Mailbag: incl. Help to start investing at 40. June 1, 2025

25:42Too much of this industry gets away with murder with that little trick. It's like, I don't understand, but I'm going to assume that you're super smart because that sounded really technical and sophisticated. And so it may well be that it doesn't land because we're talking absolute nonsense. And partly there's a little bit of humility in that, but it's also just I think it's a good framework, particularly in this day and age, and particularly as deep fakes get better and better, which is scary. I don't know if you saw the latest. We just thrown this in at some point. Oh, man, it's just scarily good now.

26:18But it's always good to have that reasonable degree of sort of skepticism and doubt. There's a lot of things in this world that sound impressive because of their technicalities. but when you really drill into it, you go, that's just nonsense. And it might be that us, we're part of it. So I just, yeah, be aware. Nice, good call. However, Carl then goes on to say, I really appreciate the no-nonsense, honest opinions you both offer, and I love that you don't always agree on certain topics. Here's my question. What are one or two theories or opinions on investing, finance, housing, or related subjects that you two disagree on?

26:56Could you both elaborate on your views? I hope this question makes sense. This is going to be fun. keep it simple I'd love to hear a good debate between you two as it always makes my weekend a little better sounds like he just likes blood sport really but that's up to you cheers Kyle so that's the last question in this episode right that's it we're just going to go for the next hour or whatever on that point walking back to the side screens and pushing off Dennis Lilly coming in from the members end oh mate where do you start you nominate I don't know I'm trying to think of things we agree on fundamental principles of investing and largely I think we reasonably similarly have similar views on what I'll call smaller liberalism as an approach to life.

27:41I don't want to paint you in a corner but I think we're kind of our life approach is not dissimilar, our investing approach is not dissimilar. We find different executions of them. Our portfolios are incredibly different given the similar styles as investors. And that's a combination of interest and time and my work mandate and yours and other stuff like that. But that's kind of, that's different, but not something we disagree about. There's always the Bitcoin thing, but I think we've probably done that to large death. And then we're not really disagreeing rather than I, I'm probably just getting splintered in my backside, sitting on a fence, listening to a passionate argument over there and thinking, well, here are you coming from, but I can't quite make that, make that commitment just yet.

28:21I don't know. Can you do, I'm trying to think. Well, I was, I was going to, I think that's all fair. Definitely, definitely Bitcoin. Also, I think economically you're more towards the Keynesian end of the spectrum. That's true. Yes, that's true. But again, even then we're kind of different because of the execution of it rather than the idea. Yeah. I think you'd be happy to be a – well, Keynesian is two things. It's deficit budgets and it's money printing. So there's two parts of that. I'm actually with you on the no money printing thing. I think it's a – I think Keynesianism was a social policy drawn up around economics in that money print.

28:52Like we can help people by just kicking the can down the road. is effectively what it comes down to for the money printing thing, which works in the short term, by the way. It works really well. It's a really good theory. Someone's got to pay the bill. My comparison is always communism. It's like it works great on paper, as does Keynesian economics. I don't think we agree on budget deficits and structural kind of budget. Again, your issue is, well, okay, but only if you do it properly. If not, you do it properly. You can't have the toy, which I get. I'm kind of the same, but I hold out more hope of trying to get them to do the right thing.

29:20You're like, dude, you just – yeah. But Pollyanna, there's Pollyanna and there's you and just get off the lawn. So, yeah, I think if you're right about the canes and stuff, absolutely. That's absolutely true. The Venn diagrams, I mean, the circles are pretty close on top of each other. And there's definitely difference. I'll point to Strawman only because it's got, well, we track, people have these play money portfolios. So, you get to see everything, right? And it's really interesting. It's come up before. It's interesting when you sort of look at the leaderboard. It's kind of like you have people who approach the market.

29:54Well, a couple of things. A, in entirely different ways, entirely different ways, and both do really well. Yes. And then you get people who are pretty much prosecuting a similar style, i.e. be that income or growth or value or small cap or whatever label you want to put on it. So there might be two small cap growth-oriented tech investors, but again, there's no single stock that they hold in common. Right. And they're both doing well. Yeah. So it really is horses for courses on all of this kind of stuff. I do struggle to think of, oh, end of the central bank. I guess that comes to the fancy kind of stuff.

30:29That's fair, yeah. I would - No, putting a price of money, 100%. 100 % true. Yep. Yep. I think we disagree with that.

30:39So each one of those, we could do an hour episode on, which would be fun at one point. But I'm hesitant to go too much further because it just sort of, it very easily lends itself to, oh, but there is this and there's that. and then, you know, four hours later, we're still on the first point. Yeah, yeah. Yeah, yeah. I do - International investing is probably one and we've kind of almost just talked about that with the answer to Cameron's question, but the degree to which we're kind of happy to go international. I'm not as absolute about non-US markets. We're pretty similar emerging, I think, for the reason you've been outside.

31:15I'm happier to go broader field in a passive strategy. Not that my entire investing is passive, but if I'm going to do the passive bid is going to be as passive as I can, you're kind of happy to make judgment calls around where you put that passive cash. Yep. I'm probably more happy to invest in pre-profit companies. Yes, that's true. I don't, I was going to say, I don't mind a loss. Do you know what? You do well that I don't do well. It's a disagreement in the sense that it's a style we prosecute. I struggle. I'm much more retail-oriented in terms of businesses that sell to consumers. And ironically, given I'm Pollyanna most of the time, it's born of a cynicism or skepticism around what I can't see, feel, and touch and how much faith I've got to give management in terms of what they're doing and how well they're doing it.

32:10And if things would change in terms of market share or attractiveness to the product or service, my inability to see it, I'm more comfortable. I can kind of go, okay, I get what they're doing. I see the thing. I see it being used or I see how the dynamic works or I'm much more likely to revert to not personal experiences you know I'm happy to buy stuff buy shares and I use the products of it doesn't need to be something I use but that kind of closeness I really struggle and it comes back to your pre-profit thing which is kind of like so I know they're kind of trying to do a thing and I kind of understand what they tell me they're doing with this thing but I don't really I can't instinctively grasp it and test it for myself not test it to test the product but test the idea you test the theory test what I'm being told I'm kind of one of those I just I hear and see what you're trying to do over here I don't know that I'm I'm comfortable enough to go yeah I'll just see if you're right I'm more likely to want to try and test myself and that's that means I end up with more consumer facing businesses than you are than you have yeah that's not neither right nor wrong no it's just a difference yeah just difference yeah yeah it's always coming back yeah I mean Well, I know.

