In short
Motley Fool Money Sunday mailbag with three main threads: (1) whether PEG ratio is useful for valuation, (2) how to think about a “thesis break” when a company changes direction (Mass Group selling its building & construction business to focus on digital infrastructure/electrification), and (3) debate about national-security spending tradeoffs (“holes in the fence”) plus a listener pushback against “intergenerational hate.”
Guests
Andrew Page, founder of strawman.com (described as reviving it into a major platform). Scott Phillips (host; Motley Fool). No other guests named.
Key claims
PEG ratio is a good heuristic for linking price and growth, but “terrible” as a practical standalone metric due to noisy earnings, one-off write-downs, and oversimplified “PEG <1 cheap” rules. Thesis break requires reassessing whether you’d buy the stock again after selling; if you can’t form a new rational thesis, sell (hope isn’t an investment strategy). For defense, spend only if it meaningfully moves outcomes; tradeoffs and asymmetric returns matter.
Notable examples
Commonwealth Bank (PE ~25 framed as ~4% earnings yield, but not matching growth); Telstra dividend example (high yield that didn’t grow); Woolworths PE ~28 (limited long-term price growth over ~7 years); Mass Group (building & construction sale, shareholder vote pending); “holes in the fence” analogy; Lord of the Rings referenced.
Written by AI. May contain mistakes. Listen to the episode to check what was said.
Chapters
Tap a time to open that second in VOEngaging Listener Questions
0:45 to 2:14
The hosts discuss listener engagement and the nature of questions submitted to the mailbag.
“This Sunday morning, had a good weekend so far?”
Discussion on PEG Ratio
2:14 to 5:10
The hosts explore the PEG ratio and its relevance in evaluating company valuations.
“I look forward to the grief you throw my way for the typos and the screw-ups.”
Practical Insights on PEG and P/E Ratios
5:10 to 7:20
An in-depth analysis of PEG and P/E ratios and their practical applications in investing.
“We have been raging over the last few weeks.”
Yield vs. Growth in Investing
7:20 to 12:12
The hosts discuss the relationship between yield and growth rates in stock investments.
“Like, yes, maybe there is something to it.”
Dividend Stocks and Long-Term Growth
12:12 to 14:00
A discussion on the benefits of lower-yielding stocks with better long-term growth potential.
“But then pulling on that thread a little bit longer, you start to get a real sense of the significance of growth because these days you more often than not have a company on a PE of 25.”
Understanding Dividend Stocks and Growth
14:00 to 18:06
Learn why lower yielding stocks can sometimes provide a better investment return.
“and it completely flips everything on its head.”
Evaluating Company Changes and Investment Thesis
18:06 to 28:04
Explore how to reassess your investment thesis when a company changes its focus.
“But it was a slightly different terminal value of time frame or something like that.”
Investment Strategies and Uncertainty
28:04 to 29:55
Learn how to navigate investment decisions amidst uncertainty and the importance of asking the right questions.
“We could take this, oh, over here, every second phone call I get is can we go and build a new data centre?”
The Endowment Effect in Investing
29:56 to 31:52
Explore the psychological barriers investors face when deciding whether to hold or sell stocks.
“The hard part is going to be, Andy, that you know, the problem with binary decisions when you've got to sell or not sell is you could hold and it goes down and you'll hate yourself.”
Evaluating Management in Investing
31:53 to 34:38
Discover how to assess a management team's capability and its impact on business direction.
“The other thing I'd say is the only other question, I suppose, is the management team.”
Show all 23 chapters
Defense Strategies and Preparedness
34:39 to 36:31
Discuss the complexities of national security and the need for effective defense strategies.
“Let's go to another question then, mate.”
Intergenerational Inequality Discussion
36:32 to 42:00
Engage in a conversation about intergenerational inequality and societal expectations.
“that we can be safer than we actually can be.”
Addressing Intergenerational Wealth Disparities
42:00 to 43:10
Explore the complexities of wealth accumulation across generations and the impact of policies.
“As someone who, growing up, aspired to be a farmer, the chances of that happening are even less than buying a home.”
Philosopher Kings and Governance
43:10 to 44:10
Discuss the idea of philosopher kings and the role of leadership in society.
“If that's what the people want, I say give the people what they want.”
Generational Perspectives on Wealth
44:10 to 46:45
Analyze the differing views between generations regarding wealth and opportunity.
“100 % I think that our, I mean, I feel as though I say it every week, it's way too narrow, way too myopic, way too short-sighted, all of that kind of stuff.”
Communication and Understanding
46:45 to 48:21
Discuss the importance of dialogue in changing perspectives and understanding complex issues.
“I think that is not the reality of it and I think you raise a great point, Anonymous.”
Investment Perspectives Amid Political Climate
48:21 to 49:39
Examine whether political conditions should influence investment decisions, especially in the US.
“For more, subscribe to the free newsletter at fool.com.au forward slash listener.”
America's Economic Resilience
49:39 to 51:40
Discuss the unique aspects of the US economy that contribute to its resilience and innovation.
“I'm not sure what the question or comment here is.”
Global Economic Insights
51:40 to 54:16
Explore the economic strengths of various countries and the lessons they offer.
“I'm trying to think of something I do like.”
Designing Better Economic Policies
54:16 to 56:00
Debate how to formulate effective economic policies by learning from different countries.
“but there are some things that it's sort of like I think that they're right to.”
Exploring Economic Policies Across Nations
56:00 to 59:30
Learn how different countries' policies can inform better economic decisions.
“in any debate or discussion, and we've kind of talked about this for a few weeks, mate, but arriving at a better outcome is not red versus blue who gets knocked out, right?”
The Complexity of Economic Experiments
59:30 to 1:02:00
Understand the challenges of conducting experiments in economics and the importance of empirical evidence.
“I mean, this is the hard thing with the soft sciences, like, is you just can't run an experiment.”
Counterintuitive Insights in Policy
1:02:00 to 1:02:30
Discover how some counterintuitive policies can effectively reduce harm and improve outcomes.
“You know, it turns out if you open up in a needle injecting room, it actually reduces harm and drug use.”
Transcript
Automatic transcript. May contain errors.0:07Welcome to Motley Fool Money.
0:11Chris Hill:Yes, it's, um, I think it's, it must be Sunday and I suppose it's time for a mailbag episode and I guess if this bloke turns up it'll be special, but, um, I guess that's, of course it is. It's Sunday, it's special, it's the mailbag. What's going on? Where's Scott and what have you done with him? He is Andrew Page. He invented strawman.com. He breathed life into its lifeless corpse and turned it into the behemoth that it is today. I'm Scott Phillips. I work for The Motley Fool. This is Motley Fool Money. It's our mailbag episode. And Mr Page, good morning. Good morning. How are you? I'm very, very well, mate.
0:45Chris Hill:This Sunday morning, had a good weekend so far? I assume it's going to be a good weekend. So yes, let's go with that. Let's go with that. You know me. I'm the eternal optimist. aren't you though? Never a dark cloud on the horizon. I'm in pressure you don't just say, oh, it's probably going to rain. It's probably going to be awful. It might not be, but it's probably going to be. I mean, you know. Not even going to get out of bed with support. Why bother? Mate, info at fool.com.au is the email address. As you well know, and our listeners hopefully well know, I have said to you before, mate, I do get an uncomfortably large number of people who say, I've got a question in my bag.
1:18Chris Hill:How do we get in contact? It's like, I've said it every, you haven't been listening, have you? So up front, info at fool.com.au. If you have questions, we're pre-recording. Insert usual pre-recording podcast joke for the winter holiday break. So if you've got questions, throw them at us. We'd love to answer them. In that vein, let's get straight into a question from Ben, mate, who says, Dear Soapbox Scotty and Rant Page, which is uncomfortably true for both of us. No kissing the ring. Ooh. Oh, it's okay. But I have pre-ordered Scott's book as a way to say thank you for the years of education and entertainment.
