find it very noticeable. It's kind of like, here's the thing that as a world, we just don't talk about. It's not that we've forgotten about.

1:06:31We just, we don't, we, we have, we have pushed it into a little ball and we've just like deep into our subconscious like we just don't want to talk about it and it happened so quickly i mean yeah we even in society we went from we're really gonna be careful to i'm so sick of this i don't care anymore yeah that was within months let alone years right i can't remember the last time i put a face mask on oh god uh i did for a doctor's visit because i doctors would like doctors was the last one to take them off yeah and i would say that was probably two years ago yeah um but Yeah, it's – and you kind of think – anyway.

1:07:02So economically at least, or markets-wise actually more particularly, just a reminder, I think it's worth looking back because it will happen again. Not COVID, maybe not even a pandemic. Maybe the fall will be bigger. Maybe it'll be slower. Maybe it'll be longer rather than sharper. Remember the GFC decline? I was going to say it worked for about 18 months. It was just horrible, slow, grinding, just misery, you know? And that was, again, just to remind people at the time, there were very, very smart people, experienced people making comparisons to the Great Depression. Yeah, that's right. And I'm not even saying that to poke fun.

1:07:41It was like the global financial system was melting down in front of us. It could have been, by the way. I mean, you never know the counterfactual, but finance people, economists, government people took actions in those couple of weeks. Had they let it go, what would have happened? I don't know. You and I have argued about what role you're going to have intervening. But the reality is maybe things are better off now, but it may have been worse in the meantime. The counterfactual is impossible to know. That's why people freak out. And again, we shouldn't assume these things can't be terrible. Could COVID have been worse if we've done nothing?

1:08:15Yeah, very probably. So, you know, it wasn't that bad. Well, it wasn't that bad because we did something. Never mistake the outcome for the inevitable conclusion without action. And my point would be it's bad either way. Like when the GFC broke, there was no possible future reality that was a good outcome. It was just like, what do you want? Do you want like a brutally crushing depression for a couple of years or do you want hyperinflation? That's right. Choose wisely, good luck. Yeah, yeah, yeah. Well, that's actually a bit unfair because the inflation in post-GFC was all asset price inflation, never really entered the real economy.

1:08:52But again, might it have in different circumstances. Yeah. This is the, we, and you and I try not to do it. I suppose we're as vulnerable as anyone else, but we all look at the whole, see what happened? That thing was always inevitable. So we should assume, you know, every one of those is just, humans aren't very good at thinking about the counterfact. What might've happened otherwise? Well, it might've been asset price inflation, might've been price inflation, might've been a five-year depression. We might've had unemployment go to 35%, or maybe it lasted six months. it was really terrible for that period of time.

1:09:19We jumped at it really quickly and there were no side effects. All those, like everything is possible. This is why it's so bloody hard to work it out. I guess that's, maybe they can go full circle, mate. My point, I'll jump back in if you want, but my point is for all of that, because of all of that, I reminded that we recovered. If you look at the chart, I'm looking at a all-time chart out of Yahoo Finance because I wanted to get some dates. The chart only goes back to 985, so only. 95, the 87 crashes there. I actually didn't realize it was there until I actually looked at when the start date was and went, oh yeah, it's there.

1:09:49And then you see the GFC, and then you see the COVID crash, and you see a straight line, you see a wiggly line with relatively modest falls and rises that goes from bottom left to top right because things gain in value. And so what's the value of looking back five years? I mean, hopefully there's societal lessons, there's some medical lessons to learn, there's some governance lessons to learn, God forbid. But the point was things get better. And so next time it happens, we will look around and go, oh my God. Now, you can try at that point to say, how can I keep my head above water? What can I look at in history to try and remind myself it's not as bad as it looks?

1:10:25You can do it and you should do it, but that's really tough to do at that point. In times of maximum panic, trying to make yourself rational is really stupidly hard. If you can look back now, grab a, you know, again, go to Yahoo Finance, type in the all ordinaries and have a look. From 985, you see the 87 crash, you see the GFC. And by the way, they're big falls. People say, oh, they're still big falls. Yeah, they are. Yeah, they are. Exactly. but the market goes higher over time and it's now near a record high maybe the next three months is awful maybe the market falls 30 % maybe it rises 20 % maybe it's somewhere probably somewhere in between just keep perspective because that is where the difference is made 100 % yep I mean it's so I think we bang on about it as much for our own sake because you it's the kind of thing you mutter to yourself in the shower right you know I was like it's okay it doesn't matter you're a monkey There's no place like home.

1:11:17Your monkey brain is just going, oh, this sucks. Oh, my God. What do we do? What do we do? What do we do? Yeah. Yeah. You know, it's not honestly, not to bring this up as a topic, but, you know, Bitcoin's had a bit of a slump lately, right? Okay. So it's important to talk about when things go not so well either. Well done. So I mentioned it. My wife's very smart. She goes, you haven't mentioned that for a while. It's like, oh, don't worry about it. But, but again, you've got to, you've got to step back and go, yeah. So, so what? I don't understand. Yeah. It's, and I'm saying, again, I'm saying this for my sake as much as anyone else's.