33:21You're stylish. You're more of a VC style investor. We were talking about this in an episode, which I think is probably upcoming. I can't remember. Again, we're in pre-record mode now, so we're recording a bit out of sequence. You talk about the David Gardner approach of kind of being happy with some big winners and more losers. Lots of losers. Right? Well, yeah. And that's your style. I tend not to. And again, that's partly personal style. Probably what I would do if I was not working for The Motley Fool. I will say my work is in the mid-large cap end of the market at work. So I kind of, that's where I tend to focus much on my research time.

33:53Would I, I'm very, very comfortable making losses. I don't want to, but you know, I'm very, I'm happy to throw, you know, I made my peace with losses ages ago. So I wouldn't be unhappy to follow that style in particular, but I tend not to, because it's just not what I gravitate to is not what I do for work. Yeah. I'll give you a compliment. you're much better at not looking at share prices. I know that I'm not, there's no way I can defend bringing up a watch list 18 times before breakfast. But I do. And it's, it's a weakness and I can't help myself. And it doesn't help in any way. It doesn't help.

34:34The difference is though, we've said lots of times, there's a meaningful difference between temptation and the sin. All right. And so if you're looking up the watch list and you're actually able to train yourself not to therefore go, oh my God, I'm going to do X. You've said, you know, down 10 % to normal Tuesday for you for some of your companies, right? So it's like, it happens, you're like, well, that sucks, but okay, that's just what happens. The reason I say to people, I don't check my share price regularly, but they also don't move as much as yours, so I get it. It's just kind of like, it's the same thing.

35:04You check them and go, shit, I've been stuff out. Sorry, my apologies. I kind of go, well, if I look, it's probably going to happen, so it's not going to bother looking. it's the same thing as long as you don't act on it why I try and tell people not to do it is not for not because it's bad in itself but that idea of like if you do that enough you're going to be tempted to do a thing and that's where it becomes the same right yep yep true I did I have a Shaz's account for my own book as I've said many many times and I think I can't remember what the number was but it was something I checked it like three times last year at the end of the year they give you the number of times you checked and it was three or four or something that's pretty good that's cool but they tell you yeah because they're slow investing is their kind of mantra good on you for not checking too often that was kind of their thing so it was kind of fun i like that yeah that's good um what else do you disagree on uh not not much i don't think there's this there yeah a bit of one thing yeah well i wasn't gonna make a thing on what we disagree on i i've said to you i've said to in fact i've built a whole business around it i i do very much try to lean i try to engage more with the people who disagree with me than agree with me.

36:12Yeah. It's far more comfortable for one's ego to go, Hey, you like that company, don't you? Yeah. Yeah. It's really good. Isn't it? Yeah. We're really smart. Aren't we? Yeah. It's great. And it feels great. Those conversations are really, you know, really stroke the ego reinforces. It's great, but it doesn't help me. So I really do genuinely, genuinely value the person who pushes back and goes, I disagree. now if it wants to descend into ad hominem attacks and stuff like i don't have time for that um and it never does obviously with you but but and with most people as well but a good natured well-intentioned disagreement i am i sign me up one i love i love a good debate but two what am i missing here like i feel as though if i am wrong and i often will be what i don't mind too much on that as long as it wasn't like a really obvious kind of error that that should have been avoided.

37:07I feel better about it though. It was like, well, I always knew it was a risk and okay. It, it, it turned out that it, it, it came, came to fruition as opposed to, oh, what, how did, what happened? And like completely blindsided by something. And that's the value you get in engaging with people who disagree with you. So it's sort of like, at least that's on my radar and having been on my radar, I've probably thought it through. So if it does happen, it's like, bugger. I didn't think it would happen, but I always knew it was a possibility. And I always said that if that happened, then I'm out. And again, I'm not so great at actually following through on that intention.

37:47But I think it sets you up much better to converse and discuss and engage with those that are on the other side of the table. I think that's exactly right. One thing, I'll give us both a wrap. One thing I think we've both tried to live by investing wise, and a bit our policy views around the place too, is the strong convictions weekly held. Yes, definitely. Which is just being prepared to change your mind. And I'm not perfect. There's a lot of stuff that I probably should change my mind on. Speak for yourself. I should have changed my mind on it ages ago or whatever. But generally, I try to be pragmatic and I try to be evidence-led where I can.

38:20And that has to exist within an ideology or a philosophy of the world because you can't not. You've got to balance out the relative importance of things from time to time. But I think we're relatively good at that. and open to that. It was your point about, you know, hanging out with people who disagree with you. Same kind of idea of rather try to defend an idea, trying to understand the rationale behind it. Yep. And just change your mind when you're wrong. And that's kind of, it's really hard, but. You're either right or you're wrong and you're just gonna be wrong. I don't care who you are, right?

38:49It just, it's like you can deny it all you like, but you're still wrong, right? I liked your Twitter bio at one point. It still says trying to be less wrong. It was kind of the. Yeah, yes. Maybe it still does. Yeah, wrong, but trying to be less wrong. I think I've tried to live my life by that. I like it. So we haven't really solved your problem, Kyle, unfortunately. Maybe we'll debate the price of money another time. But other than that, that's probably it. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

39:20Pat sent us an email. Good afternoon, gentlemen. Assume the knee is bent and the ring is kissed. And now a question for the pod machine, if I may. These people who assume that's enough, is get up my nose, mate. At least make the effort, people. It's skating very close to the edge. Bend the actual knee, kiss the actual ring, come on. What's wrong with you people? I am fortunate enough, says Pat, to work for one of Australia's big miners. My employer offers a share scheme where if you buy and hold for three years as part of the scheme, your shares are matched. My question is, what should we do with them then?

