Mailbag: incl. How to build a core/satellite portfolio? March 30, 2025

24:53We have, the price tag has gone up. There's no denying that. I cannot deny that. It's obvious it's right in front of your face. But the amount of money that's been created to engineer that, so you have kept pace. You haven't gone backwards. And that's why, I mean, there is a real return that we're all chasing as investors or should be chasing if we've got our heads screwed on right. But there is also a store of value. and this is the difference between a middle class person and a rich, I mean a rich, rich person. When you get to be rich, rich, rich, you don't really care about returns too much.

25:32But you know what you care a lot about? Preserving that wealth. That becomes, you look through a different, so I'm told. I wish I could experience. So much with your billion dollar company and your million dollar mega yacht. Different. I mean, for me, it's very important that I try and get a good, you know, I've said before, I'm trying to get 10 % plus. If I can do that much better than that, all the better. I had a billion dollars. It's just like, oh, I'll take what I can get. But really my first and foremost concern is just do not touch it. And again, any calamity, billionaires will be, smart billionaires, will be fine because they'll still own the houses.

26:08They'll still own the factories. They'll still own the stuff, right? Relatively things will move around. But that's another good reason to not put money under the mattress, right? I'll get you. Yeah. You know, I did have another point on the tip of my lips. It's gone. Anyway. We should move on. We should move on because you've opened up a can of worms there. Oh, no, I'm sorry. Very quickly. I realized we've spoken about this whole thing and we have not given the technical answer that you would expect to pundits to talk about, which is how does it impact the share market? Well, higher inflation would suggest higher interest rates as central authorities try to contain or curtail that inflation.

26:49Higher interest rates make the share market less attractive because now I can buy a bond or a term deposit or just leave it in a high interest saving account. And relatively, that becomes a more attractive option. Now, this is interesting. I'm so sorry to divert the thing here, but I just find this stuff fascinating. I'm not sorry at all. Think about it. You've got to question these sacred cows, right? So I have, and I think you two, have just spent a whole big soliloquy on how it actually makes asset prices go up. And yet, if we were in a university class, we'd just be a fat F. That's right. Because the professor would say, you idiots, no, higher inflation, higher interest rates, higher interest rates means higher cost of capital, mean a less favorable comparison to other asset classes, but in particular fixed interest, therefore share prices go down.

27:42Only you, dear listener, figure out which is the better explanation or maybe a combination of the two. These things aren't always neat and clean, right? Yeah, that's right. That's right. Yes, very, very good point. And I think, by the way, it also depends on the size of the inflation. Yes. And the phenomenon surrounding it, right? Because RAM is actually not wrong. Again, why do we not cover it? Because the economists would start by saying, well, if nothing else changed, then this would be true. And so the math of that is absolutely true. You'll take a lower risk return rather than a higher risk return if you can get it at the same level of return.

28:24So yes, you're going to take government bonds or cash over risky shares if you have an opportunity that works. Now, a couple of things. That's never worked in reality because otherwise the market would be efficient and Warren Buffett doesn't exist. The market is not efficient and there is no direct linear one-for-one relationship between risk and return. There's just not. The share market is proof of that, right? Are shares riskier than cash? Technically, yes. Is it riskier than bonds? Technically, yes. Has return been much higher? Technically, yes. And people say, aha, that's because you're taking more risk.

28:54Well, hang on. If over 120 years I've made more, where's the risk? Where's the risk to turn up? It just doesn't, right? By the way, governments have gone broke in the meantime. So having your money, even defaulting, whatever, having your money in a developed market, stock market, is apparently riskier than bonds. And yet, now individual companies, absolutely true. And this is the problem, right? By the way, it's the beauty of it. Individual companies versus bonds, that's an easy decision. But a group of diversified investments across an entire market, for example, no, that's a whole different thing.

29:26Anyway. Can I just make a point too? So, again, we've got to get out of our little comfort zone of modern Western, very rich democracy. Yeah, true. You know, when you talk about, you know, governments failing, that's the, again, take a stock take of history. That's the normal. We are in the unusual camp at the moment. We are the exception to the rule. When you talk about, is it a good idea, is money less risky? In our context, in recent history, 100%, 100 % less risky. In aggregate, over time? No. And not even like, oh, it's more debatable. No. Clear, 100%, not even close. It is a terrible, terrible, terrible investment given enough time it all goes to zero.

