Mailbag: incl. Did I just find free money? October 27, 2024

30:03It's a pod machine. Thank you. And if you can't use the phrase properly, just be careful. You've been warned. You've been warned. I have two items to add to your list of things to do, he says. If one was in charge of the country for a day, as she talked about in a recent podcast. One, I think we need longer electoral terms. Three years is not enough for any government to take a long-term view. Even though both sides of politics agree that four years would be better, apparently this does not have the backing of the electorate. I guess we get the politics we deserve. Personally, I think something like seven years may allow for better outcomes, possibly mixed in with a Senate election halfway through to keep some check on things and give the populace the feeling they can reward or punish the government of the day with control or loss thereof of the upper house.

30:49Perhaps I'm being naive to think we might get better policy if politicians didn't have to think about the next election 12 months after winning the last one. Second, political donations. I think we should allow them, but they must be anonymous. Maybe pay them in some account managed by bureaucrats, but never let it be known who donated or how much and back that with real penalties. It will be interesting to see if donations fell off a cliff. What do you reckon, mate? Longer electoral terms and anonymous donations? Yeah, that's a hard one, isn't it? Because with longer terms, yeah, maybe three years, there's a lot of distractions.

31:29There's a big percentage of that time that is spent. campaigning. Yeah. And my longer term would mean that there's more just governing happening and less campaigning. Yeah. But then I don't know where that line is. Is it four? Is it five? I mean, feel like eight feels way too long, you know? So I get it. Yep. Maybe four is about right. Yeah. I think I'd go to five. Five. You're right. We've seen in New South Wales, they have fixed terms. And it was, I think it was a Labor government of, not that matters, but I'm trying to contextualise it maybe 10 years ago or so. And for the last year, they were just so deeply unpopular and on the nose that they were serving out their term.

32:09Everyone knew it. The colleagues knew it. The opposition knew it. The people knew it. And it kind of became actually a bit disruptive because it was kind of like we're being governed by people we don't like. They know we don't like them. We know they're going to lose. They know they're going to lose. We're just kind of serving out time. And not that I would accuse them of not trying to govern appropriately during that time, but there was an element of kind of like by the time you were that unpopular in the electorate serving out a term just because gets a bit difficult and and i don't know where you run the line between long-term thinking and losing the risk democracy itself losing the respect and that and the trust of the electorate when it's clearly no longer in the interest of the electorate for those people to stay in power doing it just because we have this fixed term is tough so i don't know i i four is easy i might go to five i reckon i'm not sure yeah i could be persuaded it either way what was the other one sorry political donations keeping them anonymous what do you reckon no i don't like that at all i've got to think through that sorry i assume the end the angle is if you don't know gene is giving you money you're not going to do june is bidding or twiggy or someone else's okay that's interesting kind of like the idea generally because it kind of basically what it means is you can't you can't say i gave you some money so therefore i want access is kind of the yeah i i assume i'm i'm i'm if i if i'm putting words in your mouth inappropriately bend my apologies but i assume that's what it is which i kind of get from that perspective.

33:30Because the question is, do you want access or do you want your preferred policies? You know, the purest way to give a donation is, I think the Calathumpian party represents the things I think the government should do. So I want them to be elected because they'll govern right. And that's why, that's the purest reason to give a political donation to a party. On top of that, as Ben kind of implies, you get to access or influence and that's where it gets very murky very quickly. So I like that idea from that angle. I deeply dislike the idea though that you couldn't find out who was giving the money because you'd want to know if Clive Palmer was spending$100 million on an election.

34:01It's kind of worth knowing, I think, in the interest of transparent democracy. But I also see the angle he's going on. Also, humans are humans, right? So you're not allowed to disclose it. Yeah. Nudge, nudge, wink, wink. Come and have lunch. By the way, I'm donating$100 million. Are you? Yeah, cool. And then you know and they know, but no one else knows. So it becomes worse because it becomes a secret rather than, yeah. For someone to go, yeah, but that's illegal. God bless your little cotton song. every day right like again it's just like that stuff happens so i tell you what i would do in terms of donations i would get rid of corporate donations in a heartbeat personal donations okay fine maybe maybe capped uh corporate donations just seem wrong can i give a big plug um i had simon homes a court on the good oil uh a little while ago after peter danton and his nuclear plan and actually i want to talk to peter time about other stuff because i just finished reading the Big Teal, the book he wrote about the election of the teals that Climate 200 partly funded.

34:59And I didn't have time because you just can't in that conversation. He's a good talker, so I got about four questions in 45 minutes, which is great, but just it wasn't a lot. But I had him back on the podcast, and that episode's coming out, hopefully this Wednesday coming. So, should be in the pod machine. Subscribe to the good oil. I say that in general because it's a fun conversation. It's been already recorded, so I know what he said. But also, he talks about political donations, and just for a view on it, he's got his dog in the fight, so take that with a grain of salt. But But just some interesting thoughts as to why you might want to or not have political donations.