39:52Once they've been matched, the hard work is essentially done. I'm not expecting massive amounts of growth from this company, so should I sell and put into something with greater potential? Or just let the compounding machine go? Or should I put them into something like SolPATs with a DRP, which inherently gives me more diversification? DRP is a dividend reinvestment plan. I've been dabbling in individual stocks and ETFs, has Pat, for the past few years. Poorly, I might add. Buying high and holding low. And I've identified myself as a set and forget kind of guy. I've therefore set up DRPs wherever I can.

40:21And I'm happily living by the first rule of compounding, which as Pat knows, he's never interrupted. But I can't help wonder if there is a better option. I'm conscious the concentration of my portfolio is so heavily tilted towards mining because of the share scheme, but I also don't want to get in the way of a good quality blue chip compounding machine that could pay nicely in retirement. Thanks for all you do to help the investing community. Your glass half empty, glass half full approach still equates to a full glass of our favourite beverage, which we are excited to consume each week. Cheers and full on.

40:51There you go, one for each of us, Pat. Thanks, Pat. Great question. What do you reckon, mate? Keep the shares or move to greener pastures? Look, if it was a stinker of a company, it's going to be hard to advocate for holding. If it's the company I'm thinking of, you've said it's one of the major miners, so it's not hard to imagine any of those ones. we could argue and have some really good debates on what kind of return you're going to get from here but when you're basically effectively getting them at half price which is what happens when they're matching you like things have to go really wrong for you to lose any money and so yes you've got a lot of concentration there but you're getting a 50 discount right and mining is future proof.

41:40Like I, I will say this, there's a lot of industries now that won't exist in 50 years, let alone a hundred. Mining will exist in the year 10 ,000 because unless we, I don't know, maybe we've got really, really advanced particle accelerators where we can actually like transmute matter and make any element that we want. Barring that we will need to extract raw materials, be it from asteroids or whatever, mining's never going to go away. Maybe what we mine is going to change. Maybe how we mine is going to change. Absolutely. But we, cost of the mining, but we're going to mine, right? You need, you need everything you look, look around your room, your car, wherever you are right now, it all came out of the ground at one point in time.

42:24Don't pigeonhole me as someone who's there to strip mine. Therefore, we should strip mine the earth. Because I know I've said that before to some mates that go, well, so I suppose you think you know like no but it just it is the reality of the the world that we live in yeah is that we just unless you want to make everything out of wood right um and even then there's environmental consideration so we should do it we should make well I love wood I love resource right it's it's a brilliant resource captures takes carbon it just I I I anyway all All I'm saying is, without getting into a segue, but I guess I'm saying stick with it.

43:02It's just very, very, very hard to beat half price shares. Now, if this was a, like, I'm talking about a company that might not be around in five years time. It's bleeding cash. It's going to dilute the hell out of you or anything like that. It's probably, even the 50 % discount is probably, given it's locked up for three years, it's kind of like, then I would have a very different answer to you. but if it's BHB Rio or Fortescue then I don't know I think you're probably okay yeah I will largely agree um but it's where we're in the edges I think a couple of things one is obviously just the concentration thing so yes at some point and you know what you're not gonna they're not gonna go broke well I shouldn't say they're probably gonna get broke um and so you're probably gonna go to zero if you're going to perform for long enough then you'll road some of the value of that and so because you get the shares and you can sell them anyway right so the the 50 % discount is on year three after that the dollar's a dollar if you're forced to sell it in the usual question if you're forced to sell it in tonight what do you buy tomorrow morning if you're not going to buy the shares back there's your answer I think so think about the concentration take the three years hold it for another year to not pay 50 % capital gains or get the 50 % capital gains tax discount because you can and then I would say well how much do you think is reasonable to have in that company as a proportion of the total and I think I would end up somewhere less than probably what you've got because if you've been there for any length of time and they give you more shares all the time and just that immediate doubling effectively of your share count means that concentration is going to rise really quickly.

44:33So yeah, I would absolutely reduce my weighting, not because I don't like the company or the mining industry or anything else, just because if it could be any company, it could be whatever, it doesn't matter. I would not want to be overweight, particularly because you still work there as well. So again, you've got the kind of job and portfolio in the same place. Ask the people at Lehman Brothers is how that went for them. Again, I'm not saying it's going to go broke. I'm just saying it's an unnecessary risk. So yeah, I would wait three years, get your extra shares, wait another year, get a couple of grand tax discount and then sell a sufficient number of them such that your portfolio isn't overweighted in one company or one industry.

45:10And yeah, either passively or actively find other options, an ETF or SOPATs, I own shares of SOPATs, I should say, or ETFs or whatever you want to find. Just make that work is probably what I'd suggest. not because I don't like mining you say yourself you're not expecting it to do particularly well so once you've got it use the rule of if I sold tonight what would I buy tomorrow morning and that'll give you your answer I reckon can I just you've reminded me of something I should clarify here I generally don't touch mining stocks after saying that I think mining is going to be around don't afford a skew okay right I articulate the reasons for that it's nothing it's just more a limitation of my analytical ability than it is anything else.

45:51But within that broad, broad category, I would say 95 % of companies that classify under the materials and mining sector are absolute poison. I don't touch them. There is a world of difference between companies that have established profitable operations and those that have a tenement somewhere with a few core samples that are promising. And that latter category, not even that. An explorer saying, I'm going to go try and find some gold over here. There's a lot of them. There's a lot of them. And they're just a black hole for capital. And yes, that was Fortescue Metals at one point in time. I remember when that was less than 10 cents a share.

46:29And it was just another also ran mining explorer, you know. But it just happens they had really good resources and they had an executive team that was able to sort of execute and they had China, you know. That helps. That almost went broke. Yeah, it almost went broke. Do you remember when we had to fly to the US trying to get a bridging line over a weekend? It was kind of what we were on Sky News together saying, saying, well, I'm not sure if this thing will last or not. Yep, I forgot that. But yeah, and that's actually, I mean, that's the story of Apple too, right? And others as well. Bezos could tell you some stories, I'm sure.