30:12In the moment we're all dead, Mr. Kane said. Yeah. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

30:24Hey, let's go to a question from Sean who posed an interesting question and we have to tread carefully on this one, Ram. You'll understand why as I get towards the end of it. Greetings to my favourite band of motley straw men, says Sean. I love the way you share your broad knowledge so effectively. Thank you, mate. Throughout the podcast, while you're calmly espousing your views, you both always explain things so I understand the concepts, even when I'm not familiar with the topics. I don't think I've ever had to duck, duck, go any jargon. Sean, nice try. Google is a verb. Duck, duck, go isn't not a verb.

30:54I use duck, duck, go. Yes, but you don't use it as a verb. You don't duck, duck, go things. No. No. I also use brave. There's some really cool... Anyway. Do you really? Oh, yeah. Google can have all my data. They can jump in a lake. What's it going to do with the data? No, that's... Wow. Don't sidetrack me. And I've been listening for a while now, for sure. I recall an episode you did a year or two ago when you covered the topic of debt recycling, taking equity in your property, extending the mortgage, and effectively using this cash like a marginal loan on shares. saying an index fund to take advantage of the perceived arbitrage between home loan rates and index fund average performance.

31:31This topic just came up in a group chat with my mates. I vaguely recall Ram saying it's not a great idea if you use your principal place of residence, and it's also not a good idea if you're loading up to your maximum borrowing capacity. Is my recall accurate? He then goes on to say, one, is debt cycling always a bad idea? Two, If not, what would be your considerations, general advice only, if you found yourself in the following scenario? You have a mortgage on your home. It's aged 10 years. You've got about 60 % equity based on the current valuation. Hypothetically, of course, yes. You have a mortgage on your rental property.

32:06It's also aged a few years and you have 40 % equity based on your valuation. Here's the kicker. Your wife comes home and says, quote, we need to do a debt recycling because Laurie at Work says how you become debt free. And I've made an appointment with the broker tomorrow. do you want to come with me or should I do the application on my own? Now, Sean, I'm not sure how hypothetical that is. So I'm going to tread carefully here because marriage counseling is not our strong point. So with that, not with Sandy, mate, debt recycling. So the idea, he's already explained it pretty well. You borrow money, you put it for place of residence, use it to buy shares.

32:41And in theory, your return on the shares is greater than your return. Basically, it's a fancy way of saying you borrowed money, you just use something as collateral, right? Correct. Yeah. The only recycling bit is you pay down the debt and you take more debt back out. So that's where the phrase, not what I'm going to tell you, that's why they call it debt recycling. It's huge among the cool kids in some of the kind of financial world. Yeah, fire in particular. Is it a bad idea, mate? Is it a good idea? What do you think? If I said not against your principal place of residence, I apologize. I don't think I did.

33:12Don't recall you doing it, no. No, I mean, I would do that over the investment property. frankly yeah i mean although there's not necessarily a massive world of difference i mean here's the trouble with this it look it's like coming up with analogies on the spot are always bad i think you and i and other responsible adults can very sensibly enjoy a glass of wine occasionally with our dinner i think that's a perfectly normal thing yes and i will push back on any doctor who questions my lifestyle choice should i drink a four liter goon of you know red wine every morning no right and it's the same with debt like so you've got to be you can't be too rigid on this kind of stuff and i and and look each to their own um and you've got to draw a line between the two extremes but i'm debt recycling if that's what you want to call i've got a much larger mortgage than I would need to have.

34:11I could choose to liquidate my investments and repay a very big chunk of my mortgage. I do not choose to do that for the reason that has been articulated in that I think arrogantly, naively, stupidly, that I will get a better return than what it costs me. Yeah. Can I stop you there, mate? Because I think this is important. You're You're not debt recycling specifically. You haven't borrowed and then paid back and then borrowed some other thing. But the net result is the same, whatever you call it. Same thing. Having mortgage debt outstanding while having a share portfolio. It's not debt recycling.

34:48It's not actually recycling it. But when we take... Labels suck. We use them because they're easy. And I get it. By the way, I just go with you, Sean. What you're really asking is, should I have a share portfolio and a mortgage at the same time? Yeah. However it's fun. And you can take the money out. It's the same. You could have paid more to take them back out. You could have paid less. get more in the portfolio, but you're right, Ram, that's actually what's left. Yep. So now back to the arrogance. If I was super arrogant, I would take the maximum amount of debt against my house as I could. And fortunately, I'm not that, I'm pretty arrogant, but I'm not that arrogant, right?

