Mailbag: How to evaluate growth opportunities? August 17, 2025

22:20So even in a worst-case scenario, we're looking at a temporary bump in prices, not a recession-grade shock. And remember, VAT and GSE are permanent taxes on everything, while tariffs are narrower and more negotiable. if the UK and Australia could absorb a 10 % GST without tipping into recession the US can certainly handle a tariff with a maximum 1.2 to 2.4 % in footprint and probably far less in reality. Thanks again for all the work you do the pod makes investing a lot more accessible and fun. Fool on Graham he then says P.S. if tariffs ever extended to Bitcoin how would Andrew cope? Might need an emergency episode and a strong cup of tea.

22:54Thanks Graham. I lost it all in a boating accident Graham so So, unfortunately, there's not much they can do about it. The bottom of the harbour now. Yeah, it is somewhere in a hard drive, yeah. Such a shame. Yeah. So, a couple of things, Graeme. It doesn't just impact consumer imports. It impacts all imports. So, that's worth bearing in mind. And, of course, it's obviously import costs in terms of raw material costs and other things as well. So, I'll put that there and just kind of leave that to one side. Here's the challenge with this one. When Australia put the GST in, we took a whole other taxes out.

23:24I was going to say. That's the first thing to mention. It's also true that, and this is the problem, right? I think no one, or maybe some are, I'm not suggesting that tariffs will destroy the US economy or cause a recession or cause a spike in inflation. What I think is likely, and frankly, we've just been through five years of this, a little bit of inflation tends to cycle through the economy for a number of years, right? Whatever we've done to help, in quotes, COVID, and we can argue about that, we have, it didn't go away after 12 months because my costs become your prices, your prices become my costs, and around and around we go.

23:56And so it's the flow on impact of inflation that is at risk. And again, let's say it's 1.2%, mate, to your number. US inflation now is, I think, underlying was three. It was released this week. So we'll take that to 4.2. Now, 4.4. Well, it's not 4.2 with the 1.2%. If that's okay, that's okay. Does it make things more expensive? Yes. Does it change things? Yes, it does. Last point from an argument in your talk is not just the cost of the US imports that go up. It's the fact that, frankly, why did Trump want to do it? To make US businesses more profitable? Okay, well, if he does that, sorry, not profitable, more commercially possible.

24:29If he does that, well, the American-made products are also going to go up in price. So it's the substitution effect as well. Again, but again, for all of that, Graham, I don't necessarily disagree with your point. It's not a case of the US economy will necessarily crash or there'll be hyperinflation or long-term inflation. It is these moves will increase prices for US consumers and therefore reduce US living standards. That's just the reality. You can't do anything other than that. If you put the price up, that's what happens. Actually, I have one more point, Ram, sorry. Exporters eating the margin, I don't buy that.

24:58And here's why I don't buy it. Not so it can't happen, but theoretically it's not likely to happen. Why? Because if these things are competitive already, the prices are already at the optimum price based on the competitive nature of other potential substitute products from the US or overseas. There's no margin to eat, in other words. Well, or if... Yes. Or very little. Correct. Because it's going to be competed away by alternatives. Now, if you're saying there's a product that is... And here's the other thing. even if, you know, will exporters eat the margin and maintain market share? No, they want to maximize their profit, not their market share.

25:27You know, some really inefficient, uncompetitive, and frankly poorly managed businesses might say, I want to make less money and maintain market share. Others will say, well, no, I want to maintain my profit levels. I want to maximize my profit. That's the same as maximizing market share. So it may be more profitable at a 10 % tariff or 5 % less than to at a 10 % tariff sell 10 % less just to maintain market share, for example, right? So, I'm sorry, eat the tariff and sell the same amount. So, you know, again, none of these are wrong, right? I'm not sure I'm right. But mathematically, legally, theoretically, and frankly, our own experiences show that when you add tariffs, you make things worse off.

26:04It's just the math. So, you don't have to believe that a collapse is coming or a recession is coming or hyperinflation or long-term inflation is coming to think it's a bad idea. There are risks and U.S. consumers are worse off. There is no offset, by the way, either. Like Australia, we reduce sales taxes and other things. So, yeah, your call. If that's your view, by the way, we'll know in time. Maybe I'm right. Maybe I'm wrong. Maybe you're right. Maybe you're wrong. But the idea of them is not a very smart idea. By the way, here's the other thing. Really quickly, it's not just me. The US Fed, the Atlanta, the US Federal Reserve expects a recession.

26:36And the US Fed this week or last week held rates rather than drop them. Why? Because they feared an inflationary outbreak. So, again, maybe they were wrong. And, again, no one's promising or predicting in absolute terms. So, maybe there's a forecast around. My point is, you know, informed, educated, sensible, thoughtful people reckon there's a pretty good chance there is a risk of recession and or high inflation. And so they're taking steps to avoid it or deal with it. I think it would be silly not to believe it's possible somewhere between possible and likely anyway. Graham? Yeah, I mean, I don't have much to add.

27:09It's one of those things where it depends on what we mean by collapse. And this is where the media really is answerable here because these kinds of things, like it's very hyperbolic, the language, you know, it's going to collapse the economy, which to the average person very reasonably conjures up ideas of, oh, so we're all going back to like living in caves and hunting with spears, like civilization has collapsed. Well, we went through the Great Depression and that was horrible, but, you know, we survived. And, you know, so it depends what you mean by collapse. I think Graham's right in the sense that life would go on.

27:46We'll be okay. Yeah. But to your point, it would cause unnecessary damage for uncertain payoff is the thing. So it's on the margin that if things get better or worse for the US consumer, were worse. And even if they potentially get better longer term, that's uncertain, but it's still a long time between, you know, everything being reshored and building up to enough of a scale and capacity advantage where they can offer the same kind of prices that were coming out of China. I don't know how they do that. Maybe, maybe mass robotics is probably their best opportunity at that, but still, you know, it's, it's, it's, um, yeah, it, there is definitely these particular puddings do get over-egged.