35:29Do you know what? I move on after this, but the inertia in institutions and systems has always been surprising to me. We have certain ways of doing things. And the only reason is, of course, we've always done them that way. and you will find every expert under the sun who will tell you, oh, no, there's a million easy low-hanging fruit policies we could introduce tomorrow that would not fix with like a magic wand some problem, but make them radically better. And here's a bunch of supporting evidence for it. We've thought about it for long and not. It's just like, yeah, but there's never going to be the political will for it to happen.

36:10And the reason being is because, I guess, is that there are vested interests. So we should do that. Yeah, we should. Why don't we? because these people over here don't want it to happen is basically the only reason, right? I kind of get stuck with the status quo too, that'd be fair. People generally fear change. One of my favorite Tim Minchin lines, I've got a lot, is from White Wine and the Sun, where he's saying, just because ideas are tenacious doesn't mean that they're worthy. And I kind of like that idea because just because it's been around for a while, we kind of have this idea of, well, we can't change.

36:38If we change, bad things might happen. It's like, well, bad things are kind of already happening. And yes, the new bad things might be worse than the current bad things, or they might not be. so we think about yeah yeah think about this like every this is coming up in a couple months a very significant majority of people in this country will celebrate a uh holiday which if you go back far enough stems from pagan mid-winter feast festivals like just from a time in human history where we were just just out of the dirt you know not even right And yet here we are, we're sending rockets to Mars. They're landing, you know, by themselves and stuff.

37:19And it's like we still, like, think about the power of the Catholic Church, which stems from the Roman Empire, which stems, you know, which stems from the Greeks. And it's just like you look today at things that are just, they are so ingrained. They're so ingrained as to be like the water we swim in. We can't even see it. but when when scholars have looked at it they go oh no it comes from this thing that these that they did in the bronze age history in medieval times correct oh so why do we keep doing it we've always done it that's right you know it's like wow my favorite thing is the width of um the size of the space shuttle comes down to the width of uh wagon tracks in whatever right and it comes down to they made roads to fit wagons they made because they made wagons a certain size they made trains a certain size because they made trains a certain size space shuttle had to be transported in parts and they fit through tunnels made for trains made on tracks that were wide as wagons and that's why the special is a certain size here's another one that i learned recently um the qr code the humble qr code yeah is an evolution of the barcode yes is an evolution of morse code no way yeah right it goes all the way because like when we first had telecommunications It was like I can send a pulse down a wire.

38:39That's what I can do, right? So Morse figured out this really cool way of doing it. That got incorporated. So barcodes are just dots and dashes in a computer readable form. And a QR code is just a 2D version of a barcode. Yeah, in the sense where it's sort of – Yeah, that's right. And it's just sort of like – Super cool. History is always one damn thing after another. It's one of my favorite sayings. And it is like you can trace a lot of things back to just – Look at this. our calendar is based on what Julius Caesar decided 2 ,000 years ago, right? There's a gazillion examples, right? Anyway, it is fascinating.

39:16It's very, very cool. Hey, Ben does have a question. He says, now I've got a question for discussion. Not we didn't discuss the last two things you said, Ben, but thank you. Does Australia need a proper recession to improve our productivity? After 30 years, it seems like the economy is due for some creative destruction. I feel the US has benefited from regular recessions to refresh their economy and their rates of productivity. I'll leave you with a quote from Morgan Housel's book, Same as Ever, which I think explains why it is so hard to pick stock market winners, no matter how complex one's spreadsheet is.

39:47Quote, the valuation of every company is simply a number from today multiplied by a story about tomorrow. Oh, so good. I love that. It's a great line. It's true. It's brilliant. 100 % true. It says thanks and maintain the rage. What do you recommend? Do we need a recession to fix productivity? Just quickly on that, Robert Schiller wrote a good book recently. He's the guy behind the Case Schiller Index, if you know that. I think he won a Nobel Prize, didn't he? Yes, he would have. Yale Economist, I think it was Yale. Anyway, he wrote a book called Narrative Economics. That's right, yes. Which I wouldn't agree with everything in there.

40:19I mean, just that idea of how we are story. What do they say about mankind, the storytelling tool using animals, which is just nails who we are um this is a hard one because i actually sympathize a lot with that view and it's hard it's hard to articulate because it makes you sound like a heartless that's right you know we need a recession people out of their homes jobs and businesses things would be better i need you i need you to lose your job thank you that's right and it's like can you lose your job and it's just you know you go first but i i think i think there is i think there is a sense to it because it is the the fear of there's a great there's a great speech in wall street the michael douglas version where he talks about greed is good youtube if you're below a certain age youtube it it's a brilliant speech and he talks about why greed is good and he's actually right he really is exactly because it's a Wall Street movie oh greed is good let's hear the bankers rationalize why their greed is good for society it is I mean well it's more fundamental than that it's just part of our nature we're all greedy right like it's just you can be unhappy about it but we're all greedy the only question is how greedy right like every single person the Pope is greedy Mother Teresa was greedy you know So everyone is greedy to some point.