35:28Because I might be wrong or it might just be that the investments fall, even if it's a temporary thing, much bigger than I can foresee or imagine. And so I don't do, so I walk, I walk a fine, well, not that fine a line, I don't think, but I walk a line between 100 % prudent, no, as little debt as I possibly can and hyper leverage to even, you know, ostensibly good performing assets. I want to be in that zone where I can withstand a pretty sizable drawdown that's has a fairly decent duration and still have this the sleep at test night is really the ultimate test and that'll be different for different people what what level of pain can i endure and still have no great trouble in falling asleep yeah uh or yeah and and that and that i don't know i can't even i don't know where the maths actually lands on that for me but yeah the only time the only time i would have like as a generalization where i would push back is the concept is fine just don't push it to the extreme because that's where you blow yourself up i'm going to say exactly the same thing as you i'm going to say don't push it anywhere near in the same postcode as the extreme so you know we're actually don't push to the extreme he's not saying 90 it's okay but 95 it's too much um so you know just just just i don't I thought you meant better, so I want to add that.

36:54So keep it really, really, really sensible because there's no point losing your house for anything. And if you've got a mortgage still on your house, you're still paying off the house, therefore your income's in that, and you haven't got the money in the shares to pay it off, and if the shares go down, you lose your job because there's a recession, for example. Then all of a sudden, you haven't got your job and the shares are worthless, and you've got to sell them because you've got to meet the mortgage repayments. You're not going to necessarily lose the house, but you potentially can torch six figures easily.

37:17Well, this is why the distinction between principal place of residence and investment property is very worthwhile here. And remember to not to have a go at the wife, because I don't know the context here, but I do know the context of what financial planners, accountants, and a lot of chat groups tend to talk about, which is, and they're right, because in theory, it's like, they start with a set of assumptions and then axiomatically proceed from there. And actually everything that is proceeded, like it's all right. Like, yes, if those assumptions are true, then everything else is true and I can't fault you.

37:55And I don't want to say it's not true, but I do want to say we got to stop treating these things as universal laws that shall never be breached. Now, for example, let's say you've got 40 % equity in the investment. I think it was 40 % equity in investment property. Yes, correct. Right. And by the way, just this year, let me think about the future in some of the expensive suburbs. It was just reported in the AFR recently. There's been 20 % drawdowns in some of those property markets, eastern suburbs in Sydney, I think somewhere in Melbourne. I'm being selective here with the data, but really just to illustrate the point, we are far from any economic catastrophe and it can happen.

38:33And if, again, people hear what they want to hear. I'm just saying if, right? Right. If there is any, there is absolutely a reality where the equity value drops so much and the bank asks for more collateral, which forces you to sell your shares, which are also very likely at a loss at that period of time. And you take a loss on a loss and are left with more debt than you've got. The debt to equity is negative in the sense that there's more debt than there is equity. You're over leveraged and you're either bankrupt or you're having to access the equity in your home. and it can go really, really, really badly very, very, very quick, far quicker than you can imagine.

39:13And look at what happens. We're just talking about like weird far-flung places of the world where weird and wonderful to our mind happens. Places like Spain and Ireland and the United States and Greece are not, you know, they are not the edge of civilisation and they all had that in living, not even living memory, in my adult life. really recently in 20, between 2008 and 2012 and all that stuff was going down. And so just be, again, I don't want to get in the bank. It will happen. It won't happen. My point is it could happen. And if it did happen, can you stand up to it? What is the point of trying to get a little bit of extra money if you risk everything for it?

39:59That's exactly, that's exactly. And I don't even, I only step back. You're making a very valid point. I just want to step back half a step to say, even if you don't lose everything, losing a six-figure sum because your timing is out. Especially if you're like 50 years old and you're in the queue of retirement. It's like you're never recovering from that. But if you do recover from it, you've still taken$100 ,000 you didn't need to take, for example. Yeah. If I go from$1 ,900 ,000 or$100 ,000 to zero or whatever the number, whichever combination that is, you're still$100 ,000 down to where you would have been unnecessarily because you tried to get a little bit too clever.