1:53Chris Hill:I mean, Ben, if you want to order the one-page investing plan from Amazon or Booktopia and maybe put a pre-order in, jump online right now, buy a couple, buy one for your friends, some for your family, a couple of extras in case you lose the one you've got. I heartily endorse that idea, Ben. But I shouldn't plug the one-page investing plan too much. If I mention the one-page investing plan too often, people are going to think I'm just here trying to get people to buy the one-page investing plan. I'm not going to do that. Such a shill. I'm not going to do that. I've got my order on order though.
2:20I'll say that much.
2:20Chris Hill:That's very kind. Thank you, mate. I look forward to the grief you throw my way for the typos and the screw-ups. I've got some notes. I'm a bit disappointed that there's not a sound money chapter in the end there, but, you know, I'm sure. Volume two. I'm so enthusiastically. Volume two, there you go, yes. Speaking of which, Ben says, Rant Page, I will do the same when your book is released, perhaps to be titled, Is Anyone Listening? My 10 Greatest Rants at the Pod Machine, Volume 1. Is anyone listening? Yes. Yes. What's it called? What's that rule that says it wherever there's a question in a title, the answer is no?
2:56No. Mackenzie's Law. I don't know. I'm making it up at this point.
3:00Chris Hill:You know all the laws and razors. I love the laws. Yes, yes, yes. That's got to be the book, mate. The book's going to be the book of laws. The book of laws. The book of laws. There you go. I did love the fact Ben said volume one. He assumes there's going to be more, and I think it's a very, very good idea, Ben. That's a sound approach, no pun intended. All right. Ben says, for my own health, the Berkshire, Buffett, Munger, and Double for Graham drinking game has now been turned into a force for good. I've replaced a drink with 20 push-ups to be tallied up during the podcast and done by the end of the day.
3:31Chris Hill:My turning point was Scott dropping three Ben Grahams in 15 seconds during an episode in December. All I can suspect, Ben, is obviously we'll see you coming, mate. You were the bloke with the massive arms and the massive shoulders given the push-up game. I do like the idea of replacing it. Not as much fun, but probably a bit more productive. Ben says, my question relates to the PEG ratio, which is the price to earnings ratio to the growth rate. And if there is a point at which you feel the PEG ratio of a company may represent fair value and then pique your interest. Before you dismiss the premise of my question, says Ben, I have heard you comment, you may see a company whose share price has fallen and therefore the PE may have dropped.
4:13Chris Hill:Hmm, interesting, he says. You then look at its recent, perhaps likely growth prospects. Hmm, still interesting, he adds. Even if you're not consciously looking at the peg ratio, you are probably calculating it subconsciously. Obviously, it can't be looked at in isolation, says Ben. Coming to a PE ratio of 10 with a growth rate of 10 % would have a peg of 1, which would be very different to a company of a PE of 40 and a growth rate of 40%, and therefore also have a peg ratio of 1. Is there a sweet spot you find yourselves favouring, i.e. companies with a lower or higher PEs and growth rates? And finally, is it something we should consider when thinking about the market valuations overall?
4:49Chris Hill:While the US market is trading at relatively high P.E. ratio, its forecast growth is also high and looks much more attractively valued than the cheaper but slower-growing Australian market. Curious to hear your thoughts and the various, it depends. Ben's getting in early. Thank you both and maintain the rage, Ben. Thanks, Ben, we will. We shall maintain the rage. We have been raging over the last few weeks. We will continue to rage. Ram, peg ratio. Yes, no, good, bad?
5:18Emily Flippen:It depends. Just very quickly, I had to get it in. It's Betridge's Law. Any headline that ends in a question mark can be answered by the word no. There you go. There you go. Is that true? Question mark? Yeah, there you go. No, no, no. So the PEG ratio I put into the category of useful mental framework, absolutely useless practical output. And that sounds like I'm throwing a hole. That's a big list. Yeah. I mean, the concept is really nice and Ben did a great job of just outlining it, which is basically, you know, a PE in and of itself is not really going to give you much context, you know, without understanding what the growth is.
6:01Emily Flippen:And the PE, yeah, again, the company with a PE of 40 whose earnings are growing at 40 % per annum is a great example. I would say that was a super cheap company provided that, you know, that growth rate was sort of sustainable. The trouble with it is that like a lot of metrics where people start thinking that they can use it as something like a fact, they call it factor investing. I just scan for it and I'll buy everything that has a PE, a peg ratio of whatever this is. And the trouble is there's so much noise in a lot of the data because you'll get things.
6:34Jason Moser:I speak from experience, having been lured into the appeal of these things in the deep distance past, and you realise, I realised anyway, that there was not a great deal
6:47Emily Flippen:of practical value. Just to argue the counterpoint, those that do say that there is value in it are usually what you would call quant traders that work for very large prop trading desks.
7:00Jason Moser:In other words, there is probably some statistical validity enough that if you've got, you know,$100 million, a supercomputer, and you're able to trade five different markets across 10 ,000 different stocks where you can find enough of an edge to get 1 % alpha and like, yes, okay, okay, you got me, right? Like, yes, maybe there is something to it. For the ordinary person who's just looking, you know, out there in the market, what can I buy? and unfortunately it doesn't make a lot of sense. So, for example, you'll have a particular year where earnings just took a really big haircut, the one-off write-down or something like that or there just happened to be a global pandemic and the price fell and moved the PE around and it's just you lose the noise.
7:47Jason Moser:I mean, you lose the signal due to all of the noise. Yeah. And the other thing is too, when you Google this kind of thing, you'll, I think, I don't know who invented it, but it was always framed to me as like if it's below one, it's cheap, if it's above one, it's expensive. Well, the reality is is that you don't find ones below one. Like if you can find me a company on a PE of 10 who's going at double-digit earnings on any sustainable basis, I will back up the truck because that is a very, very, very rare beast indeed, you know. So, and you'll find more different interpretations and formulations go, well, no, that's silly, but below 1.5 and above 1.5.
8:32Jason Moser:And you say, you're getting to these, then it's just a question of where do you draw the line and then unfortunately you get all these exceptions to the rule. So when very, very large data sets have a very long periods of time, maybe on the individual, I just don't think it's that valuable. But, Ben, you're right to think about it in that general way and that is not to go cheap or expensive because the PE high or low, cheap or expensive because the PE is out of whack with the likely growth rate.
9:03Chris Hill:Does that make sense? Yeah, I love it. I think it's perfect. I think of it as a relative. I don't do relative PEs ever. I'm like, oh, well, CS has a PE of 35 and such as a PE of 34, therefore it's cheap. It's just not true. I mean, it's true if the market continues to believe those PE's are valid, but it's not. I don't like relative PE's. But what the PEG ratio, the PEG ratio, the price earnings growth ratio, what that tells you a little bit is, in a relative sense, the relationship between the price and the growth rate. And so it's useful to Ram's point as a heuristic, as a directional idea, as a concept to think about the relationship of price and growth.
9:42Chris Hill:Because that's, you know, we've said a million times, and you make the point, Ben. You know, a PE of 10, a growth rate of 10, a PE of 40, a growth rate of 40, very different businesses. But also, that's one year, right? Now, at best, maybe it's an average growth rate for an extended period of time, but the pace at which that growth slows is also really, really important. So even though those two companies with the same peg ratio are different, the persistence of that is also important, right? A PE of 10, growth rate of 10, if it grows at 10 % for 10 years, and the PE of 40 grows 40%, then it grows at 10%, then it grows at zero.
10:14Chris Hill:That's still very, very different, even though the starting year or the last year, if you're looking backwards, excuse me, is the same. You're not going to get the same sort of result. So I can only echo what Ram said. Yes, he has heuristic as an idea, as a concept, as a way to think about investing. I think it makes a whole lot of sense. I don't know that, I would never use an absolute number to determine whether something was buying No, not. Absolutely not. But conceptually, I want things that have lower PEs and higher growth rates, all things being equal. And so, yes, conceptually, that idea is absolutely valid because it tells you directionally when you can afford to pay a bit more based on stronger, longer growth.