28:33100%. That's how to put it. Yeah. Yeah. And it goes to the extremes, right? No predictions, just kind of like, hey, would you do this if you're trying to run an economy well? Ideologically, people have their views. There are no serious economists who thinks this is a good idea economically. And either they're all entirely captured by orthodoxy, which is possible, by the way. Ren would say that's true of policy, for example, right? So is it possible? Yes. The thing is that, yeah, from experience and theory and logic, it should make things worse off for Americans, and that's probably not something you should want to do.

29:08But if you have a different ideological view, that's completely fine. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

29:21Mate, can we go back to Soulpats and Brickworks, but from a different perspective? Because Jay sent us a question. So hi, Scotty and Rambo. Loving the pod. It's like a stock market smoothie. A hearty serving of insight, a splash of humor, a sprinkle of skepticism. And always leaves me wanting more. Thank you, Jay. Again, that's how it's done. Just a sprinkle of skepticism? I've got to up the game. He says skeptically. With the merger of Solpats and Brickworks, I'm curious. How do you go evaluating a business merger? And that's why I want to ask this question, mate, because it's, yes, about Solpats, but it's actually more about the idea.

29:53I get that one plus one, says Jay, is supposed to equal three in these things. But sometimes it feels more like one plus one equals a lot of empty promises. As a Solpads shareholder, I've always admired their disciplined long-term approach. But are these moves a sign that organic growth opportunities are slowing down? Is Solpads shifting towards a more acquisition-driven strategy to drive returns? What are the key numbers or metrics you look at to tell whether a merger is value-creating or just financial engineering? And what are the classic traps or accounting tricks investors should watch out for when two companies decide to, quote, synergize, end quote?

30:26Cheers, Jay from WA. Yeah, great question. Great question. Yeah, so we've mentioned this stat before, but it's a good one. Of all the M &A activity that you see and people have tracked and measured this, very roughly one third add value to shareholders. One third, it's kind of a wash, doesn't really – makes the business bigger, but on a per-share basis, it doesn't really accrue any value to the shareholders. And one third, destroy value to greater or lesser degrees. So in other words, you've only got a one in three chance that a merger and acquisition is actually going to do anything good for you.

31:00That's just the stats. So that all – I think one in three chance is bad, but equally the same kind of idea, depending on how much more you want to pay for these things and what the synergies look like and how much the market bids it up. Well, why do it if it's a wash as well? Like what is the point of doing it if I'm in the same position afterwards? All that risk it may be. Exactly, yeah. I mean, the reason you do it is because it's called empire building because it is incredibly great for the chair and CEO because look what we did. And it's much better to be a CEO or a chairperson of a$20 billion company than a$10 billion company.

31:31Generally, remuneration packages. And money. Yeah, that's true. Because they tend to align with size. Like, you know, so there's just upping that sprinkle of skepticism there. the cynicism. Yeah. How do you evaluate it? So the trouble with it is, is that you, you have to evaluate it in what they call pro forma. So it's not what each business looks like. It's like, what does each business look like combined? What does it look like after the fact? And, and so you're forced into trying to make some guesses. Now, the first thing that they will always do, and you've already mentioned this Jay, is that, that word synergize.

32:06And this isn't unreasonable. Scott runs a business. I run a business. All of a sudden, we merge. We don't need two people to do the books. We don't need two HR systems. We don't need, there's a whole bunch of duplication that we can now leverage. We can put it all onto one system and it can run the whole damn thing. So we just, we get rid of a bunch of costs. So that's always the first justification is like, well, we can be a bit more efficient. The other one is usually that this is going to give us an opportunity that we otherwise couldn't get. So this, by acquiring this business, we now get a bit of kit, like some assets that we could build ourselves, but it'd be really hard and take a long time.

32:49And so sometimes acquisitions make a lot of sense in that regard. It's just like, that's great. The other one is we just need to broaden our geographic footprint. So WiseTech is a great example of this, a very acquisitive company. And they're buying And companies left, right, and said, I don't forget how many they're up to, but it's more than 100, right? Like lots of little tiny ones. But their rationale, and to date seems a reasonable one, is that it's not so much that we care about this business's software or anything, but we're just buying the clients. These are very sticky products, right?

33:21So it's like we could go there ourselves, open up an office, make our case to customers, get them to switch across, onboard them. And you could, but it's very hard, it's very expensive, and it takes a long time, or we could just buy customers and then just port them all across to our system. So that makes wonderful sense as well. In fact, I could keep going down here. There's a whole bunch of reasons as to why. We could cross-sell, we can upsell, we can combine this, we can do this, we've got a bigger offering, a fuller offering, a thousand different things. What you need to do, though, is you need to evaluate the merit of those things because Hope Springs Eternal and these things are all, I mean, it's very easy after the fact to look at it and go, oh, that was such a disaster.

34:02But it's less obvious ahead of time, right? It's like, well, it makes sense. Gosh, there are a lot of people in China. The US economy is much bigger than Australia. Maybe we should go across there and maybe an acquisition is a great way to do it. But if those assumptions prove flawed, everything's out the window. Unfortunately, you don't know that they'll be flawed until you actually run the experiment and see. So for me, I'm, yeah, you have to measure each on its own merits. For me, I am far more adverse to big, large acquisitions where it might make for a much bigger company, but it's just doesn't, I really can't see beyond a few little synergies, like where's the advantage here?