41:51So it's just like you need a bit of greed because that's what gets people out of bed to do things and to take risks. Right. But the flip side of that is you need a real threat of failure. You really do because there's a moral hazard and there's a massive distorting asymmetry if there isn't. If I can take a bunch of risk and get rich if I'm right, but suffer no consequence if I'm wrong, I'm going to go for it. And so is everyone else. That's right. And everyone, the banks are going to fund me and the central banks are going to fund them. And we're all going to, and you know what happens? Go back a couple of years when stupid startups were being valued at$50 million.

42:34They didn't even have a product. Remember the SPAC craze? Special purpose asset, what were they stand for? Acquisition company, I think. Some stupid thing. And we had a huge amount of resources wasted is what we had. People were employed in the interim in the meantime, but we were all as a civilization impoverished as a consequence of that because we avoided failure. So I don't want recessions, but I need people to face real consequences. And I've got to be careful here as well. We talked about this off air earlier this morning. I'm a huge advocate for social security. net. I've got a friend who's just got back from the US and it's like, my God, the homelessness over there, you would not believe it.

43:18Right. And it was like, and I, I certainly think that we, we should have a good, good social security net for those that slipped through the cracks and the rest of it. But at the same time, you know, the world is the world as much as you might like dislike certain aspects of it. There is, there's scarcity and resources. There's only so much stuff to go around we need to figure out ways to sort of coordinate to allocate in the fairest way possible and in a way where we all through our own self-interest act in a way to benefit ourselves but also to benefit our fellow human being and so that's all good and well but i guess my i'm just there's a very long run-up just to sort of say yes we could be a good recession ain't a terrible thing, right?

44:04Only because the alternative is – I think that's the more interesting question. It's like, well, let's take the hypothetical that we never have recessions. What does that world look like? It's kind of like communism, right? It's like, isn't it great if the state just decides who gets everything and we'll make sure that everyone's looked after? It's like, yeah, sounds really great. Disaster. Doesn't work, right? And I think anyone who tries to engineer a world where there aren't recessions, The short term, it feels okay. Longer term, it leads to much, much bigger pain. So, yeah, I think a recession every now and again is a good thing.

44:38My view, and I'll pass it over at this point, is that because they are unavoidable, I want – I don't want. I prefer frequent shallow recessions as opposed to not having one for 30 years and then having a Great Depression, which is the way that we tend to sort of prefer, unfortunately. i'm really i'm torn like you mate um i don't think we need a recession i do think we shouldn't waste a crisis so if we have one let's let's make full use of it right we will we will they are right exactly they are the times to to deal with the implications of the problems that we end up with the risk unfortunately this time around if you have a recession you know the whole lot of government money being pumped in which makes our fiscal position worse and frankly right now i think we should i think we should need one for from a social perspective but frankly for a fiscal one unless we have a more reasonable government by the time we get there.

45:30I don't mean more reasonable as in Liberal versus Labor. I mean politicians generally because the LNP aren't offering much better at the moment. We're out with more debt. So we come out of it in worse position than we went in fiscally as well as societally, frankly, because we'll come out of it with higher unemployment, more business failures, fewer people in homes, all that kind of stuff. So we want to be really careful what you wish for, Ben. It's really seductive. I've got a lot of these kind of mental model-y kind of things and again I haven't I mentioned a Friday another one for me is there's people who just preferred the um prefer the elegance of a system to the quality of the outputs and I'm someone who prefers the quality of the outputs I don't mean that as a christian for those who don't but it's kind of nice to be able to say if only we had this we clean everything up and everything would be cleaner and cleaner would be nicer and nicer would be better so we should do it and I get that way of thinking except it ignores the pragmatic realities which you've rightly pointed out Ram which are actually a whole lot of people lose their jobs homes businesses unemployment would be higher um you know we we would recession help in some areas yes would it hurt in a whole lot of areas yes so let's be careful we don't just take one rather than the other um forced to choose and well here's the other thing right is that the stupid part about all this is humans are humans we could actually solve we could we could fix the recession problems without a recession it's entirely within our grasp right we do you need a recession for those just happen no absolutely not we could we could fix them tomorrow you know would that be so terrible because here's the thing even without a recession capital is always going to go to the highest return use you don't need a recession to get for some businesses to fail what will simply happen is people will go to the better job that pays more customers will go to the better company that has a better service and the company might not fail as quickly as otherwise might but if there's no customers because they've gone somewhere else it doesn't matter how good the economy is you're still not going to have anyone your fish and chips off the one next door is better so you And should we want that too?

47:21Right, exactly. It's like no one's mandated this. It's just like no one's buying your stuff, man. I don't know what to tell you. You know, it's like, is that unfair? Well, maybe, but again, what's the alternative? It's like anyone who sells anything should be able to sell that. Right. Should be supported to sell it and never be out of business. Exactly. But we've only got so much wheat and coal and steel and energy. It just doesn't work. It just doesn't work. Correct. So my argument is you don't need a recession for that to happen. Now, recessions make it sharper and harder and quicker. And there are some kind of elegant system outcome benefits in that.