40:32So I think your analogy about the mortgage and the portfolio is exactly the right one, Ram. Staying from debt recycling as a concept because it's sold as a panacea. It's a magic pudding. Right. Can't go wrong. And I'm not saying you can't go well either. Of course you can. Go well in roulette as well. Exactly. And so, yes, no, well, a couple of things. I've said this before about other questions, and I'll just say it one more time. the the the smartness of doing that depends on the likely return you're going to get from your portfolio and the cost of the debt so should you do it so firstly don't put yourself any any any anywhere near don't put yourself in the same state as as potential permanent loss of capital not even go broke just losing money permanently you can't make back because you had to sell at the wrong time and crystallize that loss so don't do that secondly think about what am i going to make if I'm right and what am I going to forego to opportunity cost to ramps point and I've got to say right now I wouldn't be I would be paying off a mortgage I wouldn't not pay the mortgage off and invest instead I might do both and I've done that in the past do both because I just like investing I like growing my portfolio I think I'll do okay but a 10 % return in the market after tax is 7 % and your mortgage is costing you 6.5 % that's pretty That's pretty lineball for me.

41:59I wouldn't go out of my way to increase my exposure to debt on that basis right now. By the way, what if Monash is right and it's 5 % average for the next 10 years? And you're paying 6.5 % on your mortgage. So just be... Personally, I would not take on more debt now, even at mortgage rates, to invest because I don't think your odds of success are meaningfully enough in your favour to justify doing it. would I keep putting money in the portfolio and pay off the mortgage? yeah probably that might even be particularly just because I'd like to build a portfolio it's probably lineball-ish but I definitely wouldn't take on more debt to do it if I've said this before if and when rates go back down I mean we had one rate cut I don't know how far they go down if your mortgage rate was 5 % you'll get 10 % in the market even after you take out your 30 % tax you're still probably decently ahead that's a pretty good now say 30 % it must be a different tax rate I'm using the number just because it's easy so do your own math is the other answer but yes just be mindful remember mortgage payments mortgage reductions are tax free and guaranteed they're two things that investing in general isn't now there's franking credits and stuff again I'm the last person to say don't invest but the closer you are to that being lineball the less inclined I would be to take on more debt in particular and specifically debt recycling you're actually actively saying I want to make my mortgage bigger to invest at that point that's a very different decision and that's I would do more of it personally we've we've really emphasized one side of the spectrum here I'll emphasize the other one I think it's not just as but still reckless to be at the other end of the spectrum in other words in an environment this will depend on your worldview so you know take it for what it's worth but now who's a duck duck go so good You're right.

43:47Sinfall had slipped off. Let me grab the hat here. I'll pop it on. In a world where you may think inflation is more significant and longer lasting and there will be continual debasement, then I think having no debt is actually a silly thing. Now, again, there's a line there, but it's just like, Like the thing that we've emphasised here is you never want to be in a situation where you're never a forced seller be. Correct. Never be knocked out of the game because we know that the game tends to be a good game over the long term. But if you've got – I'll make up a number here. If you've got 10 % LVR on your home and it's in a very low risk passive index, like seriously?

44:33Like there's no risk. I mean that's a risk in the sense that we're all going to go to the Thunderdome at some point. Yes, exactly. And then you're facing that risk anyway. I mean, you might not maximise your returns, but you're in that line ball area of maybe it goes up. Maybe you make a little bit more than the mortgage. Maybe you make a little bit less than the mortgage. It's not going to kill you either way. It's not. But it's like zero mortgage when you don't need to be. It's just like, yeah, you're kind of bulletproof, but to a degree where you're leaving easy money on the table. We're always leaving some money on the table by forgoing some risk.

45:07Yes. But you're leaving money on the table for taking what you probably could term pretty much insignificant risk on the table. So don't be zero. Don't be 100%. Figure out where you probably need to be within those two extremes. You've said before, mate, you and your lovely partner are pretty risk adverse, and you've paid off much more of the loan than you would need to. I would happily add a larger mortgage personally. different family circumstances and histories and experiences, we just take different decisions. It's not right or wrong. It's not like, oh, well, she's wrong. No, she's perfectly valid because she values that safety.

45:44But you still have some mortgage. So it's right. And that's my point, right? And it's a little bit of having your cake and eat it too. It's sort of like your particular family. I'm sorry, I'm not trying to dox you too much. I think you've said it. But you live out. You don't know, Ruth. I think you've said it all publicly, which is that, yeah, You have more debt than you would need to have, even though as a family unit, you are extraordinarily risk adverse, which is kind of my point. Yeah, that's right. Well, yeah, but you are risk adverse and like you don't need to be and you could be more risky.