34:54But I love small bolt-on acquisitions, right? I was just like, well, companies that are involved in tech of some description, not even IT tech, just any kind of tech, it's like, wow, these guys over here, they've built this really cool product and it would fit so well in with what we've built over here. And if we could put that all under one umbrella and bring across some of their really smart devs and do that, it's great, but it's also, it's not like a game-changing business. One of the worst acquisitions I've personally experienced is with EnviroSuite, which I no longer hold shares and didn't work out that well for me as an investment they effectively did a reverse takeover which is just a fancy way of saying the company they took over was much much bigger than they were and it made the business much bigger but shareholders did we did not do well as a result of it it's like an airport noise monitoring business wait a sec you guys that doesn't it doesn't kind of it sort of made sense but not really and the the bigger the acquisition, the more that can go wrong.

35:49Whereas if you make a small strategic bolt on acquisition, it doesn't guarantee that it's going to go right. But if it goes wrong, the downside is less severe. So I try to err on that. But I'll round it off by saying, all you need to do is look at the case that management is presenting and then decide for yourself whether that is reasonable or not. And they always look reasonable because they wouldn't be doing it and pitching it in the investment bank. It wouldn't be there to clip the ticket on the way through if they couldn't sell it as a really good idea. So they always look like good ideas, but whether or not they're a good idea, you have to, I wish I could give you a formula, but you've just got to make your own mind up.

36:26A final thing, final thing is, and again, I always say this is remember, I think too often as investors, we feel as though we must have an opinion and I can't stress this enough. It's just so liberating and just better for your investment returns. It's like, if you don't know, say you don't know and move on. So true. Is this good? Is this, I don't know. Is this acquisition good? I don't know. All right, well, I won't do anything then. Boom, problem solved. I mean, this is where all the professional investing class goes so wrong, particularly, you know, the ones, Scott, we were on TV with them every now and again, and they're just an inch deep and a mile wide, right?

36:59They've got an opinion on everything and feel as though they need to have an opinion, and they will give you an opinion on something. But scratch below the surface, and they don't really know what they're talking about. I mean, who could be that knowledgeable, deep knowledge across so many different domains and businesses? It's just, it's too hard. Other than you and I. Other than you and I, obviously. But normal mortals. Goes without saying, mate. Goes without saying. But you know what I mean? And I just like, there's plenty of stuff where I look at acquisition and just go, and you know what?

37:29You can find out. You will know, not know, you will have a much better idea 6, 12, 24 months after the fact. It's like, oh, that was a cracker of an acquisition. And I know someone will go, yeah, but the share price will have gone up by them. But if it was a genuinely good acquisition, there's probably a lot more to run. But we as investors have to stop looking at things in terms of pure return potential. Because if that's all you did, just buy every speccy company out there because it's going to be the next Amazon. You need to look at it from a risk-adjusted standpoint. Not only has it got a lot of upside, yes, but how likely is that to come true?

38:03And you might have huge upside but very, very high risk, in which case it's a coin flip. Well, worse than a coin flip. It's a D20 for the Dungeons & Dragons fans out there, right?

38:15so anyway I've crapped on long enough what do you think no I like it I'm going to start with what you said which is sometimes you just don't know and in fact more often than not Jay you don't know and so I'm just going to very very unsatisfyingly say make your peace with uncertainty yeah superpower

38:34I don't so honestly I generally tend to be skeptical of them almost by definition because of them as RAM started with and because of the fact that companies don't overpay because all of the human impulses say get bigger, get larger, get more, have more stuff. By the way, that's capitalism in some levels. I know that. But the idea of kind of at a company level doing that as a starting point, I presume in Rams, two thirds of the time it's not going to be a better result. So automatically mathematically, you're pushing it uphill to try and hope you get a better strike rate than average. I've been with businesses who have too much money and looking for something to do with it and want to get bigger and want to believe.

39:11It's not even... So true. they're not even trying to be, you know, disingenuous. They just sit and go, oh, I think we could do something with this. And the M &A team talked to the operational team, the operational team talked to the finance team, the finance team talked to the CEO, the CEO talks to the M &A team and give it three months, they've decided to believe amongst themselves I can make this thing great. And it's not, no one's trying to pull the wool over everyone's eyes. They're just all getting excited about it. And that's fair enough. But so the impetus to do something, don't just sit there, do something, as they say, is huge.

39:42and so that's kind of um that's just kind of you know important so start with skepticism honestly here's the thing when you start with that though what do you then do with that well if if a big business you own and you like is going to buy something and the thing it's going to buy is not particularly large relative to its own size you kind of get to work okay let's assume it's not going to work okay even then is it still with owning the company more than tomorrow than not yes because you know if they're buying something that's five percent of their market cap 10 % of their market cap, might it wrecks up a little bit of value?

40:11Yeah, but if they overpay by 10%, then you've lost 1 % of your market value, mathematically, right? And so at that point, it's like, well, am I not sure of my own valuation that I can judge and assess and therefore buy or sell on that basis? Probably not. If it's going to be a merger of equals, so-called, then that's kind of both more challenged, but also easier. Because you can look at both and say, I like them individually. Do I like them together? And if you're buying a public company, then buying a public company is much easier. Now, SopEx and Brickworks is a little bit different. I'll get to that if I get some time.

40:40But if Telstra was going to buy TPG Telecom, just to pick two numbers, I actually own Telstra shares, a couple of them. You can look at both and say, right, I think Telstra's worth this, TPG's worth that. How much are they each paying? What does it look like? And you can kind of work it out. So you can kind of do it that way to try and kind of understand the savings.

41:02Generally speaking, I don't have a good answer for you Jay I don't have a good answer because I don't remember the last time I looked at an acquisition and went either I think I know what this is going to do or I think I have a view on what it's going to do to the company's valuation so I have a view whether I should buy or sell some shares as a result I don't think you've ever done that I don't know if you have just hard so it's kind of more a comment on management than it's about determining an investment thesis change if an organic growth business is suddenly going to acquisition growth You might look at that and go, well, I like the organic potential they had.