47:57Do I think it's worth putting people out of work? No, because if you do it without a recession, they choose voluntarily to move. And the business winds down slowly in orderly fashion. The business owner probably doesn't lose as much. It gets to shut it down without a massive loss and go and do something else. And, you know, you don't know. You do not read a recession. In fact, the reality is recessions are relatively – they're not exactly – they're not super modern phenomenons at all around the 1800s but kind of before the industrial revolution there weren't recessions right so you don't there's nothing in society that says all humanities you need a a terrible thing to go through we do know by the way that there are super benefits despite horrible costs for things like wars and recessions and depressions because it makes us reassess what we're doing and and there are some good things that come out of awful stuff and again i wouldn't wish wars or recessions or depressions on anybody but there are benefits that come from them so we shouldn't ignore those so can we yes um i think your your your question, Ben, and frankly, Ram's question or Ram's point is we have to be mature enough to actually make those decisions and take those actions without the recession.

48:54If we're not, then there will be force on us with the recession. That's kind of the point. So, you know, can we avoid recessions? No. Can we make them to Ram's point shallower and, you know, less severe? Yes, if we choose to. We probably avoid some other recessions with a bit of careful, you know, management in the reality. Excess is what causes the recessions, right? So, you limit the excess, you end up with less fuel recessions or shallow recessions to Ram's point. So yeah, I think that's probably my answer. I've probably banged that drum long enough. Yeah. I mean, central banks are going to point the finger then.

49:24They create most of their own problems and then they try and fix them. Who would have thought that pumping huge amounts of money into an economy in a cavalier fashion would lead to a period of incredible growth followed by a reckoning because of all the malinvestment. And then you try and fix that. But, you know, it's - The reckoning is also that we didn't take it back out again. Yes. When you only pump one way and then don't take out the excess. I've never been able to find this again, mate. I hope I didn't imagine it. But one country actually started to effectively pull back, you know, recoup the COVID spending even before the pandemic had finished.

50:00So, we're like, right, big spend. Okay, now that's going to cause some dramas. Let's pull it out. We went, big spend is going to cause some dramas. Oh, well. Can't help that. It's like, no, you really could have and should still be. And this is the frustration for me. You and I are different in terms of what we would have had the regulators and politicians do. But in either case, if you're going to do it, take the punch bowl away. Don't let them keep drinking. Once they've had, you know, the quench of their thirst, great. Stop. Don't let them keep drinking. That's when the problems kind of, you know, get.

50:26There may have been problems anyway. They are demonstrably worse, I'm sure you'd agree, because we didn't take the punch bowl away. Well, and that's the problem with central banks. It's not that I don't disagree with the theory. The theory makes perfect sense. They just never do it. They never do the thing that they're meant to do it. And governments as well. If you want to tell me that, oh, we need to spend to stimulate counter-cyclically, okay, cool. That also means you take it out when we're going really well. But you never, ever, ever do that. So it's like, that's why I'm against it.

51:10Let's get a question from Jerry, who starts off by saying, G'day TMF, Scott P and Sage underscore Simeon, which I very much appreciate, Jerry. Our respective Twitter handles, of course. Jerry from North Melbourne here. Long-time listener of The Pod Machine. I've been squaring the circle since way back in BC, which is before COVID. Thank you both for keeping me company on my Sunday runs over the years. I'll leave the triathlons and tractor pulls to Rambo. I recall earlier this year you did a live show at a brewery on the Gold Coast I want to say Medoc good memory the events sounded like a lot of fun and a great way for the full community to connect we have plenty of pubs bars and breweries and wineries down here any chance the Motley crew would consider a Victorian tour I know it's a little chilly and we follow the AFL but the weather's warming up and I'm sure your southern fans would love to see you in person plus it'd be great to get together and have a Kogan drink with some fellow fools At the very least, it'd be a strawfully good excuse for the two of you to take a guilt-free trip to Melbourne.

52:10From a proudly unsophisticated, quotes, retail investor, full-on, anonymous. Just kidding. If you don't want your name right out, put it at the top. Cheers, Jerry. That's awesome, Jerry. We'll take that as a comment, Jerry. Thank you, mate. Very good. We should do that one day. Exactly. All right. Let's see how much time we got. We've got a bit of time. That's good. Maybe one more. Hello, Scott and Ram, says Starzy. I have two questions for the pod machine. Good man. But I would love your opinions on. Hopefully, Andrew isn't too tired from his daily Ironmans to get through them both. You know better than that.

52:43He can chew on his ear, mate. He only gets tired after four. I was having a look at the Australian Foundation Investment Company. I noticed their share price is at a discount to pre-tax net tangible assets of 10%. Is this the correct way to measure the discount? And do you think I've just discovered free money? The LIC just holds the ASX 200. I mean, there's no private investments with subjective valuations. He's only got a second question, but we'll start and go one at a time. 10 % discount, mate. What do you reckon? Yeah, they're really common. It's actually more common than you'd imagine. And sometimes the discount's really big.