10:54Chris Hill:And we need to pay a bit less because that growth is either not there or not going to be consistent or you're just not sure. And again, the likelihood of that is important as well.
11:02Emily Flippen:I mean, the way to think about these, I think, I made the point probably not that long ago on the pod is that the more intuitive way to think about a P is just to flip it on its head and talk about an earnings yield. So instead of dividing P by the E, divide the E by the P. It's the same thing, just the inverse of the other. And I feel it's at least more intuitive because what it's really good, people get yields, right? It's sort of like, well, wait a second. I'm actually not good enough to do this in my head. So let's just bang out the old calculator. Oh yeah, I should have done that. I was going to go, what is a PE of 15?
11:35I forgot to carry the one. So a PE of 15 as an earnings yield. So there you go. 6.66666666.
11:46Emily Flippen:So what you're saying is that a company that's trading on a PE of 15 is that if it was to distribute all of its net profit back to me, and it was never to grow its earnings ever again, I would get about a 6.7 % yield. So that's an easier question to answer. Like, is 15 high or low? I don't know. Is it 6 %? 6.7 % yield? Well, now I can compare it to the investment property, to the term deposit, to all of this. So it's much easier. But then pulling on that thread a little bit longer, you start to get a real sense of the significance of growth
12:21Jason Moser:because these days you more often than not have a company on a PE of 25. Hello, Commonwealth Bank. And that's an earnings yield of 4%, right? And, you know, don't forget, don't forget that that assumes no reinvestment. That means that you never really have to update the systems, you know, there's never any reason to invest for the future.
12:44Chris Hill:Well, you do it out of cash flows in the current year because that's obviously what's left, but you never have to put a larger amount of money aside for future use. Yeah, absolutely.
12:51Emily Flippen:Yep.
12:51Jason Moser:So, and you kind of think, well, 4 % ain't a lot. Not when I can get, and that's with the, somehow managed to make this a rant on the banks.
13:05Emily Flippen:But just as an example, it's like that helps you frame it up a little bit, doesn't it? 25 higher loads. To your point, well, the market's at 20, so it's actually not that high when you look at it like that. And actually when you look at Westpac and NAV, it's kind of in the ballpark, so it's okay. But certainly on the peg basis, well, these things aren't growing at 25 % per year. Let me assure you of that and bet anything, any amount that anyone wants to take me on that that will ever be the case.
13:29Jason Moser:But then, again, opportunity cost, right, is sort of like, well, if I can get 5 % in a government bond and I'm going to get 4 % on this. So as I say, now, but the bulls are rightly going, yeah, Andrew, but growth. And I say, yes, exactly, exactly. When you get something that is growing very rapidly, Actually, the yield is going to be far higher than that because next year they're going to be paying out far more than that$1 for every$25 worth of equity. And it's going to go up and it's going to go up.
13:57Emily Flippen:I made the – I had the epiphany years ago and in – actually when I was at the full and I was running Dividend Investor and it occurred to me that the best dividend stocks tend to have the lower yields. and it completely flips everything on its head. Because as someone who's tasked with finding dividend stocks, what do you do?
14:18Jason Moser:Oh, you look for the highest yield. Company A has a yield of 7 % fully franked. Company B has a yield of 4 % fully franked. Which one are you going to go for? And when you actually look at the data, you find that actually the lower yielding stock tends to be a bettering. I'm generalising here, always exceptions to the rule, but on average, in my analysis, if you're just talking about one or two years then obviously there's no contest but when you're sort of talking about meaningful time frames you end up getting a much bigger income stream because you would find that the company paying 4 % whose earnings and therefore its dividends are growing not therefore but very often growing at say 10 % I'm getting a pay rise every year now the company on a 7 % yield pay is just paying the same dividend, like Telstra was the classic example back in the day Oh, it's a great dividend stock.
15:09Jason Moser:Oh, it pays wonderful dividends. Like, yeah, but dude, this is before they cut them. It's like, yeah, the dividends are the same and they haven't been the same for a decade. They're never increasing. Do you want a 7 % yield that never, you want a 7 % yield, starting yield on an investment and your income never grow? Or do you want a lower starting yield, but then over the length of duration of your investment, the total income derived as a percentage of your capital invested is far greater. Sorry for the word salad, But you get my point, right? Like that is, one is mathematically objectively better.
15:42Jason Moser:And this is a long way of just rounding back onto the peg ratio. Growth matters a hell of a lot. You've just got to be careful that that growth is reasonable and sustainable. Because there's no, again, the maths breaks down. It's like, yeah, they're going to grow at 20 % for the next three years, and then they're going to drop earnings 50 % and stay there. Huge numbers of examples of that on the market. all of a sudden that PE is looking really, really, really expensive in hindsight.
16:09Chris Hill:So, yeah, it depends and it's hard. All of those things. Quickly, I'm not going to do this in big numbers, mate. I want people to listen to the numbers for their own sake. But directionally this is useful. So you can reverse engineer PEs and discounted cash flows. Now, E is earnings, CF is cash flow. They're not exactly the same thing. But let's, for the sake of it, assume they are just to make life easier we can we can work it out for that and so you can do some really rough formulas now and i kind of so bit of the inside baseball here i go for a discount rate of 10 that means i want to get a 10 annual return why because i can market a little about nine so 10 is kind of the minimum price i want to pay now there's margin of safety and stuff on top of that this is just the calculation and if you use a 10 year dcf which most people don't i think by the way there's an opportunity in that so let's let's go with it anyway uh if you use a 10 year so so here's the inputs a 10 percent return 10 years and a three percent terminal growth rate that means the end of 10 years the growth rate from there on is three percent a year in perpetuity so let's just and again if you don't understand this don't worry about it but just so for the nerds and the number people they're the inputs and you can work out what the what the implied growth rate is for that 10 year period based on today's pe and so i actually have done this exercise right just reminded me and i'm good if anyone wants to google finding value with the humble pe ratio i wrote an article and i put a table.
17:32I did the numbers and there's a table there that'll tell you the growth you need to justify. But only on those assumptions. What it does do is
17:44Chris Hill:it puts the PE and the growth in context. The numbers I've got here, and it may depend on starting and finishing prices. They're all rough anyway. If you've got a PE of 20, you need 5.4 % a year for 10 years and then 3 % every year after that. That's not a PE ratio of one. If the PE is 15, you need 3.2 % growth for 10 years and then 3 % a year after that. If the year's 10, you only need half a percent for 10 years and then 3 % every year after that. I had zero on my calculation. There you go. But it was a slightly different terminal value of time frame or something like that. And you can choose different terminal growth rates.
18:17Chris Hill:You can choose different time horizons. The point isn't to stick to just these numbers. The point is a peg of one doesn't do the job because, and without getting too detailed about it, these things, they're exponential functions. They are not, the compound is exponential straight line. So a PEG works on a one-for-one at one point in time. The longer you extend that out, the less relevant PEG is, is the point I'm trying to make here. And so, by the way, and just, again, some numbers here, mate. I'll use a PE of 15 for fun. If you do a 10-year DCF and 3 % a year after that, you need 3.2 % growth.
Read the full transcript
18:46Chris Hill:If it only grows at 3.2%, sorry, a PE of 15 for only seven years and then 3%, you need 4.6%. And a PE of 15 for five years and then it grows at 3%, it's 5.6%. In other words, the quicker the growth rate slows, makes sense, the larger you need that growth to be able to start with. And so, again, it depends, again, back to the peg, in terms of how long that growth is going to be valid for and what sort of decay, if you like, what sort of reduction in growth happens and how quickly it happens. So, again, what was the article, mate? Remind me. All right, listeners. Okay. I'll come back to this. Finding value with the humble P slash E ratio.