41:35They seem to have run out, which is kind of your question, Jay, about SOPATs. In other words, have they fundamentally changed their business? That's a reason to re-evaluate with these altogether, which is they went from organically growing to now having to buy to grow. That's a lower quality business almost by definition, almost all the time. Not all the time. By the way, remember SOPATs is a listed investment company. They do this for a quid. They buy and sell assets. That's their core rationale. So when you ask about SOPATs, it's a very different thing to a – if Tosh was buying TPG, that's different from a listed investment company buying some investments because that's kind of what they do.

42:05So you got to take a very different lens to those sort of businesses than you do to the companies. But really, really unsatisfying, Jay, overall on average, I don't have a view on how I generally consider acquisitions unless it's a company that has a track record of them. Either way. If it's not a couple of them bad, I probably already sold. If it's not a couple of them, they're good, I'm probably going to back them. I own corporate travel management. I've mentioned that for a while. They regularly buy businesses. They've got a very, very, very good track record of buying good businesses at decent prices.

42:33Yeah, that counts. And it's part of their core strategy. So I'm actually really happy with that. G8 education, for those who remember the childcare sector, ABC learning before it, worse than G8 for the record. I'm not saying they're the same. Did a bad job of it? And investors got carried away with the acquisitions and overpaid for it. So in that situation, you look at that and go, okay, there's a warning. Generally speaking, I don't like acquisitive companies. Corporate Travel is an exception so far. Maybe it ends up making the same mistakes in time, but so far, so good. On Solpats and Brickworks, really, really quickly, Jay, and apologies for doing this one again.

43:02We talked about Solpats three times already. They're a listed investment company anyway. This is a merger of equals. It's not really Solpats acquiring Brickworks. It's just whacking the assets together and coming up with a price. If you liked one and not the other, you'd have a reason to say I'm re-evaluating. I already own them both. I own hypothetically$1 ,000 of each. I now own$2 ,000 of one of them. Nothing else really changes other than a couple fewer people in the boardroom. It's a non-event for me, as I've already said. So it is a case by case. If it's a big company buying a very large company that's similar to its size, that's generally a red flag.

43:32This is a genuine merger of equals because they're creating a new company to buy shares in both. So it's about as close as it gets to a proper genuine merger. Most mergers are actually just takeovers because it disguises mergers to make people feel better. This one is literally, I guess the Soilpats take over to some degree because Soilpats runs the combined business. But yeah, they own half of each other already or 40 % of each other and it's largely a combined business. I'm not particularly worried about it. I was just going to make one point which is not on the specifics of this acquisition, but just to make the point of how hard it is, do you remember back in, I'll take you way back, 2006 and Google, before it was Alphabet, bought YouTube.

44:15YouTube, yeah. $1.65 billion US dollars. I'd love to find the headlines for that too because it was stupidly expensive at the time, wasn't it? My AI assistant thinks I'm talking at it. Sorry, so bought YouTube for 1.6 billion. More I in the AI, please. It was pilloried far and wide as ridiculous. At that point in time, they only had 70 million users. Now, any of us would kill to have 70 million users on our platform. But I don't know what it is today, but it's billions, right? But my point is that the very, quote, unquote, best and brightest of all analysts out there got, oh, that's a mistake.

44:57Oh, that's a mistake. Yes, yes, yes. It's way too, great business. How did you spend so much money? You're ridiculous. Sign of, you know, bubbles and euphorias and all of that kind of stuff. Probably one of the best acquisitions Google has ever done, and they've done a bunch of them, right? And there's a long list of examples like that. So it's just, my only point with that is just to sort of say it's really not obvious at the time. There are things that look stupid and turn out to be brilliant. There are things that look brilliant and turn out to be stupid. Yeah, exactly. You've just, it's another point.

45:26You used to call it MySpace, right? Yes. Great example. And then, like, we laugh at that. But, you know, history may have gone a different way. In other universe, MySpace is the world's leading social network, right? Yeah, like Facebook never got off the ground, right? And they just - Or did, and it kind of flew high and then burned quickly, and MySpace kind of came out from the ashes and left it. Yeah, like, right. And so it's - So one of the other things, which is just generally true with investing, is you've got to - We say this a lot often as well, but it's that idea of strong opinions loosely held.

45:57So my first point is, if you're not sure, you're not sure. That's fine. Just own it and move on. If you feel as though you're sure, then absolutely make a decision. But just recognize that even if you're sure and things really look as though they're lined up in a right way and every box is ticked, you still might be wrong. I've been doing this for decades at this point, and I can guarantee you that hubris is by far the greatest wealth destroyer. And pig-headedness, and I'm definitely going to squarely point the finger at the males here because it's 90 % males for whatever reason. But, yeah, just like it's not a loss.

46:31The amount of times I've heard people say, it's not a loss until you sell. And yet it's a profit before you sell, isn't it? But it's just not a loss until you sell. That's interesting. And, look, I've caught myself saying these kinds of things before. So, okay, you thought it was good. It didn't turn out to be good. Then get the hell out. Or wait until a bit more information has come. and then make a decision. You know, just be flexible in your thinking. Admit what you don't know. And you'll go a long way just on those few things alone. I like it, mate. I like it. Really important. Hey, this feels very much like the Scott Phillips Portfolio edition.

47:11And my apologies in advance. I promise you I'm reading the questions in order. So JB sent us an email. It's not about Sol Pats. I won't give you any more of those today. Greetings to the off-roading King Scott and the road-running Ram, says JB. I've been looking closely at ARB. now I own shares. There's a lot to like. Founder-led, strong brand, good margins, sell stuff I understand, and a long track record of solid execution. Short-term concerns over US tariffs seem overblown for ARB and has me wondering if this is a buying opportunity. But looking ahead, the main growth narrative seems to be international expansion, particularly into the US market.