53:20I mean, I've mentioned Bailador before on the pod, and that's got an even bigger discount. Yeah, true. A very significant portion of their holdings are cash and a listed company in Sightminder. Like, why? And Straker, I think, from memory, yeah. Yeah, Straker as well. Yeah. Why? I guess that the best answer is because there is still a risk that they do something. They sell, they buy something else. If nothing was going to change and they were going to liquidate today, then yes, you're buying a dollar coin for 90 cents, right? So in that regard, there is value to be had. But that's never going to happen for these listed investment companies.

54:03They're never just going to say, you know what, we don't like our fees and livelihoods anymore. I'm not even having a go at them. That's their job. That's their job is to manage money for you on your behalf. And so for that to ever be realized in any practical way, they basically need to say we give up and we're giving all your money back. In which case, the arbitrage in the market, or the arbitrage opportunity in the market would absolutely close that gap between NTA. But because that's never going to happen and because we don't know what they're going to do, there's key person, key people risk in that.

54:36There is a discount because of the what if. Now, is that reasonable? Maybe not, particularly with a company that's got a long history, a very clear mandate, very honest communications, but it is a risk. And that's the best I can do to explain why. The only thing I would sort of say is, although that's not, it's very unsatisfying intellectually um i agree um it nevertheless it it is a bold investor that buys on the and i'm not saying you're doing this jerry but but it is a bold investor that assumes that the moment you buy that gap will close because it probably won't yeah that's right it's only free money if the gap closes and uh and that's important um couple things on afik Jerry, first thing is, I checked the numbers, it's still a 10 % discount.

55:22They're doing a share buyback, which is what you should do if you're trading at a discount. So that's a win as long as they believe the intrinsic value is real. The challenge, I suppose, is two things. They don't own the ASX in the same proportions as the ETF. So you're actually taking investment risk, which is kind of Ram's point. And that's worth something, plus or minus, but that could be worth more, could be worth less. They reckon Commonwealth Bank's biggest share of size than BHP in their portfolio, and CSL, Macquarie, Westfarmers, NAB, Westpac, Goodman Group, Transurban, James Hardy, you know, that in those proportions, they will impact your results for better or ill.

55:57They tend to take a bit of a ASX 200 plus or minus. They kind of own them all and change the weightings a little bit, try and outperform, which is fair enough. So that's the first thing. Second thing is the other thing that's not captured in the NTA is the cost of running the company itself. because you're not just getting the investments, you're getting the investments and then you're also paying for a management layer. And so you should be paying less than NTA because that effectively, if you were going to value the company, you'd capitalize those costs. In other words, you'd say, well, I get all those assets.

56:26I can own them for nothing if I own them, but I'm paying a team of people to manage those assets for me. So they're worth less than that because I've got to take a little bit like an ETF. I've got to take out from that value the cost of maintaining the portfolio, in this case, paying the people at AFIC to run the company for you. And so that's kind of worthwhile, notable, and important to have a think about. I suppose the last thing for me in terms of this one is just thinking about the potential for the NTA not to be worth the NTA. In other words, it's free money only if they're right about the investments they own.

57:00Now, if it's an ASX ETF, it's worth what it's worth. Because they're buying the sizes, Commonwealth Bank's almost 10 % of their portfolio, right? Now, if they're right about CBA, there's upside. If they're wrong, there's actually downside. And so when we talk about NTA, what we're really saying is market to market. In other words, the market value of this is currently that. Now, if Commonwealth Bank's overvalued and BHP and CSL are overvalued, together they are, what's that, 18 and a half? That's a quarter of their portfolio in three companies. If they're wrong about the value of those companies, they shouldn't own them or own them in such large percentages, it's worth less.

57:32So when we say NTA, it's not the same as cash in the bank. they're required to call it NTA net tangible assets I mean they're kind of tangible in the sense you could sell them they're certainly liquid but they're not tangible in the sense that CBA is obviously worth that much if you have 100 bucks and your 100 bucks is being offered to you at 90 then you've got attempts to discount to genuine tangible I mean money's maybe not tangible if we go right down the rabbit hole but you know what I mean if you're getting 100 bucks for 90 you're pretty happy if I say to you hey this piece of paper is worth 100 bucks I'll give it to you for 90 you're going to ask yourself well, actually, is the paper really worth 100 bucks?

58:06And so that tangible bit is, it's a bit of a misnomer. It's not their fault at all. Everyone does it. They're required to do it. The language that the market chooses, though, and the regulator probably chooses, I suspect, is just not great. And probably net market value or something is probably the better way to describe it. Because if the market's wrong, the assets aren't worth that. There is no free money. Again, the market could be on the other direction. Commonwealth Bank could be worth double the price, in which case you've got an even bigger discount. But whenever you're buying anything where they're taking active decisions to own certain portions, ask yourself whether the market is right about those prices first because that tells you whether it's worth buying.