19:27There you go. Look that up. on straw man blog. But so I use the example. When looking at a company's PE ratio, no, it's actually, I wouldn't mention it if it was wrong. My ego is way too fragile. So when looking at a company's PE ratio, you can use the table to help determine implied blah, blah, blah. As an example, let's look at Woolworths.
19:48Emily Flippen:Undoubtedly, this is a solid company with a long history of shareholder wealth creation. At present, its shares are trading on a PE of roughly 28. And I go on to explain, based on the cable that I calculated, they would need to grow at this rate for you to get a decent investment. Now, I wrote this article in the 3rd of December 2019. Do you know what the share price was on the 3rd of December 2019? This is a monthly chart. So I got the 1st of December 2019. It was$31.93. And the share price today is$34.
20:18Chris Hill:There you go. Nice. Right?
20:20Emily Flippen:So what you're talking about there is a seven-year long-term investment, one of the best companies on the Australian stock exchange, and you've gone from$31 to$34. Right. And before someone goes, but, but, but, but, but, dividends and frankincruise, like, yeah, yeah, exactly. Yeah, add that in. Okay, you've got 6%, 7%. Like, this is not a massive wealth-creating engine for you. It's not terrible. You could have done far worse. But it's just that low. we've made the example with the banks and so many and it's just like it's not seeing around corners. It's not having any clairvoyance or anything like that.
21:01Emily Flippen:But it's distinguished and we've made the point so often recently, I'm going to hit it one more time though.
21:06Jason Moser:It's like no company is worth an infinite amount. You can absolutely get at best mediocrity, at worst you can have it handed to you by overpaying. And so the exercise that Scott went through and the way that Ben sort sort of framed all of this out, is just so valuable in terms of thinking. And that's just to come full circle on this. This is why the peg ratio is just brilliant as a concept, terrible as a practical instrument, but as a concept.
21:31Chris Hill:Yeah, that's right.
21:32Jason Moser:Just so, so, so, so good. And, yeah, if you take nothing away from this except this podcast, take that away.
21:41Chris Hill:Nice.
21:41Jason Moser:And then I'm always right. You know, that's the other thing.
21:44Chris Hill:And look up, yeah, look up on strawman.com. Check the blog out. Question from Andy, mate. and going from valuation to the thesis itself. It says, hi, gents, I hope you're both well. I have a question on thesis break, if I may. I own shares in Mass Group, M-A-A-S Group. It's a building and construction conglomerate-style business. I bought them after a previous holding, CSR, was taken over by St. is it Gobain? G-O-B-A-I-N. I've horribly messed that up. My apologies. I bought Mass for many reasons. A few are, I believe, the build-out in regional areas will only increase and they were also founder-led.
22:20Chris Hill:However, recently they announced they are planning to sell the whole building and construction business to change focus from that to digital infrastructure and the electrification of Australia. To be honest, I'm pretty, I'm going to say annoyed, he said a different phrase, I'm pretty annoyed as I feel the founder and management are just jumping at the hot new thing. No doubt electrification and build out of the grid will be an enormous thing in the future, but why take such a huge gamble by selling the whole building and construction and business they spent years building in hopes they can make a serious impact in the electrification field.
22:53Chris Hill:The transaction is subject to shahalder approval. I will be voting against the transaction. What are your thoughts? Thanks in advance and keep the rants coming, Andy. Now, just a quick, I went back, Andy said this a few months ago actually, and in my infinite wisdom I decided to skip it because it was a really specific question about a very specific company. I didn't know it. I didn't know if you knew it, mate, but it was kind of one of those, I don't know how relevant it was for our audience. So anyway, Andy follows up and says, hey, just wondering if you missed it. If you don't want to ask it, that's okay.
23:19Chris Hill:And I went back to him and said, oh, mate, look, I didn't because it felt a bit specific. He said, okay, look, I just really want to ask about thesis break in general. And so I thought I was probably too hasty. We could have absolutely done that with the first question that came through. So Andy, if you're listening, thanks for following up, mate, and thanks for prompting me to put the question back into the mailbox. I've done that. But so, look, I don't have your math group, mate. If you do, that's fine. But more broadly, just on thesis break, a company changing what it's doing, how could our listeners think about this sort of thing when it happens?
23:53Emily Flippen:Yeah, it's an excellent question. Gosh, the two excellent questions in a row.
24:01Emily Flippen:Just having an investment thesis, you're ahead of 90 % of other investors, right? And what I mean by that is like, why are you buying it? And you don't get to count because the shares are going up or my mate told me it was good. That's not an investment thesis. You have a set of expectations that underpin a rational increase in the share price. And I think the only rational way to do that is that you can make the argument that the business will be earning more in the future and it's not too egregiously priced at this point in time.
24:32Chris Hill:Including, by the way, in that what the business actually does, right? Yes. Because this is Andy's point. It's going to do these things and by doing these things, it's going to get this sort of growth. and we're doing this sort of growth, I can pay this price and that all sounds like it makes sense. Andy's going, they've pulled the rug out. Like even I've got that thesis, the rest of it's good, but the thing I said, well, they're going to keep building more stuff. They're not going to. What do I do?
24:52Emily Flippen:I mean, just to pull on that thread for a minute, a number of people I've gone, I've had conversations with and said, oh, this is a great company. Oh, okay, cool. What do they do? I don't know. I think it's something to do with data centres.
25:06Chris Hill:Anyway, how?
25:07Emily Flippen:How can you have an investment thesis without knowing what the business does. It's like going to a business broker and said, I just want to buy that company. Why? It just costs. You must understand at least what they do, for goodness sake. So I think that, so going back to the first step here. So, yes, you have to have a hopefully as rational and objective case for value that you can. If the facts change, as our mate JP, John Pierpont, Morgan would famously say, then you must change your mind. Now, that doesn't mean you sell. It might be that the facts change. You've stepped back, you've looked at it, and you think, actually, this still makes sense, and I can formulate a new investment case, and I'm still happy to hold, or maybe I'll even buy some more.
25:54Emily Flippen:Or the facts have changed. The thesis is no longer, not so much broken, but it's just no longer relevant. And I can't actually formulate a confident investment thesis, in which case I should walk away. Of course, hindsight will tell you it's some point, whether you were right or wrong. But at that point in time, when you can't know what the future will bring, all you can do is just sort of say, I have a reasonable, I have a reasonable basis for my expectation. And if anything happens, that's going to alter that, I need to change my mind. And it might actually be that I changed my mind and still like it in for different reasons, or it might be I've changed my mind and I can't make any sense about I need to get away.
26:32Emily Flippen:So, So it's such an important question because, as I've so often say, there's no easier person to trick than yourself, particularly when you've got money in it and your ego is tied up into it. I mean, your brain and subconscious is going to do everything that it possibly can such that you will interpret any change as a positive. Oh, yeah, okay, it wasn't really great, but now the shares are really cheap, so now it's even more value and now I'm going to buy some more. Or, yeah, there's a million different ways you can sort of rationalise it. I won't specifically talk about Mass Group too much other than I think, yes, I think you do need to re-evaluate it.
27:12Emily Flippen:And if you are not confident in the new direction, then you should absolutely sell because otherwise you're investing on hope. And as I like to say, hope is not an investment strategy. At the same time, and I'm just devil's advocate here. I've got no dog in the fight. I don't own shares. I don't know it that well. But here's a company that was a founder led, built from the ground up, bloke as I understand it, with a few bits of kit that started renting it out and grew it into a very big empire and it had incredible success. There's always luck in business, but maybe there was a degree of intuition there.
27:43Emily Flippen:Now this same person is saying, now why are you getting rid of a business if it's so great? Now, you know, that could be wrong, but I suspect if you were to get them away from, you know, the spotlight The answer would be because we're struggling with this business.
28:03Jason Moser:It's not, oh, okay, maybe we can make it work, but it's not very exciting.