47:44Given how many Australian companies have struggled to crack the US and often end up writing off large investments, how do you evaluate whether ARB's move into the States is genuinely a strategic growth opportunity versus another case of chasing the American dream. What specific factors do you look at when assessing the quality and likelihood of success in an international growth strategy? And how can retail investors, JB's words, not mine, Ram, separate substance from optimism in these kinds of expansion stories? Cheers, JB. Oh, great question. So I was furiously nodding with your lead in there, JB.

48:16It is, it's a phenomenal company, just outstanding. I love it in every way. perhaps accept the share price. But I say that without having looked at it closely for a while. So maybe I need to come back and revisit that. By the way, do you find that made as a, I won't include you in this, but at least for me, it is definitely a weakness of mine. I form a view and then go, I don't like that. Or, you know, I like it, but it's too expensive. And then that's it. And then I don't come back. You've really got to come every now and again, you've got to go, well, I thought that, I may have even been right, but that was two years ago.

48:48And maybe it's time to sort of, you know. What's changed since then? What's changed since then? So I'm actually just buying some time to bring up the chart. Get what JV is sort of saying. Nice, nice, nice. It's funny, right? So the shares are down meaningfully on where they were this time last year, up on where they were in March, and meaningfully off their highs, all-time highs in 2022, about$52. They're down at$35 now. Yeah, yeah. Isn't that interesting? And yet, when you look at the earnings per share, it's not perfect, and there has been a little bit of a dip in recent years, but pretty good, right?

49:17Anyway. Yeah. How do you do it? So the first thing I will say, just because it's something I'm thinking more and more about lately, is I genuinely think the pursuit of – fewer things have destroyed more shareholder capital than the pursuit of growth. That's so true. And it's just like, what are you talking about? It's like, you've got to grow. Do you? Do you, though? And I'm not saying that from some weirdo ecological kind of stance and growth is bad. No, growth is great. Growth is brilliant. as an investor, I very much want growth. Growth is fantastic, right? However, the caveat there is I want low risk growth, high opportunity growth.

49:59I don't want growth where I've got to lever myself up to the eyeballs and take a moonshot here to see if it's going to pay off. You know, like, no, that's not growth. There are plenty of businesses that would have, I'm so sorry for repeating this example, but it's such a good one. I don't know if it's still true, but it was five, 10 years ago where Altria, the cigarette company, was one of the best performing investments you could have made over a 20-year timeframe. It's like, that doesn't make sense because we know smoking rates have declined precipitously over that period. So the very thing that they're selling, they're selling less and less and less and less each year.

50:38How is that even possible? Because they didn't try and grow. That's how it's possible. So they just said, well, we've got a huge amount of fixed cost and capital equipment that we've already invested in. It's sunk cost, which is there. So let's spend a bare minimum just to make sure that it stays operating. And we'll just crank it out. Because don't forget, you're just putting in plants at one side and a bit of paper and some, you know, cigarettes come out the other end, you can sell it for a much bigger amount. So, so, so, and rather than trying to pivot into something, and it's not as clean an example as I would like to make it because there was a bit of other investment and stuff.

51:14But they basically said, we're just giving all the money back to shareholders. Now, in a parallel universe, management full of, you know, a bit of vinegar when, no, we've got to grow. So we're not going to pay much of a dividend and we're going to be the new, I don't know, we're going to get into heroin or whatever it is a cigarette company looks to get into. And it probably wouldn't have worked out well. So by recognizing the probability of success in your growth strategy, I mean, it just goes a long way. And if you were just to sort of say, listen, we don't have a lot of growth opportunity, but even if we're dying, it's a slow death and it's going to take 20 years to bleed out.

51:58And in the meantime, we're just going to keep the lights on, run on an oily rag and just let all of the owners of the business just take the cash and invest it elsewhere. You can do really, really well, but that is very, very, very rare because of ego and hubris and all of those kinds of things. So growth, growth, growth, growth, growth, and it usually ends badly. But with ARB's case, I wouldn't say they have to, but I'd say if they want to grow, they kind of have to go overseas. And America is a logical place to go, right? They speak the same language. They love their four-wheel drives. It's a huge economy, et cetera, et cetera, et cetera.

52:32We've got good trade relations. It's the obvious place to go for them. Now, maybe the better bet was just to say we've dominated Australia. That's it. We're just staying here and we're just going to do what I said. I don't have any problem with it. Where I think the smart managers, what they do is they dip their toe in the water because they don't, no one knows. So you go, look, we might be, look, America's massive. If we can capture a bit of the market there, we can make a fortune. So again, what most people do, armed with other people's money as managers, is go, hey, we're going to open an office and a factory and we're going to do this and we're the great, everyone's going to love us.

53:08Oh, it worked very badly. And oh my gosh, look how much money we blew up. But if you can sort of say, well, I don't, it sounds like it. Does it sound like a good idea? Yep, sounds very reasonable. Have we got a good product? Yep. Do the Yanks like us? Yep. Okay, let's try it. Let's go to Texas and we'll set up a store there and we'll see how it goes. Now, if it turns out that it doesn't go well, Have you destroyed money? Yeah, absolutely have. Is it meaningful? No. You tested the waters. You dipped your toe in the water. It didn't work out. We thought America was good. We learned the hard way that actually there's all these cultural factors, competitive factors, whatever it happens to be, it just didn't work out.

53:44Now, you can learn that lesson by investing 5 % of your available CapEx budget or 180 % bit of leverage and some borrowing and some capital raisings. and unfortunately too many people go very hard at it because they are so convinced of their own brilliance so i and and i i management really i made this point maybe it was off air or maybe it was on the pod last week ago but like so many investors just so harsh and critical on management teams where growth plans don't work out and i feel as though it's a shame not to sort of say that we should give them a free pass on everything. But it's sort of like, we shouldn't criticize them if their attempt was well reasoned and measured, but it didn't work out.