46:18Again, it's a continuum. It's a spectrum. I'm all over the place. Hopefully the point is well made. I just think zero debt in this day and age is almost reckless. I completely disagree there. I yeah yeah absolutely I I don't I reckless is not the right word no overly pedantically risk averse yeah I I just don't I don't it kind of goes back to your you made the point of the really really rich people and the wealth preservation right all right I I am absolutely I I will I'm looking forward to the day where I have zero personal mortgage uh credit card margin every I don't have any debt right it's at some point I find it hard to believe you've got credit card debt?

47:03Actually, I carry monthly credit card debt, but no revolving. No, I'm adding them all together and saying, I have any sort of audit. Sorry, I didn't mean to have all those things. If you do, by the way, just as a quick aside, anyone listening, credit card debt is always bad. Don't do it. Yeah, I'll pay that off. Never be covered with credit cards. Don't pay that off. 20 % will kill you. Sorry. I have credit card debt because I have a monthly revolving, but I always pay it every month. So it's technically debt, but it's anyway. Yeah, no, I don't want to draw this answer out when we need to, but I want to be completely debt-free.

47:32Because at that point, I'm not going to be filthy billionaire rich. I just don't need the debt. I don't need someone having a call on my assets and I will have enough assets. It's not going to be that large a number, mate. I'll have enough assets where I say I have enough. I simply would, I don't need to play funny buggers to try and reduce my returns using debt, even if it's 10%. And I'm not criticizing you either, by the way. You'll be as valid as anyone's. I'm going to get to a point where I'm like, no one has a call on my assets. I am not in debt with anybody. I have no obligation to anybody else.

48:04And could I take 10 % back out of the mortgage at that point and invest it and make some returns? Yes. Might it be I'm paying 6 % and getting 10 %? Yes. Am I forgoing some returns doing that? Yeah, absolutely. I don't care at that point. I'm not in the wealth maximization game to the point where I will choose to carry unnecessary debt once my personal net worth is larger. Now, I am currently, as you've already talked about, but at some point it's like, no, all done. Everything's paid. I'm done. And I will invest my assets and I will get an unleveraged return. And I'm very, very, very happy with that.

48:38That's cool. You're cognizant of it. But you are, I guess, but the point remains is that you are leaving easy, low-risk money on the table. There's no judgment on that. Just statement of fact is you are. But I don't need to chase that money, I guess. I just don't. I aim to have a portfolio large enough to let me live my life comfortably. and once I'm at that point, I'm not going to care enough to be worried about it. Yeah. No, totally fair enough. Anyway, again, that's my view. Hey, a question from Hugo's dad, which will become clearer in a minute. Okay. Greetings to the princes of the prolific pod machine.

49:18Thank you, Hugo's dad. I've been listening for several months now. I thoroughly enjoy your insights on my morning walks with Hugo the Labradoodle. He may be unimpressed by Ram's feats of strength and endurance, but I have benefited greatly from your collective wisdom. Thank you, Hugo, Dad. I'm in my mid-30s. Sorry. Yes, bastard. And about 18 months into my self-directed journey in investing. The first 12 months were spent researching, learning, and dabbling, with some small investments spent$500 ,000. $500 ,000. In the last six months, I put together a core portfolio of ETFs, which my wife and I dollar cost average into monthly, currently sitting just over six figures.

49:57Well done, that's a very good start. My questions relate to creating a satellite portfolio of companies outside my ETFs. I'm comfortable allocating up to 10 % of my portfolio to try and achieve some above average returns. Do you have any thoughts or general principles when it comes to A, the number of holdings, B, the minimum investment size per stock, and C, what percentage split makes sense for this type of core and satellite approach? Or is it simply a question of how much time and capacity one has for putting in the work and keeping up to date with the machinations of each company. I've lucked out on a couple of good calls so far.

50:32With some small caps turning 60 to 70 percent. Look out. You'd look for a job at Strawman soon. But I still have some less educated punts still in the red in my brokerage account as a reminder that the only way is not always up and I have plenty still to learn about researching and evaluating companies. Thanks for all the excellent content. Full on Hugo's dad in brackets James. James, thank you for the question. I will say, mate, by the way, you're not going to get to a point where you don't have any red in your account. Yeah, that's my first point I was going to make. Oh, cool. Sorry, mate. No, no, go.