47:07Tesla was far away, yeah, exactly. Yeah, so I've just got to clarify all of that. My statements aren't an endorsement of go out there and buy mining because Andrew said mining will always be around. I just mean for these super, super large companies, lots of cash flows, lots of potential. I just don't think that the risk of them going to zero is in a different universe to an Explorer going bankrupt. Totally fair. Yeah, agreed. Agreed. Let's move on to a question. Again, it's getting – I'm just going to see if I can mention the person's name. Yeah, apparently. One sends the name up. G'day, operators of the pod machine.

47:45in brackets greeting with a reference to the pod machine. I never thought you could learn so much from hearing two young guys rant. Hope you can keep the pod machine operating for as long as you both shall live in brackets obligatory ring kiss. I acknowledge you cannot give personal advice brackets obligatory disclosure so I'm not going to ask about my personal situation. Instead I'm going to ask what you would do if you were in the following hypothetical scenario. Now. These are why regulations are so dumb, right? But it's also the case that if you tell us the hypothetical and we think it is you, we still give you personal advice.

48:16So we will do what we can do. But here's the scenario. First, you only started putting money into super after you were 35 because you lived overseas before then. You've discovered and fallen in love with the world of personal finance and investing later in life, around 40. So your investment journey has less than five years. And you want financial independence. Now, as Uncle W famously said, it is a fact that most investment funds underperform the market. So do you go for broad-based index tracking ETFs and make your peace with market returns, which as Andrew mentioned recently, and he's not alone in this, are probably going to be lower than what we've seen in recent history, or because you haven't been in the market long, and you're already 40 plus, you kind of need to go for a portfolio of individual stocks to aim at getting the higher returns, in which case you pay the monthly full for stock recommendations, which you use to focus your own research to get the conviction needed to build your portfolio.

49:10What would you guys do? in brackets the question and a second question if I may directed at Mr Esquire yes Scott it's about the big B but do not worry the answer if he chooses to provide it should only be a number between 1 and 100 so it should be pretty quick what is Andrew's current zero chance to Bitcoin in brackets obligatory second question thanks gents keep up the always entertaining good work I look forward to your now three podcast episodes every week cheers Juan great great great great great questions so 40 years only been invested for 5 years you know you're quite at retirement but you can see it from here or at least over the next hill what do you do do you kind of go passive and just let time do the thing or do you kind of feel like you need to wind up a little bit and get those extra couple of percentage points of return

50:00oh it's a hard one I mean A you're very young there's 20 years to go Plus don't forget retirement, right? Sorry, I just mean 20 years until there's any reasonable expectation of retirement. You could win Powerball next week or anything could happen. But generally speaking, most of us are going to be working into our mid-60s, if not probably longer. Anyone who's buying a house anytime around now will be probably working until they drop dead and then passing it on to their kids. But you do have a long time, right? and you can punch it into a compound and calculate it yourself and just do 8 % for 20 years and see how that works out for you, adding contributions along the way.

50:42It's not insignificant, right? So I don't know if it would be different if you said, hey, I'm 62 and I don't have enough. What do I do? And that would be a little bit different. So I don't know if there is the urgency there. I say it's hard because I think, well, definitely direct stock picking has more potential for return. Like clearly it does. You might have been the person who just put 100 % in Amazon 20 years ago, right? But the flip side of that is it's also got higher risk of underperforming as well. So the answer is if you're a good investor, then be a direct investor. And, you know, are you?

51:26I don't know. Maybe, maybe not, or maybe not now, but maybe you could be if the time and energy was sort of put into it. But maybe that's just like your idea of a nightmare and you don't want to do it. Or maybe you're just endlessly fascinated about this stuff and you can't wait to sink your teeth into it. So there's a lot of, this is why it's so hard to address. And I keep making this point too when this kind of question comes up is it doesn't have to be either or. It really can be, you can divide the pie up however you like. Maybe it's 90 % passive, 10 % direct, or 80-20, or 70-30, or however you want to sort of slide that dial.

52:02It kind of gives you a foot in each camp. Yeah, but it's going to depend on how confident you are as an investor. That's really what it's going to come down to, and if you enjoy it. If you've got a little bit of enjoyment there and you feel as though, you know, you can't be too hubristic here, But if you can reasonably be honest with yourself and not say, yes, I am God's gift to investing, but I'm okay at it. I'm at the point where it's just like I'm very unlikely to blow myself up. And it might be that I do this for the next 20 years and I underperform the market by one or two percent. That's not a disaster.

52:41You're probably pretty good. You're probably better than most fund managers, frankly. So, I mean, even it might be, oh, I should have just saved myself a bunch of time and bought an ETF and I would have done better. And as we've said, a couple percent per year can really add up over time. But it's not a disaster, right? So they're the judgments you'll need to make. But, yeah, maybe do a little bit of both. A little bit of both makes a whole lot of sense. I'd start with ETFs just to build that foundation and platform and add to them. It's mostly for psychological reasons. And, you know, if you listen to us for a while and you've got the psychological stuff down, Pat, that's cool.

53:15But it's the old line of Tysons. Everyone's got a plan to get punched in the face. So, you know, as much as there need to be no difference to an investor's actions, whether they have an ETF or individual stocks, the reality is there is. So just kind of keep that in mind. But yes, a mix of both things makes a whole lot of sense. A couple of things quickly. You're going to live till 85 probably. So you've got 45 years, more than half your life left. And so don't get too caught up in the between now and retirement bit. although you know starting earlier was always better no matter how old you are when you started you always should just buffett started 11 and said he's because he was not starting earlier i mean that's kind of you know that's very buffett but that's that's the reality so yeah start as early as you can but don't overthink it my suggestion would be at any age this is universal advice i think it's fair to say you might have a different view right no matter whether you're 2 42 or 62 don't take silly risks to try and get more returns because you mentioned before risk equals return um whether it's exact or not the reality is that um gambling what you have for something you might be able to get or not if there's a chance of losing what you've already started with is mad because the only thing worse than starting at 40 is starting again at 45 because you lost it all there's no need to take silly risks um if they play off could you make money sure but then you know on that basis you put every dollar you earned in a lot of tickets and wait till you win the jackpot you know it's it's not a you know the upside is massive the downside is massive and not worth it so just kind of keep that in mind um i reckon don't uh i don't think the age should matter that much how much risk you take in fact the younger you are less risk you need to take anywhere because you got so much compounding time but the older you are less we should take because you haven't got time to start again so for what it's worth that's probably where i'd where i'd start um the best thing you can try one, this is not a nice answer or fun answer because everyone wants to pick stocks and be good investors, is just save more.