54:28Like that's, that is the story of business. Anyone who has run a business, you show me a business person who is like only made correct decisions and I'll show you a liar. Like you're going to make mistakes, but smart operators make small calculated bets so that when the mistake invariably comes, it doesn't hobble the business and they can go on to fight another day. So I don't, I'm not close enough to the ARB story. I think it makes sense. I, um, they've definitely got really capable management team. Um, I think they've got every chance at it, but I just hope that they're going in it in a measured way.

55:03And if they're doing that, even if it doesn't work out, I will still say it was a sensible thing to do. Yeah. I can't add much more to what you said around my own shares, as I've said. Um, So, a couple of things, just the question. So, firstly, export sales are already 35 % of total ARB sales as of the last half year, right? And by region, I'll grab it here, Asia, New Zealand and Pacific sales up 17%. EU, Middle East and Africa up 11%. America is up 18.7%. So, and not that you didn't know this, JB, I'm sure you do, but just for what it's worth, this is not a – I feel like I'm saying it because I'm trying to support ARB.

55:44I'm not, although maybe I'm impossible to separate my own bias from my comments. So it's already a third of sales, and those sales are growing more quickly overseas than Australia. So to some degree, the thesis is kind of playing out to some degree. Now, they actually export sales, right, rather than local purchases. That's what I was going to say. It's a distinction. Right. Well, there is more, though. So to JB's point, they've also bought a couple of four-wheel drive accessories chains in the US more recently. So what they've done is, and again, I'm not, you know, so I'll come back to the value ratio set because I haven't answered your question, JB.

56:14Firstly, they're getting some success. ARB's products are clearly resonating and growing in those markets. So they've proven to some degree, very early and very small. The US market's massive. Their market share is probably tiny. But they've proven they can successfully sell their products overseas and they can grow those sales overseas. So there is a there, there, as the cookies like to say. They bought two businesses, Four Wheel Parts, 4WP, and ORW, Off-Road Warehouse. They did that September 2024. They bought Off-Road Warehouse in 2024. This is a business that they are, and they bought a share of it, and it's growing and all that kind of stuff.

56:52Anyway, so basically they're trying to expand into the retailing area in the US. And they bought an existing business. Now, we talked about mergers and acquisitions before. This is kind of a bit of both, right? On one hand, they're exporting their brand a product out there. On the other hand, they're buying a business. Why? Because it gives them. Now, it's riskier. You're buying a business. You're being a lot more money if you just open one store and open a second or open a third store. So that's a risk. By the same token, they bought a company, companies that have a sales pipeline, have customers, have brand recognition and have 53 retail stores in the US.

57:24Now, they're in half of that business for now. So it's measured-ish. Maybe it still blows up. Maybe they bought a failing business. Maybe the acquisition doesn't work. Maybe the combination doesn't work. Or a great business but they overpaid or something like that. Yeah, great example, right? So who knows? No one knows. It could be anything, could be nothing. But I think they've been relatively measured, relatively measured. The last thing I would say, JB, to answer your question, how do I do it? I don't add too much in the valuation for that growth. So, you know, could Woolworths go to the US?

57:54Yes. If they decide they announced it tomorrow, would I pay suddenly more for Woolsey shares? No. I'd like to think they can get growth. But are I prepared to lock it in? No, absolutely not. If I get it, there's upside. If I don't get it, there shouldn't be too much downside. So effectively, what I try and do is strip back that expectation. If the share price suggests it has to be successful or I'm going to wear a massive loss, I'm not going to buy the shares or I'm not going to hold the shares. If the market said, oh, my God, ARB is going to dump to the US, we're going to have a P of 100 because it could be a$200 million business there by next Christmas.

58:21I'm like, well, I love the business, but I'm selling it. I'm not going to pay that price. ARB, to be fair, is somewhere in between. The PE is currently 28 times, which is a lot for any business, meaningfully above market average. So there is some element of growth there, but it's not just in my mind, US or bust growth, because as I just mentioned, they've got that export business, which is long run, been around forever, have a good solid base, and that's growing. So you're kind of, it's difficult to kind of say, you know, a lot of it's predicated on US growth. Yeah, kind of, but that growth is kind of already coming and happening.

58:59So you're not paying for a green field, maybe possibly they'll be successful in the US and if they're not, I'm going to zero. You're paying for a business with Australian base, two thirds of sales and an international, one third of sales, international is growing faster than local, which you kind of want, right? Because it's a bigger market overall. So if you can grow faster in your market with the biggest potential, that's a nice upside. Am I saying it justifies the P of 28? Implicitly, yes, because I own the shares, but I'm not saying you should run out and buy the shares. I'm just saying for me, I'm happy to pay that price based on the chance they continue to grow internationally.

59:31I think it's a pretty good chance, by the way. The track record has been very good. I'm just looking at the Prezzo now. It feels like it's going really great, actually. The purchase of the retail stores, that's far less certain. But I'm not paying a lot for it. I wouldn't pay a lot for it. If I looked at it when I'd pay 18 times for the base business and therefore the market's asking for an extra 10 times on the off chance that the US might be successful, I'd probably sell. Because I don't pay that much for the chance that maybe possibly it does well. Thus far, the track record's been good. I like management.

59:57They seem to be sensible. They've laid the groundwork. They're slowly expanding. They also bought by Mitz Alloy, a canopy maker in Australia, which does a really good job of what they do. I'm really familiar with the category. I don't own a Mitz Alloy canopy, but I spent a small fortune at ARB recently. So I have added my money to it. But yeah, so I'm not going to tell you you should buy the shares as Ram says regularly. Don't buy them because we're talking about it. So I went through the details. The honest answer, JB, is I don't pay up for greenfield potential. And once I say greenfield, I mean as opposed to brownfield, right?