51:02Go. So, yes, I think, and just because it's an unrealistic goal and if you're setting yourself up for that goal, you'll always feel disappointed. Show me someone who doesn't and I'll show you a liar. Correct. Like every day of the week. Dirty mat off stuff. Yeah, exactly. I reckon, by the way, I reckon my strike rate's about 55 % at best. Mine, for ShareAdvisor, I haven't done this in ages, was 61 when I last did it. Oh, well done. Yeah, same thing. No, no, no. Not well done at all. That's, you know. No, it's about average. I mean, Peter Lynch is famous for sort of saying, if you're right six times out of 10, you're doing well.

51:33Yeah, yeah. And it's like, even at 55, actually, even if you're only right, I mean, what's David Gardner? He's like, his track rate's 30%. It was at one point, yeah. It's pretty low. He's got the best return in the company. Yeah. So, like, what? Well, it's easy, really, because maybe, you know, most of what you touch goes down, but the things that go up go up a lot. Right. And that's normal. And I've made the point before, I'll just hit it again, is that if your strike rate is, what's the word for it? If you've got a very high strike rate, you're not taking enough risk. Yes, that's right. That's right.

52:11I'm not saying you're writing cash, but you're not going anywhere. Yeah. Yeah, yeah. That's the perfect example, right? So it's normal. No one is all seeing and knowing. And the other thing on that is like 18 months, Like, you know, I would, depending on how many, what the spread is in that, in your portfolio, I'd argue that probably some in five years time, some of the better returns will be the ones that are so far in the red. Yeah. Like, from a statistical standpoint, like, it is the height of hubris and folly to expect that not only everything you buy goes up, but that it goes up immediately.

52:46That's right. And more often than not. And I always make the point on the pod is my best investments ever usually start out really badly because I'm just early. Something happens, but it's just sort of like, so don't beat yourself up too much about those points that you raise. Nice. What was the question? So it was actually how to add satellites to a core position and how to think about the weightings of each in that context. Yep. Ironically, you asked the question, well, I think it's probably in reverse order. So it was any thoughts on the number of holdings, the minimum size per stock, and the what percentage split makes sense, this type of core and satellite approach.

53:23And I kind of think, James, that the answer to the first two would depend on the last one. Here's the thing. If you've got 90 % ETFs, 10 % stocks, which is fine, go for it, and you've got 20 companies, well, each one of those is 0.5 % in your portfolio. And it's not that they can't do well as a group. They still can. They can add meaningfully to your returns if you write about them on average. But to your point about time and effort and planning and everything else, by the time you've researched 20 companies, each of them is 0.5 % of your portfolio, you're probably not helping yourself. Now, being diversified is good.

53:57And if you're right six times out of 10, you've only got three companies, and you've got to struggle to get the six out of 10 ratio. So there is something to be said for having enough to make it work. But if your percentage of core and satellite is that high as you're intending, and again, I'm not saying what you should do, I'm just saying if it was only up to 10 % of my portfolio in stocks, I think I'd probably choose four or five because the diversification has been dealt with with the other 90 % of what you're doing. Yeah, you're already massively diversified. Yeah, I think I'd probably find the four or five things that I cared most about.

54:26Here's the problem for you, James, and I'll let Ram jump into the rest of it. But whether you're going to choose three or four or five or 20 companies, the problem is that your research time is going to be not dissimilar, which sounds silly, right, because three or four or five companies is a quarter of 20, so it should be a quarter of the time. Most of the time in investing is spent actually discarding bad ideas. Yeah. And so, yes, getting to 20 will take you longer than getting to five good ideas. So, don't get me wrong. I'm not saying 20 is the right number or five is a bad number. What I am saying is you're probably going to have looked through 40 companies to get to three or four.

54:57And you're probably going to look through 60 or 70 companies in total to get to 20 because if you know roughly what you like and don't like and the attributes you're looking for, you'll find them pretty quickly. And so, yes, there's more time per company you end up choosing. but a lot of what I do I mean I'm very lucky that Motley Fool understands our business we're in the investing business but a lot of my time is reading and discarding stuff so some days what output did you create today Scott? nothing literally zero because I read all day and I found nothing I wanted to buy and when I say days that's multiple days a week it's why?

55:28because most of the time right? yeah and so I don't want to discourage you James at all but what I do want to say is if you're kind of thinking gee could I find could I research 10 stocks to buy rather than 20 that would take half the time it's going to take 75 80 of the time easily because the discarding process is there's 2 000 companies in the asx the chance you find eight or 10 you have high conviction enough to buy you can you can have low conviction to buy well you can think you've got high conviction to buy um and if but if you know if if 10 of the first 15 companies you'll get you buying either you're really really really really really lucky you happen to have stumbled on a great process or you haven't maybe put the diligence into making sure or they really, really belong in your portfolio.