58:43Any else on that, Ram? No. Other than to say whatever the discount is will more – like it'll fluctuate, but it'll more or less stay the same. So if – the calculus here is what are the assets they own? Do I think that they're going to appreciate in value? Do I think they will continue to allocate in a sensible way? And as long as the assets that they own, whatever they are, whatever they hold now or whatever they change into tomorrow, and realistically they're not going to be changing radically from one quarter or even year to the next, I doubt, but that just tends to be the case, you'll still see the appreciation.

59:20So if all else being equal, the market goes up 10%, well, LIC is going to go up 10%, more or less, right? the closer they hug the index obviously the more aligned that is but it's sort of it look at it the value proposition is is really how good are these people at managing the money yeah exactly that's right that's that's that's all all that really matters there might be a discount there exactly that's right but if they keep growing that pot yep you're going to do well and if they don't you won't like that do they deserve that that trust is there a track record there that demonstrates that? Is there a philosophy that underpins that, that makes a great deal of sense?

59:58And here's the other one, which is a consideration that is more relative to today than it was when we first started, which is, can they do it better after fees than an ETF? Yeah, exactly. Now, back in the day, there wasn't ETFs. And so these were really great options for those. I just want to invest in shares, but I don't know how to do it. And this is like a really good way to kind going to do it. So it's kind of got to be, can they do it better than that in the sense that they've got to not only beat the market, but they've got to account for the fees that they're charging to do that as well.

1:00:30Some do, and at least have done for periods. And in which case, great, good decision. But it's a higher bar. It's a higher bar to cross these days. And then the other one is as well as like, if they are a little bit more active, you have to ask yourself, well, can I do that? Like if they, some of them you read, it's like our mandate is to invest within the top 100 for companies that meet this set of criteria i was like well i can do that yeah that's right well why am i paying you know maybe you're just like you know what i've just i'm happy to pay it look i could i could change the oil in my car choose a better example and you can't in theory i could change the oil in my car other people could change the oil in their cars but i never i've never done it right because i just it's just easier to pay so there's also that argument as well, which is like, yeah, maybe I could do it, but it's just, you know, I'd prefer someone else.

1:01:20Same with your taxes, right? That's another good example as well. So, yeah, a bit of a ramble there, but I'm not trying to say don't invest in them in any way, shape, or form. Just make sure your North Star here is the competence, really, effectively. And is it going to be better than, what's the opportunity cost relative to really easy, low-cost options? Now, Stasi sent us a quick question, Ram, and I suspect that this is a plan from maybe you or one of the other fellow men. I always love it when you... It's not a Bitcoin question. It's not a Bitcoin question, but it's almost as good. I still know it's going to be good though.

1:01:54I know that Andrew, says Stasi, likes to keep an investment diary. I was thinking about starting my own. I would love to know what questions you ask yourself about each investment so I can start my own template. Thank you guys so much for your thoughts and advice each week. I've been listening for over two years now And I'm surprised at how much my investing skills have improved over that time. Thanks, Stasi. Well, Stasi, correlation and causation should never be confused, is all I will say. Mate, Investment Diary, you have some experience with Investment Diaries, both online and part of the private investment clubs.

1:02:28Other than joining one such private online investment club with a Wizard of Oz reference, what would you suggest if you're starting your own? I have to give a plug. In the sense that you don't have to pay. There is a free version, right? And all of everything you post will be private, right? So you've got a SaaS-based investment diary here where you can do it all. Never pay me a cent. It's just there. Use it. They're not running out of space on the internet, so I'm happy to say that. It's really tempting to sort of go for the technical kind of things, like look for a debt to equity below this and a return on equity figure that's above this.

1:03:09I want a nice, easy stability ratio on my earnings per share growth and blah, blah, blah, blah. No, my diary is much simpler. Do I understand the business? Like, could I explain this to a 16-year-old? It's very easy to throw a bunch of buzzwords, you know. But I mean, like, what do they actually do? Who are the customers here? And what value is being created for these customers? It comes back to that earlier point in the pod, right? It's like value is this thing that is just so all important and so obviously important and yet so difficult to pin down. Why is it that people find, I don't know, zero valuable?

1:03:49Because the alternative is really painful and some of the other online solutions aren't that great. You know, so I was like, oh, okay, that makes sense. Do you get that? Okay, that's the, if you don't, if you don't pass that threshold, nothing else matters. nothing else matters in terms of whatever discounted cash flow you might want to do or risk analysis like if you don't get the business and and by the way there's no shame in it i i would there's a bigger than i would like to admit publicly amount of you know number of companies that i just like what i really like do i do i get the business model what do i know about you know some of the more obscure parts of freight forwarding or you know nothing really now i can i can rectify that by reading and studying and learning by all means.