1:00:30Growth export sales that are growing, I'll pay up for that because I think they're going to keep growing. Am I going to pay because I say, Company X is going to go to the US? Would I pay more on that basis? No. Two stores, not a chance. I'll happily buy it and hope I get some upside, but I'm not buying more for the privilege. I'm not paying more, sorry, for the privilege. I'm only going to buy when I see demonstrated success. And that, I think, does justify ARB's growth rate because they've got that international growth, which seems to be continuing. Yeah, and that's that risk-adjusted dimension to it as well because the person who does better does buy it before it's proven.

1:00:59You put it nicely, thank you. But there is a reality where it didn't work out. That's right. You can't just look at a specific outcome. It's amazing how many people do that though, right? It's like watching someone walk out of a casino with a bunch of money and go, what did you do? So I put it all on black. I'm going to do that too because there's evidence that that works. Like it's just, yeah, okay. I just wanted to make one more point that, or just touch on one more point that JB made, which I just thought was really on the money, actually. He said the tariff thing seems overblown. So do tariffs impact ARB?

1:01:34100%. 100 % impact them, right? It's going to get copped by it. Does it undermine everything they're trying to do with the US? No. You just said you spent a small fortune on ARB, right? The kind of person who buys ARB. Hey, hey, hey, careful what you say next. Oh, no, I'm going to be very flattering. No, I'm going to be very flattering. The kind of person who is compensating heavily for, no, no, no. The person who buys ARB equipment. He's an idiot. Is doing it because they are quality oriented. Yes. In other words, there are two types of retail consumer. There's the value oriented person. Yeah.

1:02:21It's just like cheap and nasty. I don't care. All I care about is price. What's the cheapest? I'll take that. If I'm feeling rich, I might buy the second cheapest one. And then there's the kind of person which is like, no, I'm all about the quality. Now, if you're the kind of person who's worried about price, you're not buying ARB anyway. Yes, correct. If you're the kind of person who cares about quality, 10 % more ain't going to make any difference. So I had a friend. Well, it's more than a friend, actually. It's a brother-in-law. And he's got this really nice little business. He buys cars from Japan and sells them to the US.

1:02:55Oh, right. Yeah. Wow, okay. Really impressive, actually. That's a whole business, yeah. Oh, man. He's been through all kinds of stuff. But the terrorist came through. He was freaking out. And this was, when was this? This might've been Christmas time and I was catching up with him. And I was like, so who are your clients? He goes, oh, rich dudes. I mean, they're buying, they're importing cars, right? In a shipping container and paying hundreds of thousands of dollars for it. These aren't the kind of people who care about a 10 % import. Like you're already got more dollars than cents at this point.

1:03:31I'm not having a go at them, but they are so ridiculously rich that this isn't the person that now is having to make a choice between, gosh do we eat tonight or do i import my my custom-made car from japan like you just it doesn't happen so i i yeah i've got to i'll sandbag a little bit here i'm not saying it's irrelevant yeah but but i but i am saying it is totally overblown and this is a classic knee-jerk reaction because i always say like when you're seeing something that happens to a company that is negative ask yourself is it structural cyclical is it or which is probably doesn't capture everything, but it's more about trying to say, does this undermine the very viability of the business?

1:04:12Or is this just another challenge that you have to deal with because you are a business, right? And if it's the latter, again, it's not that you're going to celebrate it. Yay, tariffs. Isn't that great? No, it's bad for us. It's bad. But does that mean that the business is now going to zero? No, it doesn't. ResMed was the other case. Remember when the GLP, what's it called? The skinny drug. Zempic. Zempic came through. ResMed collapsed. It collapsed because everyone did the knee-jerk reaction that it's like, oh, no one's going to need a CPAP machine anymore. What? No. I mean, maybe it has an impact and maybe over the longer term it becomes more of an increasing impact.

1:04:54But that was such an overreaction. I love these setups. I'm just kicking myself because I didn't take advantage of that. And now I'm looking at ARB thinking, huh. because isn't that market worrying about something that it shouldn't worry about to the extent it is, is a gift to the patient investor. Yes, yes. And I just want to make the point that I'm with you, JB. I don't think tariffs are really going to amount to a hill of beans in the grand arc of time when it comes. When we write the history of ARB in 50 years' time, I doubt there'll even be a footnote on this. Yeah, I think that's probably right.

1:05:32Yeah, you're making a great point of resume too much quickly. ResMed and Cochlear both had issues with other... Cochlear was withdrawal. ResMed was... I did make a lot of money on that just quietly, or not so quietly. I'm happy to say we recommend ResMed to our members actually towards the end of 2023 and we're up at 75%. But yeah, hashtag humble brag. But yeah, stupid me didn't buy any. So there you go. Can't be that smart. Mate, can we finish with a particularly important email? Yeah, I'm intrigued. All right. I hope you're going to pay attention because there's some things we need to hear. Please refer to me as Camembert Thistlethwaite, says our correspondent.

1:06:14I want my friends to know I'm in touch with the common people. You two, how hilarious. Two communists working in finance. You do make me laugh. Andy, can I call you Andy? I currently own a few houses in Australia and abroad. Don't we all? I own all the blue chips, but no Blipcoin or Biltcoin or whatever. Can I use this in Monaco? This is my accent, not his. Scotty, hooray to you for supporting us little people with so little super and franking credits. But how dare you talk about a wealth tax? It pains me to use those words side by side. My meager assets were entrusted to me by daddy and I've almost managed to still have the same amount he gave me in 1980.