56:06And again, that sounds like I'm being discouraged. I'm really, really not. I'm just kind of saying that the number of companies you buy probably isn't a function of the amount of time you have. But you are right. The less time you have, the more you should have an ETF instead of saying, well, I've got no time, so I'm going to buy five companies with my entire portfolio. That'd be a terrible, terrible decision. So you're right to say the time matters, but the time probably matters with the split between passive and active, not based on how many active companies you buy. Rem, over to you. No, mate, that was an excellent point.

56:38Just in defense of your work output, if your boss is listening. Adam Giddell? No, it's completely not a waste of time because you've figured out what not to invest in. And I guarantee that you've probably learned a few things on the way that now you're in the quiver, right? So the next time you encounter a company in that industry, you've speedrunned a little bit because you've already, oh, I've already inquired into this and I've got some thoughts on it. You're not starting from zero. So it's never, no effort is, any, to assume that you must, and I know you're not saying this, but to assume that the end result of work must be a high conviction by idea, otherwise it's all wasted time, I think is spurious.

57:23And I know you do too, but I'll just make that point.

57:29There's not much to say other than, James, I think you answered your own question. Yeah, it depends on your capacity for time and ability. And I just thought, because you've got so much there, I would just don't force yourself or commit yourself to some preconceived and arbitrary number. Just start with one. You're so diversified. You're so diversified, right? So just have a look around, cast about for some ideas, take your time, don't force it. Forcing it is always a bad. There's nothing worse than having money burning a hole in your pocket because you'll deploy it sooner than you probably should.

58:00Yes, that's right. Because I've got to do it. I've got to, particularly if the thing that you're thinking about is going up. Oh, I've got to do it now. I've got to do it now. Like it's going to mess with you. So cast them out for some ideas. Sooner or later, you'll stumble across one. I really like this. Might be right. I might be wrong, but you'll learn a bunch of stuff along the way. Buy it. Now you've got one stock. And then if you want to go to two, well, let circumstances dictate when and how you'd go to two. And just keep, as long as it's fun. I can only say that on this portfolio, right?

58:32That's your idea of fun? Yeah, that's right. You know, as long as you're enjoying it. We're open books here. We're nerds and proud of it. There's no point pretending. It's great, right? As long as you're enjoying the process. Yeah. And if you're not enjoying the process, stick with the ETFs, right? Because if you're not enjoying it, you'll do – if you don't enjoy something, you won't put in the right effort. You won't get better at it. You'll get bad results. And it's just like – the starting point is always – and I don't mean there's different degrees of fun. You're not on a roller coaster, you know, with half a litre of tequila inside your fun, you know.

59:08I've never experienced that, Ram. Is that a good thing? Sounds like it's a good thing. It's probably a really, really bad thing. Oh, I'm coming full of tequila and I'm right at it. I'm thinking that it's very bad. There we go. Yeah, I did say that coming up with analogies on the fly was always a bad idea. But it is satisfying, I think. I think it's very, very intellectually satisfying. And then when you take away that pressure, you will find that you'll just stumble. You'll spend, if it's anything like my experience, I'm sure it's the same for you, mate, where you spend, particularly when your job is to come up with ideas, right?

59:43You'll spend six months and say, I've got no good ideas. Certainly no good new ideas, right? I've got ideas, but I already hold them type thing. And then you'll have like weeks where months happen. It's like, oh, my God, that's good. That's good. And I like that. And I like that. You know, during these big sell-offs, usually it's like, gosh, kid in a candy store kind of stuff. So let it come to you. Make sure you're enjoying the process. You might, having found doing that for a little while, it's just like, oh, it's a headache and I'm not any good at it. Yeah. In which case, like, cool. And like, how bad?

1:00:17You can't blow yourself up, really. Like, I maybe I lost 50 % on 10 % of my portfolio. I've gone down 5%. Meanwhile, the portfolio itself's gone up. I'm not saying it's great, but it's not a tragedy, right? So feel it out. See how you go. And the other alternative is you go, actually, I really like this. I'm just fine that I'm thinking about it a lot. I'm enjoying it. I'm getting some decent results on average and over time. over time. Um, so maybe I'll go for 20 % direct investing and gosh, I still love this. Now I'm going to go to 30%. Like, I think that's, you'll, you'll find, you'll feel your way is what I'm saying.