55:12I don't know how much you're saving, but more is the point. So, you know, far better than trying to get an extra one or two percentage points out of your investing returns is to just invest, sorry, just to save harder. You can juice your returns far, far, far, far, far more by saving more rather than trying to find an extra one or two percentage points of return. And again, I know it's easy to say you might be saving you might be able to save a cent but mathematically saving more is far more useful to you than trying to eke out those extra couple of percentage points true last question from Adam I say last question partly because we're getting late at the podcast partly because this could go for a very long time or not oh I forgot right yes no this is a new question not one's question you're going to write one second question about the B-word yes are you prepared I was moving on because you seemed to say you weren't going to divulge it because you dragged us back there.

56:06Do you want to divulge your performance? No, I don't. No, I don't because, yeah, I just don't want to. Let's go on. But it's substantial. And part of that was by design. Part of it's just the way things have gone, right? There's always a really great way. Sometimes when you see very high weightings, it's kind of like it's usually been something very nice that sort of happened in all of that. It's been a good little while for Bitcoin recently too, hasn't it? all-time record highs pretty much i think one percent of it i just mentioned on this pod we were till we did a special bitcoin episode it was forty thousand dollars australian there you go it's 170 now wow there you go yeah yeah yeah you're gonna still check next week still cheap still selling worth one bitcoin there it's worth a hell of a lot more aussie dollars all right let's go to adam's adam's question uh adam from equity espresso here a long-time fan of you both i've only recently discovered the podcast i get to hear andrew's soothing bitcoin rants again music to the ears as adam happy to oblige happy to oblige i've got a question on how to fix the housing problem oh here's your scenario you get elected to the top job in canberra and your top mandate is to make housing more affordable one of the three policies you're implementing there's no consequences no backlash and you can't get kicked out of office as it's your last term you're going out with a bang this is a make-believe scenario i know but what three things do you do to get the biggest bang for your buck keep up the good work cheers adam gosh let's do this one for one will we okay yeah okay first of all stop helping stop helping enough help right and you can't see this but I'm doing the bunny ears help stop it every time you help you make the problem worse this is a real no brainer there's got to be more than another couple of first home owners grants around somewhere it's just so incredibly effective entirely a waste of taxpayer money no it's great let's at least call it for what it is it's the first it's a grant to home owners who are selling.

58:23It's a home seller scheme. Exactly. It's a home seller scheme. That's who benefits from all of this. So, and I'm generally, I'm deliberately vague there because I don't want to point to a specific thing, you know, whether that's even tax policy as well, frankly. So whether it tax incentives, first-time owner grants, ability to tap into super, ability for the government to take part equity, et cetera, et cetera, every other day, there's another quote unquote, quote, bit of helpful policy, which all it does is further distort things and stop it. I like that. I like that. Mine's a new one. And we've done a bit of this before, but it's nice to do it in a small bucket.

59:04Adam, I would immediately and severely cut the short-term immigration intake, not because I don't like foreigners, not because I don't like people with different skin colours or religions or creeds or languages or any of that kind of garbage. It is a cheap shot that people throw up. People have this conversation. that's the short term. The long-term solution that comes from that or goes with that is simply to make population policy a function of a few things, but arguably most importantly, yeah, so vacancy rates. Just very simply. Housing, all pricing is on the margin and all pricing is turned by supply and demand.

59:42And when you have insufficient supply for the given level of demand or you've got too much demand for the given level of supply, which is kind of what we've got because you can impact demand faster than supply, it makes absolutely no sense knowing you've got 14 tickets left at the stadium and selling 16 tickets to 14 cents left selling 16 tickets is stupidity and that's exactly what we're doing right now it's not fair to the people who are here it's not fair to people who are arriving trying to find some affordable accommodation somewhere um we haven't got enough we haven't enough dwellings for the number of people that are coming and that's not their fault and they're not bad people and i don't care who they are where they're from i'll say a million times because it just annoys the hell out of me that people want to make this about some sort of personal insult I don't care you and I have said before immigration is a superpower I love immigration I love immigrants these immigrant success stories are legion in Australia and overseas we should have lots of immigration most of us are immigrants or descendants of immigrants we've all bloody walked here from somewhere the original Australians that arrived here first came from somewhere else we all rocked up there's nothing no anyway I say it because I have to because people are idiots not anyone listening to this podcast but other people are idiots I deal with them a lot on social media.

1:00:48They just want to believe it somehow. You do invite it though. I do. You engage. You engage with the idiots. But constructively, anyway. I love your optimism that you're going to change someone's mind on Twitter. I'm just stupid. Anyway, I would make population policy a function of housing, dwelling availability, vacancy rates, effectively somewhere between 2 % and 3 % is probably a chance at a sweet spot. Like I say, the sweet spot, we don't know yet. We haven't done it. But that's, yeah. Easiest thing in the world. I wish I'd thought of that one first. Population policy as a function of housing vacancy rates.

1:01:22I do things like infrastructure in schools and environment. There's other things you would throw in a population policy, but the very, very, very, very least function of housing. Just how's this? Have a policy. There you go. Which isn't just, I don't know. Shrug. Shrug? Shrug emoji. Housing policy. That's a great one. I'll go with macro prudential because it's a cool word. And it's speaking before of saying big technical things to try and sound smart. Just remember that, I mean, prices are, I've got a, what word? How will I describe it? Credit creation is probably, it's easily in the top three of factors, right?