1:06:50Give or take a million or two. My 60-40 portfolio is working perfectly, according to Pinstripe Codswallop, my money man. My question is, how are little people like me to make a living off the taxpayer? if you communists abolish capital gains tax discounts and negative gearing. My Lamborghini had that problem once and I was forced to have my driver ferry me around in the Bentley. But I digress. Interviews are well taxed. Read politicians of the ability to take advice from my friends. Give every newborn$5 ,000 at birth. Increase taxes on poor people earning only$200 ,000. Dismantle trust funds. Daddy is rolling in his grave.

1:07:26And abolish the RBA. How will Trini, Fluffy Lala and the rest of the rowing club I'm not living if you do that. Please help. My butler Bernard wrote this for me. All mistakes are his, but all genius is mine. Forever, truly, sincerely, Camembert. Camembert. I loved all of it, except the being called a communist. I'm like, how dare you? How dare you, sir? How very dare you, Camembert. How very dare you? That is, I, no. No, hard no. not of that persuasion whatsoever but yeah I mean there's a lot of truth in like that's the best thing about comedy right like it is it is a way of telling a truth that can't be stated in other ways so yeah you really you covered a lot there Kevin Bear I like that very much very much alright that's all we have mate for this particular episode I had to finish with that one though it tickled my fancy so thank you Kevin Bear for emailing in I trust you have sort of the Lamborghini problem and you now have both vehicles available to you.

1:08:32Although, unfortunately, a Butler can only drive one at a time, so I suspect you probably had to put on another driver. But hopefully the wealth tax won't hurt you too bad. What else do you do? If there's another way around that problem, I'd like to hear it. I'm sure if there was, Camembert's money man would have sorted it out for him already. Pinstripe Codswallop, which I quite like as well. Well done. Thank you, Camembert, for writing in. By the way, I don't even know who that person's real name is. I'm assuming it's not Camembert, which it may very well be. Don't assume. Stay in touch, Camembert.

1:08:57We appreciate hearing from you. That's it for us for today. Until we chat on Friday, should we come back, Ram? A straw man will have been very successful, I'm sure, by now. But as long as the money hasn't gone to your head and you're not at the Bentley dealership when we next schedule to speak, I suspect you'll be here. I'm never buying a Bentley. One, because I'll never be able to afford one. But two, no. I just... Your roles, man? Are you not going to downgrade to a Bentley? I had this discussion just the other day with a friend. No, I got a... I'm looking at my car right now. out the window.

1:09:27There's a Nissan Tita 2005 model back there. And it is a badge of honor. We've got two. It's our second car. And I love rocking up in that thing, right? It's just sort of like, I just think it's a, oh yeah, anyway, it's a very Bitcoin-er kind of thing to do. It's just like, it's an ostentatious display of wealth, but it's like, look how much I am not spending so I can stack more sets. I will say I'm not an ostentatious person either but I have said to my wife if we win$200 million in a lotto there are a lot of cars I'm going to buy and it's not the cars you think right I want an old EH Holden and I want one of those army jeep parenti things that people drive around in and they're just kind of always because if you've got that much money I'll probably give money to charity but it's one of those people like if I had that much money I'd buy stuff that's just cool because I want to own it and there'll be no Ferrari there'll be no Bentley no Rolls no Maseratis, no Mercedes, no BMWs.

1:10:29Do you think all this? We used to have Kingswood station wagon when I was a kid. I'm going to buy another one of those just because I want to drive one around sometimes. So it's going to be the most, I'll have a garage of seven cars, but none of those cars will be any other millionaires placed in the entire country just because I just think it'd be fun to own them and I can't justify it otherwise. Yeah, so in those examples, yeah, I agree. There's something, when I was very young, I went to a presentation by a guy called Peter Thornhelm, give him a shout out. I mentioned him before. He's excellent.

1:10:57Yeah, he's got a book called Motivated Money. It's a pamphlet, really. I'm not saying that critically. It's just very concise. Website too. Yeah. And anyway, he's into his cars. I'm not a car guy, but he's into his cars. But what always stuck with me is he said, I think he likes boating as well. But it's just I've often heard like buying a yacht is like having a cold shower while tearing up$100 notes. Like buying. And the other one is the two best days of your life is the one when you buy a boat and the second best one is when you sell it. You sell it, yeah. And his whole thing was with wealth, you know, don't own depreciating assets.

1:11:36Now that doesn't mean you do what I do and drive a Nissan Teeter around, which desperately needs a new taillight, by the way, is you hire it. So he's like, I want to go up the coast for the weekend. He'd hire a Porsche, thrash the hell out of it, hand the keys back. Nice. And you go, but wait a second, that's not cheap to do. You might, I don't know, I've never hired a Porsche, but I'm assuming it's probably a few thousand dollars. Well, actually, probably more. I don't know, like quite a bit to do it. But the point is relative to buying it, garaging it, servicing it, maintaining it, the depreciation costs and all the rest of it.

1:12:13And then you've just got one car to drive. It's like every weekend I drive a different supercar. Because you can. Because I can, right? And if you add up my annual expense on that, relative to what I would have to garage and again, all that kind of stuff, it's actually much, much, much, much, much cheaper. And isn't that a nice point? So rent the things that do not appreciate. Totally, yeah. I would love to say this was firsthand experience, but I'm not born into privilege and I'm not that rich. But the lessons from the wealthy are very much that. by all means borrow money when you're acquiring appreciating assets.

1:12:51In all other cases, don't borrow money. And in all other cases, rent the things that you, there's a rude joke in there, which I'm going to refrain from saying. I'm sure other people will know where I'm going with that. But you rent the things, you rent those things. Shut up. Oh dear, we almost got through the podcast. Had you worried there, didn't you? My fault continuing the conversation. Because you know the joke I'm talking about. I don't know no such things. Don't you impugn my reputation that way. Talk on Friday. Full on. Cheers. The Motley Fool and people appearing in this program may have positions in the companies mentioned.

1:13:27General 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 License 400691.