1:00:56I like that. I think that makes, that makes perfect sense, man. That's probably the best way to start with, um, yeah, getting, getting going. Um, don't feel too, yeah, uh, yes. Feel your way that, that I'm not going to answer that. And it might be surprising to you as well. I thought I would really like surfing. I hate surfing. I'm not good at it. I've tried it for years, but you know, that looks fun. I want to do that. Everyone seems to think it's great. It wasn't my cup of tea. You'd buy a super expensive surfboard and change your life so you can live near the beach and you just went, oh, I'm going to go and see if it works.

1:01:30Conversation I'm having with my teenage son at the moment. I'm into this. I want to get that. I'm like, well, let's wait until this is actually a thing and then maybe we'll get the high-end stuff, but for now that'll do. Right? And it's the same with investing. I have never, ever come across a friend, colleague, acquaintance who hasn't been excited by the idea because who isn't excited about the idea of making money, right? Like everyone is. Everyone thinks investing is going to be great. And most of us don't, having gone through the experience, come out with a, I mean, the churn in this industry is legion.

1:02:06It just is. And it's not even, you must assume that's because most people lose money. Now, even people who make money often bail out because it's like, oh, I did okay, but I didn't know it was going to be that stressful and that much hard work. That's true. You've got to want to do it. You've got to want to do it is all I'm saying. And yeah, you're right. I would like to say enjoy it, mate. There are a few things that people, well, if you were doing a job you don't like, then you are literally in that thing of I'm good at something that I don't enjoy. And no one wants to go to work on a Monday morning doing that.

1:02:35You do it because you've got to be the Monday morning. If you're lucky you do a job you love, I'm very lucky you're very lucky, mate. But, you know, the job you don't love is something you don't want to commit to if you can avoid. If you want something else to do, do that. Same with investing. And again, we're not trying to discourage you. This has been really discouraging of James. James, go for it. I do it. Hopefully you've had a dabble. You've made some wins. You've made some losses. You know now at this point, you know, the great thing about ETFs, man, this is honestly the beauty of ETFs is for people in the past who either do yourself or pay a fund manager a fortune.

1:03:07Yeah. There were no choices. you kind of had to go, well, I guess I should try and solve so I can save some money. These days, the fees on ETFs are so incredibly proper, proper broad-based ETFs are so low. It's close enough to free. And if you don't enjoy picking stocks behind ETFs, it's brilliant. So great. Like it's, we're incredibly lucky to live at this time of history, invest in this time of history, right? The data's available. The ETFs are almost free. Brokerage is low. You got some great fallbacks. So if you love it, you enjoy it, you want to do it, and you're good at it, and then we want you to do it.

1:03:39That's why Andrew and I do it. That's why we're doing the podcast. Fill your boots, as they say. This is not the ETF podcast. This is the investing podcast that covers everything. Do what works for you. But if you don't do it, don't feel pressured to do it. Don't do it just because everyone else is doing it. Don't do it because you think you have to to try and beat the market. Get the market. You've already got six for your thing. You said you're in your mid-30s. Mate, add regularly from here on. You could lose to the market, still have a lot of money in retirement, right? If you match the market, you'll have more.

1:04:05If you beat the market, you'll have more than that. but do it if it works I think we're done here mate thank you for taking a break from your budget reading are you going back through past years is that what the rest of the day is entailing I actually did think because the parts I did read the start of it was some of the projections and I thought I would love to because this is my world I'm too lazy I would love to go back to some of their past predictions but I don't have to because I know what the answer is Correct, correct. Oh, it's always, yes, it is always that way. It's going to be a new topic.

1:04:42I'm not going to. Thank you for speaking to us. Hey, if you want to hear your question answered, info at fool.com.au. Hit us up on the socials, Andrews, exclusively on Twitter because he's got a special multi-million dollar deal with Elon Musk to only appear on his platform. Of course, that is sage underscore simian or at strawmaninvest. I'm on most of the platforms at tmfscottp or on Facebook at facebook forward slash scottphillipsmoney. And until next week, enjoy the rest of your weekend. Enjoy your budget reading at Fool on. Cheers. The Motley Fool and people appearing in this program may have positions in the companies mentioned.

1:05:18General 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.