1:11:56Like, what's changed? Yeah. Yeah. Like, well, Trump did some 25 % tariff thing on the EU and then I, okay, okay, cool, cool, cool. What does that mean for the long-term thesis? Well, nothing really. Probably strengthens it in a way. and not to make it about that particular thing. No, that's a good point, man. Let's say that there's another really nasty X event and it's like, what does that mean for Woolies? What does that mean for CSL? What does that mean for, well, it means the share price is going to take a bath. That's what it means. But that's not the question. The question is what it doesn't mean for the business.

1:12:31And honestly, I think it was Morgan Housel who said this, it's just one of my favourite finance writers, is that every crash that you see on the horizon is seen as a risk. Every crash in hindsight, he says it much more eloquently, is seen as an opportunity. That's true. And it's true because when I look back at that chart that you just told me to bring up, I look at it and go, why didn't I buy more? Yeah, that's also true. That's always what I think, right? I thought it in COVID. I thought it in the GFC. I thought it every little wobble along the way. And yet when I look out there and you think, There's a whole bunch of reasons to be bearish right now.

1:13:08It's just like things are getting real out there. Oh, my God. However, I think, well, there's nothing I can do to protect the downside other than a whole bunch of too smart for your own good strategies that generally just drag your long-term returns lower. So unless you're some genius at timing, there's nothing you can do. So it's like, well, I'm just going to try and make sure that I own some pretty decent things that will survive and prosper. and that, you know, and again, everyone's situation is different, but I'm still working. So, and it will be an opportunity to pick up things. Here we are sort of criticizing, you know, Woolies and CSL.

1:13:46And that was like, tell you what, 50 % discount, my opinion changes radically on top of that. And there'll be people on the other side of that that'll go, oh, you got lucky. And it's like, that's where I always get really annoyed. It's like, no, no, I didn't. I mean, there's luck in everything, right? So you can't divorce yourself from it, But it's just sort of like, no, I did the hard thing. And then I kept doing the hard thing just by sitting there and doing nothing while Rome was burning, right? Like you can't credit investors enough that can take that on the chin and act in the rational way when every fiber of your being is telling you not to do it.

1:14:26So it's just, as we said at the start, we're in spitting distance of all-time record highs. We had a pretty good earning season. and here you or I are talking about potential crashes and the rest of it. But this is the time to talk about it. That's exactly why. Yes, exactly. Because it'll come. You're already prepared for it. Maybe it's 10 years away or maybe it's tomorrow, but probably more likely tomorrow with what Trump's doing. But who knows, right? Like, I wouldn't short it. So give us something to talk about on the pod whenever it happens. Just a quick reminder too, and we'll wrap this up, but there are some very fun managers, I've said this before, who in February and March of 2000 said, I'm selling, I'll get back in the market once COVID's gone because then the risk is gone.

1:15:04Yep. And firstly, COVID's not gone, as you said. They're still around. There's still infections. But also, by the time the pandemic was declared over by the World Health Organization, it was still, you know, huge. The market had recovered mostly, if not completely by then. Yeah. And so waiting until the coast is clear, Buffett says, here's a Buffett quote, we haven't had one yet. You pay a high price in the stock market for a cheery consensus. When you're waiting for the clouds to clear. And by the way, when the sky is clear, when no one's worried, when everyone's excited, that's your warning sign, dude.

1:15:35You don't get back in the market. I don't want to say you get out of that point either, but you're like, okay, you look around and think, hang on, everyone else is just doing cartwheels over here. Yeah, that might be the time to have a think. Again, not to talk about Bitcoin again, mate, and it's different, I know, but there's no surprise that one of the last big slumps in the price, again, for sentiment reasons, not for fundamentals. happened after the cab drivers and Uber drivers stopped telling me. I got an Uber. I used to go to the Gold Coast and every Uber driver was a Bitcoin miner on the side.

1:16:02Yep. And there's no surprise that that coincided with a peak in the price. Why? Because Centiple was just through the roof. Now, again, it doesn't mean the price can't go higher. Look at Woolies. Woolies is up over 40 years. Why? Because the business is fundamentally better. But at certain times, the price is just too high. That's the difference between the business and the price. JP Morgan used to say, you know, when the shoeshine boy is giving you stock tips, it's starting to get out of the market. something to that. Yeah, yeah. A different time, obviously. But yeah, I 100 % agree. And here's the other thing too.

1:16:33Whatever it is, is not on the radar. Yes, that's - Or even if it is on the radar. Yeah, exactly. Exactly. Or even if it is on the radar, the way it plays out will be different than you expect. And so you can't, you just can't do anything other than prepare, don't predict is the mantra, I think. And by prepare, I don't mean buy gold and bury it in your backyard. You know? I mean just mentally prepare for those feelings because it's going to be really rough. And treat it for what it is, which is an incredible opportunity. It really is when these things happen. Nicely put. Mate, will you come back on Sunday?

1:17:14Yeah. I'll dial in from the Caymans. I'll probably be over in that office at that point. You'll probably swim there, given your Sunday morning. Actually, that's a good point. I will. I'll do that. We will find out on Sunday morning when we chat. In the meantime, enjoy the first half of your weekend. Send us an email if you want to answer one of your questions. And full on. Cheers.

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