1:02:07Yep. When you pump about a bunch of credit out there, it goes, you know, especially the way that we do it, it goes to property, right? It goes to harder assets. It goes there. And generally speaking, almost no one buys a house with cash. Someone who's just like sold their business to Google buys their house with cash. You know, some idiot NFT dude who got lucky in 2022 might buy their house with cash. The rest of us borrow. And we borrow right up to the total amount that the bank will lend us. you know and so so but credit creation it's a big conversation but there's there's there's there's good credit creation and there's bad credit creation as well so i'm not sort of saying let's just stop the bank's lending but let's just put constraints on the amount that they can lend to an already overheated market you've mentioned before about counter cyclical but uh interest rate buffers yes really easy thing to do you know and there's a there's like 15 other easy low-hanging fruit, things that you could do on that front, you will find that that very radically fixes the problem.

1:03:10I like that. My next one is one you've talked about before, mate, but is tax. You mentioned it's in passing.

1:03:23If we acknowledge, and we are by definition, but let's do it explicitly, acknowledging that housing affordability is out of control, then I will say that we need to make it more affordable. Now, that means lower prices and or higher wages at the given price. What is affordability? It's your ability to pay for the thing with what you've got. So you only need more stuff or a cheaper thing or both. That's how things become more affordable. So I'm starting with that proxy that we can assume based on almost all metrics that housing is more affordable, more expensive than it needs to be and it is good for our country.

1:04:01Now, you can get to multiples of earnings and all that kind of stuff and you've got two in the household, one in the household. There's reasonable, I did numbers ages ago, about three years ago, I wrote an article about it and it's when, okay, if you add the second income, if you add the reduced LVRs and if you add lower interest rates, you kind of get to rate this price without even really trying to. It's just mathematically you get there, right? The question is whether it's good for us. And by the way, that was probably 30 % lower house price wise. The last 30 % seems silly to say it, or like we sure we always say this, but it was not particularly affordable when I wrote the article, but it wasn't out of the realm of possibility given the way that those things multiply out.

1:04:37Just natural maths, right? Then it gets to a point where that rub band that you talk about regularly is stretched further. I think three or four years ago, was housing expensive? Yes. Was it too expensive? Probably better than, more expensive than it needed to be, but it wasn't offensively expensive. I think now we're getting to that level. um i would say we were there already it depends how you want to measure i mean let's not get into the debate but yeah yeah um i was doing the math so you know i'm just trying to save face at this point no no i'm not i'm just not saying you're wrong it was more one of those kind of you know you could you get you won't go to it now um i'll find the link for at some point i'll share it with the other so they can have a look if they want to look at the article um but taxes taxes a Tax is an unnecessary and unreasonable addition to the unaffordability.

1:05:22And even if it doesn't cause it, taking it away makes things better. And so that's just a starting point. So you don't have to solve the problem the way you made it. So for me, negative gearing is a fine concept, fundamentally completely fine concept. Companies use negative gearing all the time. What it basically means is you can take all your income and take off all your expenses and you pay tax on what's left. Now, people do the same thing. you buy an asset you have a loan you have an expense for the loan you have the income from the property you can you know you carry forward a tax loss what happens um so it's not bad and people kind of hit on negative giving as if somehow it's a rort or it's badly structured or it shouldn't happen because it's philosophical ideologically wrong it's completely reasonable in my view except that it has an impact that we need to mitigate and so i would leave i would leave this the idea of negative giving, the idea of offsetting costs against income, everywhere except for residential property.

1:06:17And simply say, if you are going to buy a residential property, you may not negatively give that property, you may not claim it on your personal tax. Or, by the way, people say, oh, people buy it in companies then. I wouldn't do it in company taxes either. A dwelling, a building that is used for accommodation cannot be used to reduce tax. Bottom line, negative giving goes away for it. Not for the people, for the assets, based on asset class. a residential dwelling is not able to be negatively geared full stop. Now, that would probably only impact prices by a few percentage points, maybe 5 % according to some numbers.

1:06:47And this is one area that research has done reasonably across the political and ideological spectrum. And the numbers are reasonably the same. You see between 2 % and 8 % depending on who's done the research. But it's not like the right wing is saying 15 % and the left wing is saying nothing or the left wing is saying 15 % and the right wing is saying nothing. It's reasonably assumed and agreed. But, hey, if we make housing 5 % less expensive, let's do it because why would you not? And then capital gain stacks is the other one. By the way, sorry, quickly on negative gearing. The other thing with negative gearing is not actually the financial impact.

1:07:14It's the psychological cultural one. Because I am convinced, you won't convince me otherwise, I could be entirely wrong, but I will go to my grave believing this. People don't negative gear property because they've decided on first principles it's a good idea, or because they care about the investment returns, the after-tax returns. Negative gear property is, I would suspect, 80 % of the time, the answer to, hey, accountant, and how can I pay less tax? Not, hey, give me the best investment idea or what should I do with my money. It's just, what do I do to pay less tax? And the easy answer is, borrow some money and then we'll deduct the interest from your tax bill.

1:07:46So you take that away, people stop asking that question, you end up with fewer people at the auctions because they're not all trying to do the cultural Australian thing of pay less tax by borrowing money to negatively give your property. So that would go. And the capital gains tax, the discount, 50 % discount, had absolutely zero basis in policy. It was a vote buying exercise that has cost the federal budget money and that has incentivized and encouraged and rewarded people for investing. Now, there's no harm in rewarding people for investing. But again, the same thing. It just adds more fuel to the buying fire.

1:08:17And again, we talked about supply and demand. This isn't a population growth demand. This is lots of investors at the auction demand. And if you can thin the ranks of the potential investors out there, you're probably going to get more people who can afford to buy their own homes because prices will be lower. So I'll wrap that up as tax is my answer, mate. Negative gearing goes for residential property and capital gains tax gets reverted to just plain indexation that we had for years before they decided to change it to buy some boats. Yep. Mate, I think we've actually solved it right then and there.