28:07Emily Flippen:We could take this, oh, over here, every second phone call I get is can we go and build a new data centre? Can we send up a new solar power plant? You know, it's like all the money is to be made over here, so we're actually doing it for very rational reasons.
28:19Jason Moser:Not that it's not a perfectly fine business over here. Comparatively, this is a much better business,
28:24Emily Flippen:and no matter how much access to capital we may have relative to the average small business. We don't have unlimited amounts. We can sell this, reallocate it over there. We're going to compound shareholder capital
28:34Jason Moser:at a far greater rate than we ever did before. And it might actually be the best thing that the company ever did. Or, to Andy's point, it could be, what are you guys doing? You're chasing the hot new thing. You haven't really thought it through and you've killed the goose that laid the golden egg all for some flight of fancy. Now, which answer is it? I don't know. That's what you've got to try and figure out. But even without that, even when you come to a company fresh, Like, it's the same challenge, right? What are they doing? What's the opportunity? Have they got the capacity to, what's the strategy to get there?
29:03And do I think they've got the ability to prosecute it effectively?
29:10Emily Flippen:It's the best you can do. It's really an unsatisfying answer. Like, yeah, but how do I know? It's like, I don't know. You've just got to try and build up some conviction by asking lots of dumb questions and, you know, and trying to take a stab at it. That's investing. It's entrepreneurship. It's everything. So long ramble, but I will say this. You may find and I often find for me this is the case.
29:37Jason Moser:It's not that I reach a strong view of yay or nay. I more often than not reach the conclusion of, I don't know, maybe. And if ever I get to that point, if I'm honest, and I don't always do it, but if I'm honest with myself, it would be sell because, again, I'm back to hope and hope's not great as a strategy.
29:56Chris Hill:Yeah, I think that's right. Yeah, totally right. The hard part is going to be, Andy, that you know, the problem with binary decisions when you've got to sell or not sell is you could hold and it goes down and you'll hate yourself. You could sell and it goes up and you'll hate yourself. Or you could hold and it goes down and sell and it goes. Any of those range of outcomes is possible, right? And so you're going to be looking at this going, oh, man, if I make the decision, I'm going to regret it. and that's a really really tough it at the endowment effect where we value things we own more than things we don't and the temptation is to hold because just in case it goes up gets overwhelming but you've got to really fight against it i have no i have no view on mass group at all couple things i would say um your thesis is clearly broken and so the question for you now is is there another thesis you can create from scratch without that endowment effect bias that gives you the confidence to continue to hold these shares in other words if you sold them tomorrow?
30:50Chris Hill:Would you buy them back the day after? Because you really like the fact this business is in the electrification and grid build-up space. Have they delivered results? Do you see the growth? Do you see the skill set? Do you believe they're able to price appropriately? Is there a case for mass group the electrification business? And if there is, then that's fine. And you don't actually have to sell to do that, but you've got to ask yourself those questions separately. So the reasons you bought no longer exist. The question for you now is, are there reasons to hold? And again, And not reason to hold, like, can I convince myself, but objectively, if I sell the shares, would I buy them back the day after?
31:24And sometimes, I don't think I necessarily suggest this all the time,
31:29Chris Hill:but sometimes actually selling the shares anyway is a good idea. And look at it with fresh eyes. Because$1 ,000 worth of mass shares and$1 ,000 in cash are the same thing, but our brains can't compute them the same way. We just can't. Our evolution is not built for this sort of stuff. So if you want to sell them, and everyone's saying you should, there's capital gains tax and other implications and all this stuff, don't do it just because, you know, and I can't give you personal advice anyway, as you well know, Andy. But, yeah, that idea of just, you know, if you sold them, would you buy them back?
31:56Chris Hill:The other thing I'd say is the only other question, I suppose, is the management team. And founder-led is, there's two versions of founder-led, right? There is the generic founder-led, which is founder-led companies tend to do well. And that's, I think, objectively true. It's certainly anecdotally true. And not all of them, not all the time. but you know generally and that's the question you ask yourself is it is it because the founder is a genius i.e they can take put their mind to anything because if that's the case maybe you back them because they can make great decisions to allocate capital to electrification where the returns are higher and the and the growth is stronger that's that's very possible or is it just a great founder because the founder and again i don't mean about mass group i have no view of the founder the founder was really really good at the one thing that they did you know they were a builder by trade, they turn into a big company, they're going to keep building stuff.
32:47Chris Hill:That's founder led, which is great, but it's founder led in a very specific industry with specific industry knowledge. And the example here is, let me find a, what are two really random examples? Let's say Woolies, right? Woolies, the people at Rumbleworths have been traditionally retailers, and they're really good at retail. And that's been the core skill set. Yes, they've got to have capital allocation. Yes, they've got to have culture. But generally speaking, they've come up through the ranks. They've been brought in as retail experts. If Woolies decided to become a mining company, would you feel like the management team were good at that?
33:22Chris Hill:Or are they just really good at running supermarkets? The flip side would be Warren Buffett. Now, Warren Buffett is a capital allocator by trade. Do I want Warren Buffett operationally running a supermarket? No. I love the guy, but no. But do I want him allocating capital? If he owned Woolworths, so sell Woolworths to buy BHP or to take Woolworths assets, shut down the supermarket business like he did with the literally Berkshire Hathaway was a textile mill, right? He bought a textile mill or most of it and he shut the textile mill down and used the money for other things. So capital allocation was his skill set, in which case you go, okay, well, I'm not buying Berkshire Hathaway the textile mill.
33:58Chris Hill:I'm buying Warren Buffett's skill and whatever he turns his mind to, I'm going to back him because that's the thesis. Now, it's a bit of half and half for you, Andy. You've said it's about management, but it's also about the building and construction business. And so that's a challenging kind of decision to make. But you've got to ask yourself, does the founder's skills lend themselves to the new business, both in terms of choosing that business and executing? If so, then you can add a bit for that because that's not just part of the thesis was this management team is great and I'll back them into whatever they do.
34:26Chris Hill:That would give you more comfort with the new business. If it was, well, I just like the fact they were founders because that tends to do well and I like the construction business, that's a very different outcome. So just keep those things in mind as well.
34:38Emily Flippen:Well said.
34:40Chris Hill:Let's go to another question then, mate. An anonymous question with a challenge for us, mate. It starts with please stop, so brace yourself. Please stop making the point, says our anonymous questioner or listener. No. Okay. Moving on then. Next question. Okay. Go on. Please stop making the point. Australia should not bother doing any development in regard to strategic defence assets because there is no point developing X because they allow us to be rolled over by the invaders in X months or weeks instead of X days or something along those lines. Now, I've absolutely said exactly that. If you've got 100 holes in the fence, fixing two holes is going to delay the invaders by, you know, 15 minutes, but not going to make a meaningful difference unless you fix the fence properly.
35:23Chris Hill:So I assume that's what the question was alluding to. He or she says, We know history is littered with examples, but if you don't like the real world, go watch Lord of the Rings and look for Gandalf on the third day at First Light, or whatever it is, to illustrate my point. Now, I have not ever watched Lord of the Rings, which I know will horrify you, Ram, but you'll have to... What? Yeah, I don't know, right? You read the books though, right? No. Oh. Yeah, missed out. Explains a lot, doesn't it, really? Everything's falling into place. Now, I'm not saying, says our questioner, we have to keep unprofitable copper smelters live because that means we have them ready to switch to making fighter jets in a heartbeat or some rubbish, but I really want to nitpick the point that simply suggesting we don't prepare to some degree and roll over, does my head in.
36:07Chris Hill:Hope that's not how you meant it. I misunderstood. But in any case, kiss the ring, kowtow to the pot overlords, et cetera, et cetera. Cheers. He follows on. Actually, we'll do that a bit first and we'll go from there. I don't know. I don't know. I don't know. I don't think I'm going to resile from my original view. I just gave the example. I think there's a lot of emotional need slash desire to want to believe that we can be safer than we actually can be. And I know there's a real human discomfort with, well, let's just do something then. And I just think it's kind of, I can't think of a better analogy about the holes in the fence or the leaks in the dam or whatever else it is.