1:04:34But I have to pass that threshold. That's the first one. The next one's really easy. It's like, are they around in five years and are they earning more than they are today? If I can't be confident of that or at least have a reasonable amount of conviction on that, that's also a pass. With the exception that maybe it's just so ridiculously dirt cheap that even under a steady state, it's okay. But if I've got a company that I understand, if I've got a company that I feel is not facing any existential threat. And if I feel as though it's economically healthy enough that it will be around, and in fact, from a profitability standpoint, more profitable, it's improving.

1:05:11Now, does that mean it's tripling or it's just growing at 1 %? I don't know, but that kind of doesn't really matter for me. It doesn't, because that issue will be addressed when it comes to the price. You know, I'll give me a company that's flat trading at a PE of two, than a company that's growing its earnings at 30 % compound but is trading on a PE of 10 ,000. I'll take the former. But I at least want to invest with the wind at my back. You can do well in companies that are in decline, but it's a hard game. And I'm lazy and I like to make things easy. So I like a business that is improving, even if it's a slowly incremental kind of improvement.

1:05:49I like to have that. And you'll find that as those three things, in answering them you'll find that all these other questions emerge underneath them so okay do i understand i think so that means i need to understand this do i understand that and it's just it's those five whys that framework you know we just keep going down and down and down and down and down and so it's sort of like the questions you should ask logically flow from those foundational questions to my way of thinking and and you just keep asking why until you feel as though you've got it and often you won't which case fair enough no harm no foul move on and then Once you get to all of that, I really do get it.

1:06:28I really do have conviction there around in earning more. Now what's a fair price? And that's where you can break out the spreadsheet if you want or just do a nice simple PE analysis or a dividend yield, whatever way you want to carve it. I don't really care. I do the very act of thinking about value will raise questions and help you put a set or series or range of numbers that are on there. And that's kind of – I mean, we could spend hours talking about it. And clearly I could do that because I'm a talker and I love this thing. But I hope that answers the question. I feel as though too often it's that desire for complexity that sends us down unnecessary paths and we just make things harder for ourselves as investors.

1:07:17Keep it simple. Just keep it simple. Keep it high level. And you'll miss out on a lot of things that go to the moon. Um, but you'll invest with, with a much, but here's the other thing as well, because no matter, let's say you get everything right in your analysis, you get everything right. And history will eventually prove that you were, you were right. There's no guarantee. In fact, there's a very good chance that the day after you buy it drops 20%, right? So you're only going to be able to realize that vision. If you've got the conviction to hold, you're only going to have the conviction to hold.

1:07:49If you've got the understanding, understanding, just can I give on a very brief tangent here so i've moved i've moved to the mountains yeah i know so we've got snakes we never i've never had to when i was a kid but not in my adult life i had to deal with snakes now they're a thing and we've seen a couple of rounds like it's scary right like these things can kill you and and how have i approached it i've just gone down these massive youtube rabbit holes on people talking about brown snakes red belly black snakes and i am far more confident now because i know what the risk is yeah i know what to do i know that a lot of the fear is irrational and it's nothing to do with ostensibly with finance but it's the same in the sense that when you get bitten by the snake on the market that is the share price drops 20 yeah if you don't know what you're doing you're going to like sprint to the hospital right and like just pump the pump the vein through through the endocrine system and through the lymph nodes and you're going to kill yourself.

1:08:49But the person who is prepared and understands and calm will know that actually this isn't a big deal. 99.999 % of people survive, and the reason they survive is they do this. Knowledge really is power in this kind of thing. And so it's just sort of like – sorry, mate, I'm speaking a lot here. No, go for it, mate. Understand the big questions. Get comfortable with them. It will put you into investments that are far more likely to do well but more importantly my second point being is that when the market does what the market does you won't be shaken out because you have the understanding that you have built that conviction and that's why i'm very fond of saying i say it all the time on straw man you can borrow an idea you can't borrow the conviction which is why stock tips are so useless i mean you you need to stock tips are brilliant to give me an idea that i can then own and i've said about the fool when i was there which is like that's the brilliance of the fool's like you've got a team of smart guys they'll go around and they'll say these companies are really good don't buy on that basis use it as a platform it's like use it as a filter right because because when those shares drop 30 for whatever random reason you know you don't have scott on speed dial to say what do i do now you know it's you you you need that understanding because understanding gives you conviction conviction will allow you to stay the course staying the course is what will deliver value all right shut up now no it's beautifully put mate i'm i'm i'm tempted to leave it there i'm i won't because i cannot myself but i think that that's you know staying the course is the answer and i think that i i suspect that the answer is in the question which is starting the diary is the point um yeah having the diary is the point which kind of what you're referring to it's less about actually what's in it it's the fact that you've done it um and that's kind of the point right Because it's a process of understanding and it's a process of having the, whatever you put in the diary is the process of you rationalizing and explaining to yourself your own views so you can firstly clear your own head and secondly refer back to them when you need them.