1:08:46Just with those. I mean, more of a controversial broad change I would be very tempted to make, not just for property, but for a whole host of other regions. I get rid of stamp duty and introduce a land tax. We just go around that one. Yeah, well, it's true. But, you know, it's really – No, I understand that. I'm visible. It's a divisive – like instantly half of the people listening just turned off the pod machine. Don't you think that puts prices up, though? I mean, if you remember the stamp duty barrier, does that bring more bidders to the table because more people can afford to buy? Not that we should make that a bad thing, but I would have thought it would put upward pressure on prices rather than divisive.

1:09:23In and of itself, in that one context, yes. But what it also does is probably put a lot more supply onto the market for properties that aren't – Oh, I see what I'm saying. You know what I mean? You remove the friction. Yeah, okay. Good call. You remove that friction. Good call. It's kind of, I could go on and on. One, it gets rid of a bad incentive. I mean, the government makes a lot of money. State governments make a lot of money from stamp duty. So it's sort of like, they're never going to want to sort of kill the goose that laid the golden egg, right? So there is that. It makes sure that the houses are used in the, or land more generally is used in far more productive ways, which is generally good.

1:10:01It switches the tax burden from income to wealth, which I'm a big believer on. I don't think income always lines up with wealth. In fact, it's rather surprising, some of the insights on all of that kind of stuff. So it's a very, very big topic. And I'm not saying I would add, I would just be very Trumpian here for a second. I reckon you could do it in a way where you could just get rid of income tax altogether. In fact, get rid of most taxes altogether. I would purely have a land tax and a consumption tax and get rid of almost every other tax. And I think if you did that at the right level, almost all people would be better off, slightly better off or very much better off.

1:10:40And some extremely rich people would be worse off. And meaningfully so. And meaningfully so, but still at the top of the pops. Yeah. So in other words, you would still be the top. Slightly less obscenely rich. Yeah, you're still the top 2%. Like it's not like, damn it, I can't afford the ivory back scratcher. I was going, and I'm not, I'm really got to be careful here as well, because it's, it's not an eat the rich thing. I don't have anything against people who are rich. I aspire myself to be rich one day, you know, like it is, it is, if your wealth comes from the incredible value you've created for society, I say you, you deserve it all.

1:11:19But, but I also think it's, it's just, it's just a more fair way to apportion the load of the tax burden. And the way that we do it at the moment is clumsy, it's messy, and it's less fair. But rolling it into this conversation is I think, while your point remains, I think on balance, it would actually see prices fall, because you would see a lot of houses come onto the market. Think of all the land bankers out there. It's going to change the calculus there a little bit just on that alone. Think about the single 80-year-old in the five-bedroom house, right? Think of, you know, there's a million examples where you would see a lot of these things, I think, recycle onto the market and it'd be a good thing.

1:12:03I should add as well, just before I throw it back to you, everything that we're saying two-thirds of the population will be against. And because two-thirds of the population and either own a house outright or are in the process of paying it off. And I'm in that camp. I was going to say, yeah, yes. The reality is the pollies know where their bread is buttered. Yep. Or at least presume. I've had some people say, no, no, I think people would vote differently. And you and I have absolutely said, this is against our interests, but we think this. If your house and my house are worth less as with all of these changes, then that's okay by me.

1:12:41Not because I want to be less wealthy just because I don't think it's a good thing for the country and I'm happy to say, you know what, I don't need to, you know, I need to benefit at the expense of young people who can't buy a house. That's a pretty crappy way to run a society. But plenty of people will vote and say, that's fine for you to say, Phillips, I'm going to vote for my own back pocket anyway. Thanks very much. I'll take the higher house price. And that's why, to your point, that's why it's a challenge. Although it's a very understandable, look, it's not to be critical of people who hold that perspective, but I would encourage you if you're in that camp to think about what it would actually mean for you.

1:13:17We've got to divide it further into those that have property as an investment and those who have property as a utility. So the lion's share of those two thirds of Australians, actually just the house that they're talking about is the one that they live in. And I know it's an obvious point, but it's one that a lot of people miss. If house prices double or house prices drop in half, it doesn't actually change you at all. It doesn't impact you at all, because you're buying and selling in the same market. So really, you'd be upset if you're buying on property for the capital gain. And for those that are investors, there was a simpler time and a time exists currently in most parts of the world where the great, wonderful thing about property has had this incredible, reliable income stream that it generated.

1:14:04It's only in this country where income is just, in fact, you don't want income, if you're negatively, if you're aiming for negatively geared, you know, high income there is probably going to undermine some of the maths there. So back in the day, that was it. You kind of got your three, four percent sort of capital growth. But the virtue of owning a property was because of the income. So the yield was really good and reliable and safe and just all of these wonderful things. That's why you held a property investment. So really, if you really think about what we're talking about, who does it really hurt?

1:14:39It hurts the very over leveraged property investors who are gunning purely for capital gains. That's who it hurts. Any sensible property investor who's tried to structure their portfolio for yield or anyone living in a house, it actually doesn't make too much of a difference to you. They feel poor and that's why it's problematic. That's what the policies are relying on is paper value goes down. I feel poor. I'm not voting for that. As you say, even though it doesn't make a difference for those people. Yeah, it's very counterintuitive. Yeah, it really is. I think we've probably covered it. We didn't talk about supply.

1:15:11The only thing I'll add, as we wrap this up from my perspective, mate, is we make a lot of houses. The people who say supply is the problem really are either not thinking or have an ideological preference they've arrived at already. We should not say we shouldn't build more houses, it's just that we make an absolute buck a ton of houses. the number of dwellings we've created per capita is through the roof um so we have not got a supply problem um we have got a supply problem if we don't change the population intake but that's kind of again assuming one is fix the other one's immovable i think that's the wrong approach that said i do believe speaking of stamp duty um i'm i'm reliably told by a lot of people and maybe they're all just self-interested that we have a administrative and regulatory issue when it comes to housing supply and building and the cost that is added to the cost to the price of housing because of those regulations and payments that are required.