36:53Chris Hill:But I kind of, and again, I get the desire, the impulse to like, well, just do something because something's better than doing nothing, right? because at least then we're, it's almost the whole, you know, play the violin while the Titanic goes down because at least we're busy. And it's not that bad. I just think unless you are going to have an impact on the thing you're trying to do, don't bother. I don't know how better to put it than the holes in the fence around. Have you been convinced otherwise by the question or by the comment?
37:24Emily Flippen:No, I mean, well, we had a great discussion on Friday and it continued afterwards when the mic stopped, right? A couple of Fridays ago, actually. A couple of Fridays ago. Sorry, I'm getting my timing mixed up. And it's, I mean, it's a question of degrees.
37:38Chris Hill:Yes, it is.
37:39Emily Flippen:So this is what's tricky about it. Like if you want to go one end of the spectrum and the other, it's like I can argue those points all day long. But the question is really at what point. So it's like with, you know, the question is said, well, I'm not arguing for, you know, maintaining every unviable copper smelter, but I am arguing for something. It's like, okay, well, I don't think either of us are a mile away from that and we're going to be more aligned than not aligned. So these are really tricky things because they're not black and white. So I actually have a lot of sympathy with that. I agree.
38:16Emily Flippen:I mean, I think as long as there is some benefit and there's no great opportunity cost, then yeah, okay, sure, absolutely do it. But that's the point. But your point is only, and this is why framing matters,
38:32Jason Moser:your point is if it doesn't really move the needle and it costs a lot of money, then don't do it. And I don't think the question I would disagree when you put it that way. Then like so many of these debates slash arguments, you get down, well, I think this and I think that, and we start evoking like really narrow and specific examples and you talk past each other and that's where it all gets messy. So, I mean, all I can do is remain very high level and very general and say, like you, If it's not going to really do much, then let's not do it. At the same time, there is a point at which it's like it will do enough to justify doing it even though it's not a silver bullet.
39:04Jason Moser:Now, where does that line? And that costs something.
39:07Chris Hill:So it's also how much money do you spend doing the thing that's going to make a difference versus the thing that doesn't make a difference? Yeah. Because it's not just – if there's 100 holes, do you fix a hole? Well, you might as well if you're walking past, you've got a bit of wire. Knock yourself out. But if it's like, well, I was going to use that wire to actually – my mechanical knowledge, fix the car. It's like, well, I fixed the hole in the fence. There's still 99 holes. The rabbits are still getting through and I still can't drive the car. It's like, all right, well, now we've just traded something off, which is all you can do.
39:35Chris Hill:Everything is trade-offs. So there's a cost as well.
39:37Jason Moser:Yeah. Yeah. It's really tricky. There's also the, you know, my other favourite word, asymmetric kind of returns here as well. I'm a very big believer in trying things. even if it's not an obvious win and even if maybe it's like maybe it won't do anything if the cost is very narrow. I'll give you an example in the context of national security. I don't think we put nearly enough emphasis on diplomacy and that's not because I'm a la-di-da skip down the meadow with, you know, holding hands with a fairy and kumbaya. Oh, we know, oh, we know.
40:12Chris Hill:Right? That's my job.
40:14Jason Moser:But I look at the risk reward of that. It's like let's say we get, there's 28 million of us. I'm sure there's some really articulate, clever, convincing mother flippers out there that really make the case, you know. And if we were going to pay them a million dollars and they could fly around on a taxpayer-funded jet to have conversations with powers that be, you know, how much are they going to do? Probably not much, probably not much, but potentially a lot. And the cost is very, very small. So in that case, it feels like I'm talking out of two sides of my mouth, but in those kinds of scenarios, I'm far more open to the marginal thing because it's like, well, even if it doesn't do much, what's the harm?
41:00Jason Moser:If you want to go and spend, I don't know, several tens of billions of dollars on submarines that we may not ever get and could be completely, you know, obsolete by the time we get them, the risk-reward trade-off is sort of like, well, let's hope that it's going to give us a lot of bang for our buck because we spend a hell of a lot of money on that kind of thing. So it's just another dimension to look through that kind of stuff.
41:23Chris Hill:Correct, correct. Our question does go on and say, also, if you're not put out by the previous rant, firstly, you're very gracious for having been reading this, and secondly, I'd love to hear a segment on your thoughts about whether the country can legitimately come together to have a conversation in good faith, and I will censor some of this, about the BS they're calling, quote, intergenerational inequality. As a bastard millennial, says our questioner, I will not disagree with you, I can't stand the boomer hate. I think it's rubbish. Why shouldn't these people have the right to sit in their$2 million home with$150 ,000 four-wheel drive and$100 ,000 caravan if they like?
41:59Chris Hill:They aren't actively taking away anything from our generation the way I see it. As someone who, growing up, aspired to be a farmer, the chances of that happening are even less than buying a home. 1 ,000 acres, a viable amount to live on, for anywhere from$5 ,000 to$10 ,000 an acre anywhere near my home geography. I've got a better chance of colonising Mars, but no one cries about the budget helping people like me, and nor should it necessarily. I think we need to outline the genuine points and how to address them. Not CGT and negative gearing, F me, says our questioner. Talk about Titanic deck chair shuffling.
42:32Chris Hill:The boomers are rightly hoarding as much wealth as they can, so they have been told by the government to do so ever since they said fund your own retirement with super. That was when people retired at 50 or 60 and died at 75. Now we retire at 60 or 65 and live to 100. So that's a major change we need to adapt to. Add in immigration, one for you around money printing, cultural division and everything is now a crisis. Housing, cost of living, energy, on and on. From the millennials and below, these need serious conversations which no one can seem to have. Maybe you legends can lead the way. Cheers again, again, from an anonymous listener.
43:09Chris Hill:All I'm hearing, mate, is we're being dragged to be co-dictators for the country. If that's what the people want, I say give the people what they want. Absolutely. Benevolent dictatorship. What was it? Philosopher Kings. You do like that one. Philosopher Kings. I do like that. I'm warming to it. Yeah, yeah. You just want the crown, right? Dictators don't get crowns. Is that where you're coming from? Yeah, well, there. End of sec. A crown, a scepter. A scepter, thank you. Cape. The throne. Ooh, cape. Yeah. Throne. Ermine, the mink kind of, you know, the collar.
43:36Emily Flippen:Oh, yeah.
43:37Chris Hill:I like this. What colour are you going with the cape? Well, it's got to be purple. It's the colour of Rosie. I was thinking that, but I'm thinking red actually would be quite striking. Oh, yeah? Superman. Maybe royal blue. Yeah, exactly. It's for Scott on the back. I mean, Superman. I mean, Scott. Who can know? Up to you. I'm the king. I get to choose. And I am the king, so if you don't agree, there is a prison over there. So, you know, you are free to disagree. A philosopher king not a benevolent. I'd never say benevolent. That's the dictator. I'm the philosopher king, you know. King's not always benevolent.
44:09Emily Flippen:I actually really like that. I like all the question, actually. I think it's great. Great pushback and great points. 100 % I think that our, I mean, I feel as though I say it every week, it's way too narrow, way too myopic, way too short-sighted, all of that kind of stuff. And I've been wanting many a time on this platform to have a little bit of a dig at the boomers, right? You. But I've also, I think I've also said many times before, and let me say it now so the view is clear. I mean, everyone plays the cards they're dealt with. What would have I done?
44:45Jason Moser:If I was born a generation earlier, I would have done the same thing. I don't begrudge.
44:49Chris Hill:The thing is, it wasn't even a thing because it wasn't like they said, I know, in 25 years, it's going to be expensive, so I'll hoard my houses now. They had no more foresight than we did. They just bought a house and then it went up.