1:10:55And that's kind of the point, right? What you put in there is almost secondary. Here's the other thing. What you put in there is probably going to be what you think is important, which is what you're going to evaluate when you actually have that kind of crisis of confidence moment, right? So I can say put in ROI, return investment. Andrew says put in the price. Someone else has put in the management ownership. Someone else has put in – the thing you think is important, you're going to put in there. And so because you think it's important and because you put it in there, you're going to refer back to that when the time comes and go, oh, that's right.

1:11:23I thought that was important. That's still true. So I'm still okay. It's kind of almost the point, which sounds very meta. I don't mean to sound like I'm being too abstract with it. but i kind of think you kind of you're there or thereabouts whenever you whatever you do um i think andrew's a lovely thing about understanding the business um the only the only question that you need to answer fundamentally is why did i buy the shares what what benefits what expectations what uh outcomes what uh advantages what you know what were the reasons you had in your mind for buying this business? Because that'll tell you, when you go back to them, are they still true?

1:12:01I bought Woolworths because I thought it was going to go into Bitcoin mining. Okay, well, 10 years later, it didn't. So I'm probably not holding it for the right reasons. I bought Woolworths because I thought it was going to be a dominant growing supermarket retailer with more stores and more people and higher sales and profits. Yeah, that kind of played out. Okay, cool. Now, the newer the company, the more innovative, the more kind of, risky is the wrong word, but uncertain its future is, the more the chance that you end up with a Bitcoin mining type example where you say, I bought shares in strawman.com because I thought it was going to be a billion dollars in sales by 2027.

1:12:36And so far it's only done$800 million worth of sales. And so, question whether we'll get there or not in time. You know, that's also a valid question, by the way. I thought it was going to be much bigger and it has or hasn't been. Okay, cool. I've done what I thought it was going to do. So, literally, what does the business do and why do you like it? Why did you buy the shares? Don't make it much more complex than that. If you're someone who's numerically minded and you bought it because the return on equity was above 32 % and you thought it was going to stay there, if that's your thinking, put that in.

1:13:06If you're really asking a Stasi, what should I consider when I'm buying shares? That's a whole different conversation because that really comes down to how do I find great companies to buy? And we can have that conversation. We should at some other point and kind of go through some of those. We did actually not long ago. Was it last week before? We went through some of those factors we looked for. Yes, we did. So, you know, if you're looking for some objective things to think about and write down, start with that list. There was, we're supposed to do five, we did eight or so from memory. Go back to that.

1:13:32If you want some thought starters, some things to look at. So if you're asking us, you know, how should I pick stocks? That's different. If you're asking us, what should I put in the diary? The answer is, what did you expect? Why did you buy the company? That is, it sounds very abstract and almost too abstract to be useful. But at the end of the day, however you answer that question for yourself, that's what I would do. Yep. Yep. Anyone on that? No, just to expand, not even expand, just to double down on that point of it's just, it's as much the process as the answers. Yes, exactly. And that's why you do the diary because it's very easy to, there's no one easier to trick than yourself.

1:14:10And for whatever bunch of subconscious subjective rationale, you'll hear a stock, you'll like it because you like it. and then it's only when someone says or you say to yourself now articulate it well it's obvious i like it well why uh uh because of this well why do you think that well you catch you you catch yourself out in a lie in the sense that you've you've formed an opinion without really understanding why and i'm not having a go we all do it i just want it because i want it and you know why you want it because there's a there's part of your lizard brain that is just super greedy that thinks that this is a ticket to, it makes you feel good.

1:14:52That's why you want to do it. But you have to force that higher level thinking, the frontal cortex part of your brain to sort of say, no, think about it. And writing it down just forces you to think about it. You might come to the wrong conclusion. God, it's a hell of a lot better than not even thinking about it in the first place. That's exactly right. Yes, you nailed that template. I think that's exactly the point. Mate, I think we've probably hit our self-imposed deadline because we could talk for hours if we let ourselves. and frankly we've got other work to do and our list is probably at some point dropping away.

1:15:20There might be three or four left. So if you're still here, thanks for spending a bit of time with us. If you want your question answered, please email it info at fool.com.au. Follow Ram on the Twitter machine at sage underscore simeon or at strawman invest. You can follow me on Twitter and Insta at TMF Scott B. Also on threads and Mastodon if you want to find me there, but you know the drill. You're still rocking Mastodon. Well done to you, sir. Well, I know. I'm still there. I haven't posted anything about six months, but I'm still there. Or you can jump onto Facebook at facebook.com forward slash Scott Phillips money.

1:15:53Have a look at my recent barbecuing effort. I was batching this week. And so I did a little bit of outdoor barbecue fire pit action. It was very, very satisfying. Best take I've had an ages round, but we haven't got time to talk about it. Until next week. Fool on. Cheers. The Motley Fool and people appearing in this program may have positions in the companies mentioned. General advice only. Please speak to your financial professional to understand how it may pertain to your situation. Subscribe to the free newsletter at fool.com.au forward slash listener. The Motley Fool operates under Financial Services Licence 400691.