1:16:02And I think there's a question to be asked, and I don't know this well enough to know for sure. I've seen like 46 % of property is basically government charges and taxes. That seems unreasonably high, as in probably wrong. Or if you include something like, you know, you have to pay to get the sewer connected. So, okay, well, that's just the reality. That being said, there is a real question for us to ask as a country and a bigger topic about what's user pays and what is public good. And I don't know the answer to that. Someone's going to have to pay it. So if the home builder doesn't pay some of those charges, then government's got to pick it up and government's got to pick it up, hopefully by not taking on more debt, but by either cutting some of the spending or getting us to pay a bit more each to make this work.

1:16:41I don't really have a strong view on what we should do there, other than just to recognise that housing is expensive to build. And that's part of the affordability problem. And that's partly because governments are requiring builders to put a lot of money into various government department coffers. And so if we think that housing should be more affordable, If we think that the price should be lower, that requires the government to effectively make up that funding somewhere else. So that probably means more taxes for someone. Almost to your point about land tax, who should pay those taxes? We can argue about that as well.

1:17:10People say, no, I shouldn't pay more tax. Also say, well, government is charging too much tax on buildings. Which one do you want? But I don't think we need massively increased amounts of supply. We probably need to address whether or not we want to have new builds become cheaper, which again, think about pricing being on the margin. If a new build is all of a sudden cheaper than the place I'd otherwise have to buy at someone who we're living in, it should put a downward pressure on average prices. So that's part of the conversation. I suspect we probably should fund some things more centrally rather than make it user pays in that sphere, but I'm not close enough to know for sure.

1:17:45So I'm kind of putting that out there. You wanted a direct answer, Adam, or, you know, that's one I don't know the answer to, but I suspect directionally, we could and probably should make new builders cheaper so that they become better options for people and bring the overall prices down. I agree with that. No argument here. Any more for you? No, I think we've covered it. Look, it's always fun to indulge in fantasy. None of that is going to happen. No, but should. It really should. I mean, there are so many downstream consequences of the distorted house price it always gets discussed in the view of the young couple who can't buy the home and that's a tragedy and i don't i don't mean to gloss over that but it just it's undermining viability of small business as well i mean i can't tell you the number of small businesses that i see continually closing around us and it's just it's the rent stupid like it's the rent like how can you possibly cover the how many packets of twisties and meat pies do you have to sell right to to to to fund that.

1:18:49That is so true, man. It's so true, right? When you're a huge big player, it doesn't make as much of a difference. But for the small business, and most of the business is small business, and most of people who are employed by what's called an SME, a small to medium enterprise, they are struggling again because as property goes up, it's a massive line item on your income statement that makes profitability harder and harder and harder to achieve. And it's just a fixed cost that you can't get around, unless you're a purely online business, it's a fixed cost that you can't get around. And which stifles innovation, it stifles job creation, it stifles GDP, you know, whatever you don't want to, you know, it's just, it's a huge deal.

1:19:30It's a really, really huge deal. And it's so funny too, because at the point now where some of these commercial landlords are shooting themselves in the foot, I noticed that more than a few places around us that they spoke to a couple of the owners and they got kicked out, right? Oh no, they closed, they folded because they couldn't afford the rent. And the person who bought the property is like, well, I have to charge you this because this is what it costs me and I need to get a return on it, which I understand as well. But their assumption, this is, I think, an assumption that too many investors make in property is just like, doesn't matter how you rationalize.

1:20:03It doesn't even matter if you're right to rationalize it in that way. What you ultimately run up against are affordability constraints. So I paid$12 trillion for this property. Well, I guess I need to charge a billion dollars a week in rent to make it worthwhile. It's like, yeah, but guess what? No one can afford that. And all of these, yeah, pretty much, I can't think of an exception. All of the ones that I'm thinking of have remained vacant for the last six to eight months. So it's like, well, what return are you getting on that? So they're going to have to flip that at some stage or find someone who can come in and make a viable goal of it while paying that much rent.

1:20:35Now that person really doesn't seem to care about rent that much because again, they're all property investors, I'm generalizing here, more interested in the capital gain. But, you know, so how is the capital, ultimately the capital gain is going to be like with shares. We always say long-term voting, long-term weighing machine, short-term voting machine. It is ultimately the earnings capacity of the enterprise that lifts the valuation. And it's the same. Again, I know I feel like I'm talking with two heads if I'm to an Australian audience, but it's the same with property right and we we when i say we like we as australians have just collectively been cool with with the yield on rentals going down and down and down that was a not a terrible rationalization during a extended structural decline in interest rates but guess what they're going back up right and they're certainly not going back to where they they were in my humble opinion.

1:21:27They're not sort of going back there now. So it's sort of like, so you have to either A, at a point where things, where people just simply can't afford, they're really at the end of the affordability limitation there. You just have to then for a capital gain of any reasonable degree, you have to convince the person that you're looking to flip to, to accept an even lower yield. and if they want any kind of decent capital gain, they have to flip it to another person who's happy to accept a lower yield. And again, it's the rubber band. I don't know which point it snaps, but at one point you're obviously going like, gosh, 3 % gross yield doesn't sound great.

1:22:08And it's okay. Oh, this guy over here is happy to get 2.5 % yield. The next person's 2%. At what point does that stop? Because the point that that stops is, again, just the way yield is calculated, is the point that the capital growth stops. And the point that the capital growth stops, the extreme leverage sort of makes less and less sense. And it just, there is a point, believe it or not, where these things tend to collapse under their own weight. And that's the weight that we're talking about here that you're having to shoulder. It's sort of like you can carry more and more and more weight. You can do it.

1:22:36We're evidence, Australia is evidence that that can happen to pretty ridiculous kind of degrees. But when no one can afford the rent anymore, it's just pure greater fool theory, pure and simple. And they don't usually end well. I think that's right. I think that's exactly right. All right, Matt, we've solved the problems of the world. Treasurer you're welcome everyone feel for us in this episode to the Treasurer and don't skip the last 15 or 20 minutes we'll try and solve the problems of the property market mate will you come back on Friday you know it I do indeed we will look forward to seeing you then until we do enjoy the rest of your weekend and Phil 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.

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