45:00Jason Moser:And like, I don't know, I would have done the same. And there's no problem in that whatsoever, right? The only, and this is, it's even wrong to criticise a whole demographic based on a couple of knuckleheads within that demographic, right? What makes people bristle is when you get the boomer who will sort of say, well, I did it, so you should too. Yeah. I bristle just as much against the... 70 % interest rates, anybody? Yeah, right. And, you know, the billionaire is like, well, I pulled myself up for my bootstraps, you can be a billionaire. It's the same argument, right? And so it's just what, again, I would never, ever criticise anyone for just having good fortune and good luck and even making good decisions and good sacrifices and working hard and all that.
45:46Jason Moser:It's like full credit to you. Again, you played the cards that you were dealt, but then to pretend that that same opportunity is there for others when like mathematically it just isn't, you know, and to paint your success as purely one of your own genius and the struggles of the young as purely a consequence of their own laziness, it's just wrong. And that's what people get upset about. At the same time, I know far more boomers that have the exact opposite view on that. So it's wrong to sort of, you know, cast that entire generation as self-interested, you know, historically ignorant, ignoramuses when it's just like it might just be like 5 % of that group and the rest of them are, in fact, I would hesitate to guess the vast, vast majority of Burmahs is like, yeah, we got really lucky and, yeah, and we did it and we're living our best life and it's a real tragedy that no one can afford a home anymore.
46:44Jason Moser:So, yeah, the way it is portrayed as some great divide, I think that is not the reality of it and I think you raise a great point, Anonymous.
47:00Chris Hill:I do wonder, and I don't know how good, I don't know if we're good enough, mate. I don't say that very often because we are very good at a lot of things. But I wonder if we could actually take up the challenge and try and frame an episode around a conversation where we could put aside, or maybe mention in dispatches a couple of the kind of hobby horses everyone knows, rather than spend the whole thing on sovereign wealth funds and sound money and kind of start from that point and try and work out some of the other problems. I don't know if we... We'll have a think about it, Anonymous. I know you want us to have a segment or a chat about it.
47:30Chris Hill:We'll put our minds to that off air and see if we can. No promises, no guarantees, because it may not get anywhere. I'm frankly hearing the two of us rant about other stuff. Almost certainly not to get anywhere.
47:40Jason Moser:But it's fun. The discussion itself is hopefully fun and worthwhile.
47:45Emily Flippen:I mean, you've got to... Talking things through is just the best way to understand something, I think. I often find myself in discussion with people, coming in with a particular viewpoint, leaving with that same viewpoint because I'm too stubborn to make the point, acknowledge any other point in the heat of the moment, but then in the quieter moments go, actually that was a decent point, maybe I need to. And if you don't put yourself in that circumstance,
48:10Jason Moser:you're just never going to change your mind and then you're not a good thinker if that's the kind of person you are.
48:17Chris Hill:So maybe we'll leave it with us. on us. We'll see how we go. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.
48:31Chris Hill:Here's a question. A couple of questions from Adam. Happy Sunday to you, Scott and Ram. I'm a fairly long-time listener and now a third time question. A third time's a charm. Well done. I've much preferred, I've forgotten Andrew, please tell me what straw man is again. However, I will bend my 50-year-old knee to the Podcast Kings and plead for your wisdom. You're welcome, Adam. As Peter Lynch... Good vintage as well, I think. Oh, very good vintage. Well done. As Peter Lynch famously stated, go for any business that an idiot can run because sooner or later, any idiot probably is going to run it.
49:05Chris Hill:Or along the lines of Uncle Warren, buy the business that even a ham sandwich could run. Considering the US stock market continues to flirt with all-time highs, says Adam. In fact, we recorded this a couple of weeks earlier It crossed 50 ,000 last night. So in real time, in recording time, not so what's happened since. Could the US of A currently be the poster child for that business? Discuss. He says in brackets, I'm sure you get my inference, but just in case it's too subtle, yes, I am calling old Donald a ham sandwich. Thank you, Adam. I think there's a comment, as Tony Jones might say. I'm not sure what the question or comment here is.
49:41Chris Hill:I guess the question is, do you run screaming from the US because of their politics or do you invest regardless?
49:47Emily Flippen:Yeah. Well, actually, Uncle Warren has pined on this many times. And he's basically taken the view, espoused the view that it's sort of like don't bet against America. And it comes across particularly to a non-American as patriotic hogwash. You know, Americans are so full of themselves, rah, rah, rah, rah. Yeah. But, I mean, there is something special about America. Not that people are people. I've travelled enough and met enough people to know wherever you're from, whatever your background, human beings are very, very similar. But they do have, there is something in their culture that really leans into the entrepreneurial side of things
50:27Jason Moser:and I think that and an incredible blessing of natural endowment that they have had and the good fortune of their, you know, of what happened earlier on in the 20th century that, you know, I've left them to sort of be the world superpower when Europe was bombed within an inch of its life. There's a whole bunch of historical reasons for it. But, yeah, I don't think Trump is going to, he might hasten a demise of an empire. I think it is in a longer-term structural decline, I think. But I think we're going to have all kinds of bad politicians ahead of that. And I also think that if you put a gun to my head and said, name the country in which the next trillion-dollar business will be created, I was like, I'm going to go with US every time.
51:21Chris Hill:Yeah.
51:21Jason Moser:I just am, you know. I don't go with every time, but probabilistically it's more likely, right? Statistically, right? Yeah. So, yeah, I'm not, put it this way, there is a lot of things almost everything I don't like about Trump. I'm trying to think of something I do like. But I would not, no, I don't know what I said. I would not avoid an investment in a really great NASDAQ listed company because of Trump. Yep.
51:54Chris Hill:Yep, I completely agree. He'll be gone at some point. Someone else will come at some point. I mean, think about the value created during his first term and then his second term, not because he's there, but despite he's there. I don't mean despite as he's doing bad things, it's irrelevant. He didn't create value for Amazon or Google or Netflix or NVIDIA or whatever. He just happened to be there while it was being done. And that's really... So, yeah, Adam, I agree with you. Whether Donald's a ham sandwich or not, the evidence might suggest he might be. That's a bit of editorial at this time of the podcast episode.
52:24Chris Hill:Yeah, don't bet against America. I would actually say don't bet against democratic capitalism broadly too, Ram. I don't think it's just about America. I mean, maybe they've got some sort of special sauce. But, by the way, the ASX had a better century and a bit than the US market. Australia, as of 2024, I think, were the top-performing market, only by a touch, and the US were second. Just a reminder, I think we should over-praise the US, you know, as necessarily specialer. There's a word now. Nor is it not. I think we can be over-refusifying our praise, but also, to Ram's point, because of the size, scale, infrastructure, ecosystems.
53:00Chris Hill:They're lucky to be there. Oh, yeah.
53:04Jason Moser:No, I think that is the other thing. It is just such a giant market. Like, you know, there is, it's really, if you really want to, we won't, but you really could go down the path of why free and open markets are so good. As a national boundary, it's much easier for someone in LA to do business with New York as it is much easier than it would be for someone in LA to do business with London, for example. Not that those are particularly hard things, but it's like once you get rid of various artificial borders and you allow commerce to flow, it's good. It just happens that there's like, what, 340 million people in there.
53:43Jason Moser:And it's just like that's why much of the richest people are there because the market is so big. But I also would fundamentally point to if you fail as a business there, it's far less punitive. It's far easier to start up a business. There's a lot of advantages. And it's not just in places like the US. There's other examples around. Poland, by the way, right? Like, wow, have they really turned things around really rapidly? Vietnam has really, in the last 30 years, come a long way. There's certain things you can do, it turns out, that, like, really make a hell of a difference. And it's just that the Americans bang the drum on a lot of nonsense, but there are some things that it's sort of like I think that they're right to.
54:23Jason Moser:And I think that if I was to pinpoint some of the reason for their success beyond some of the structural market size, scale, all these kinds of things. I think they've got that right, which is why I was lamenting actually the other day when we were doing a podcast about, you know, the idea of where I fear it's happening in continental Europe or in Europe in general, in fact, and more so here where it's sort of like the tendency to rail against what people think is capitalism, I think is a very dangerous kind of thing. And that's something that bodes very well for America that they have so far at least have avoided some of the more scary socialist tendencies that would undercut the very means of their prosperity.
55:07Chris Hill:I think that's true. And not that you're saying this again, just for the sake of flushing it out. I see so many people kind of, you've talked about Singapore before and like, okay, there's some good things over here, but also there was a Italian regime and not much freedom. And it's kind of, it's really easy for people to go, I want to be America, not Cuba. Okay, sure, if that's the binary choice, then I agree. Let's take America. Would I like to be America with a few less sharp edges? Yeah, I think that's okay too. And so it's kind of like, and only making the point because I think it's important, the binary thinking of do you or don't want to be like America?
55:44Chris Hill:Can I choose that part that I like?
55:46Emily Flippen:Can I leave the AK-47 but bring in some of that, you know? Yeah, yeah. Bring in some of that entrepreneurial spirit. Right, exactly.
55:55Chris Hill:And it's important because that's kind of the, in any debate or discussion, and we've kind of talked about this for a few weeks, mate, but arriving at a better outcome is not red versus blue who gets knocked out, right? I mean, well, it is, unfortunately. That's kind of the problem. But if you kind of wrap it, take it back just a couple of steps, like what if we could actually discuss the policies themselves and say, you know what's great about America? These things. You know what's great about Singapore? These things. You know what's great about China? These things. Okay, so if we were going to design an economy or influence an economy or set some government policies, which, you know, you talk a lot about, you know, governments manage the economy, it's true, but if you're going to set some policies, say, well, what if we could have that from there?
56:37Chris Hill:Could we learn something from that? Do we have to have a terrible health system like America? No. Do we have to be totally unlike China? No. The idea of all or nothing, and it gets... The number of times I get called communists on Twitter because I say that CGT should change, It's like, I mean, firstly, you don't know what communism is. Secondly, you know, like just outright, like you've already disqualified yourself for any sort of serious conversation. But secondly, the idea that like, oh, okay, well, clearly that's obviously the only choice then, right? You're either communist or you're not.
57:06Chris Hill:You're in favour of what, I don't know what the alternative is in their mind. I don't know what threshold you cross to become communist and what you don't do to stay on the other side of that line. But it's just that all or nothing absolutism of the conversation. And I think you're absolutely right. Nonsense. And you point beautifully to some of the benefits that America has. And there are some hard kind of categories, if you like, the things like if you do these things, this will work. And then there's the soft stuff, which is it seems like these things matter. And by the way, there'll be false positives and false negatives.
57:37Chris Hill:You know, oh, it's the fact that America has seven letters in its name. That's what's responsible for it. I don't know. I think you can probably assume that's not exactly causal. I'm being silly deliberately, but that kind of idea of some of the things we think are causal probably aren't, some of the things we don't think are causal probably are. So it'd be silly anyway to sort of say, let's make a list and do all those things, but can we learn some stuff from it? Absolutely, just so we can learn stuff from every other country if we actually want to improve. If we're in the game of how do we make things better rather than pick your favourite or least favourite, jump on Team America or Team UK or Team China, Team New Zealand, but actually what things can we do?
58:13Chris Hill:What can we learn? What can we try? That's where the value is. And I think that's, you make a really good point. I think to your point, Adam, to your question, as a group, as a group of policies, the US is doing something very right. To imagine that that will go away. Actually, I'll take a step back. I say group of policies. It's not even that. It's a group of features, right? Because it may well just be 70 years of compounded culture that's far more responsible than anything we've just talked about. Or it may not. It may be absolutely the one thing, whatever that is. It might be just low wages.
58:45Chris Hill:It might be the lack of penalty for failure, as you say, Ram, or that might have nothing to do with it. It might be completely coincidental and correlated but not actually causal. So we've got to be really careful saying we need to be all that or none of that or even the list we choose. Pick the things that seem to contribute. And then, as you've said many times before, you don't have to be all or nothing. Just give it a go. Does it make a difference? Yeah. It turns out we reduced the cost of bankruptcy and the cost of failure and we created 25 % more businesses. Well, that seems like a good thing.
59:11Chris Hill:Let's do more of that. Or we changed it. It didn't work. We had more bankrupts. more people, there's more money. Let's go back to the old way. Okay, cool, let's do that. It's not, we can iterate. We can be smart about this. We can be nuanced about it. We can be thoughtful about it without having a result to our, you know, red trench and the blue trench and kind of, you know, lob grenades over the top all the time.
59:31Emily Flippen:Yeah, well said, man. I mean, this is the hard thing with the soft sciences, like, is you just can't run an experiment. I can very easily determine, you know, various physical and chemical processes because I can just do it and I can repeat the process and you can do it and you can verify it. We can all agree. It's messier with economics. But we're also having so many. Like so while you were talking and I just opened up my LLM and I said where are the easiest places in the world to set up a business and they're also very forgiving of business failure. US, number one, Singapore, number two, Switzerland, Netherlands, UAE, Japan, Israel.
1:00:10Jason Moser:like places that have, you know, punched well above their weight. Yes, right. And then I won't do the exercise, but I reckon if you were to do the opposite, I'm going to get North Korea, I'm going to get Cuba, I'm going to get whatever, you know what I mean? And, again, it's not, I don't want to be so binary because, again,
1:00:30Emily Flippen:it is very complex and these are multifactorial kinds of things. But when you look at places that have experienced incredible prosperity and they share a certain thematic, at the very least, it behooves us to go, maybe that's a thing.
1:00:46Chris Hill:Yeah, exactly.
1:00:47Jason Moser:And when we look at the opposite and then it tends to be more commonly associated with the opposite of prosperity, then maybe, you know what I mean? It's not, I feel, maybe I'm kidding, I probably am kidding myself, but I feel as though you can bring a degree of empiricism to it that goes beyond the vibes of I feel like this should be the way the world works. That's right. I mean, you know, at a point it's like, look, I can't give you a nice neat experiment to run, but I can show you reams and reams and reams of evidence going back 2 ,000 years and it just turns out that whenever this was done, all else being equal, it tended to push us in a better direction.
1:01:27Jason Moser:Was it a utopia that solved every known problem to man? No, of course not. Did bad things still happen? Absolutely it did. Was it a better way of moving? was it a better way of lifting everyone else up than the alternative? And it's just like that's why I often sort of rail these days, mainly among a lot of my friends. It's just like how is it in 2026 I'm even having a discussion about these kinds of things?
1:01:48Chris Hill:That's right.
1:01:49Jason Moser:I mean I get the first order thinking. I get the appeal. I really do and I very much had huge sympathies for that as a younger man. But at a point you've just got to take on the empirical data and just go, well, isn't that surprising? It's what it is.
1:02:02Chris Hill:Yep, correct.
1:02:02Jason Moser:You know, it turns out if you open up in a needle injecting room, it actually reduces harm and drug use. That's really counterintuitive. Yeah, it is. Yeah, it is. That's what's kind of interesting about it. But beyond that, maybe we should do that. But, but, but, but, but. No, you're completely missing the point. And there's like a 10 billion examples of the thing that is the counterintuitive thing, but it just works. So it's like, do you want something that feels right or do you want something that is right? Sorry, rant over.
1:02:28Chris Hill:Have your own opinion, you can't have your own facts, right? Exactly, exactly. All right. That's a great point, I think, on which to finish today's episode. You'll come back on Friday, won't you? You know I will. I know you will. I know you will. With more great news from the land of strawman.com. Australia's premier online investment club because Adam wanted to know what strawman was again and I thought I would tell him. Until then. Good on you. Full on. Cheers. The Motley Fool and people appearing in this program may have positions in the companies mentioned. General advice only. Please speak to your financial professional to understand how it may pertain to your situation.
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