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Podcast Summary: Motley Fool Money - Episode: Mailbag (February 11, 2024)
Episode Overview In this special mailbag episode of the Motley Fool Money podcast, hosts Scott Phillips and Andrew Page address various listener questions covering topics such as equal-weighted ETFs, ETF voting rights, the challenges faced by Judo Bank, investment strategies when down 20%, and an explanation of futures.
Hosts
- Scott Phillips: Motley Fool
- Andrew Page: Strawman.com
Key Topics and Discussions
- Equal-Weighted ETFs
- Listener Question: Are equal-weighted ETFs good or bad?
- Scott's Analysis:
- Equal-weighting can dilute successful investments by rebalancing too frequently (e.g., monthly).
- Investors buy at different times, complicating the rebalancing process.
- Market capitalization weighting is easier to manage and reflects current market values.
- Andrew's Take:
- Equal-weighted ETFs may outperform in certain market conditions, but timing and market cycles play a significant role in their effectiveness.
- ETF Voting Rights
- Listener Question: Should ETF managers be able to vote their shares?
- Concerns:
- ETF managers like Larry Fink of BlackRock can push political agendas via voting rights.
- The hosts discuss the implications of ETF managers having significant power over companies they invest in.
- Conclusion:
- While there are ethical concerns, the consensus leans towards allowing managers to vote for the long-term interests of the companies.
- Judo Bank Challenges
- Listener Inquiry: Why is Judo Bank facing a declining share price despite strong performance?
- Key Points:
- The market often punishes smaller banks despite positive earnings due to established market perceptions of the larger banks' security.
- The hosts advocate for investing in Judo Bank for its strong fundamentals and note the potential for growth as market perceptions change.
- Investment Strategy When Down 20%
- Listener Concern: A listener is down 20% on their portfolio and asks whether to sell or hold.
- Advice Given:
- Consider averaging down if conviction in the companies is strong; however, selling and transitioning to index funds may be prudent if stress levels are high.
- The importance of understanding one's investment goals and risk tolerance is emphasized, especially for younger investors.
- Understanding Futures
- Listener Question: What are futures?
- Definition:
- Futures are agreements to buy or sell an asset at a predetermined price at a specified date in the future.
- Initially created for agricultural purposes to stabilize prices for farmers.
- Critique of Futures:
- The hosts express skepticism about synthetic futures that do not pertain to physical products, viewing them as speculative gambling.
- They recommend caution, especially for novice investors who may not fully grasp the risks involved.
Key Takeaways
- Equal vs. Market Cap Weighting: Understanding the practical implications of different ETF structures is crucial for investment success.
- Voting Rights in ETFs: Awareness of the political influences of large asset managers is essential for ethical investing.
- Challenger Banks: Small banks like Judo Bank can offer substantial long-term investment potential despite short-term volatility.
- Investment Mindset: Having clarity on investment goals and psychological readiness for market fluctuations is vital.
- Futures Trading: While potentially useful in certain contexts, futures trading carries significant risks and is not suitable for all investors.
Conclusion This episode of Motley Fool Money highlights the complexities of investing and the importance of informed decision-making. The hosts encourage listeners to think critically about their investment strategies and remain aware of the broader market implications.
For more insights and to subscribe to their newsletter, visit [fool.com.au/LiSTNR](https://fool.com.au/LiSTNR).
Written by AI. May contain mistakes. Listen to the episode to check what was said.
Transcript
Automatic transcript. May contain errors.0:07Welcome to Motley Fool Money, our very special Sunday morning mailbag edition. I'm Scott Phillips from The Motley Fool. He is Andrew Page from strawman.com, which is, Andrew? It's a website. It is a website. Is it the Premier Online Investment Club or private? Which one are you going with? I just had a suggestion that might be Premier. Premier does have a nice ring to it. Doesn't it? I like it a lot. Private has exclusivity going for it. Is there room for both? Yeah, there you go. Yeah, the preeminent private Premier Investment Club. Online. Online. It's important. Don't forget, Andrew. I've only heard it from you once and I've already remembered it.
0:50You've forgotten. I know. Mate, let's kick off with – I was like, of course, I did check on your exercise regime. You've been out, I assume? Do you know what? Actually, last night, I caught up with some friends and we had a few beers. And when I say a few beers, I literally mean like a few beers. But I'm just getting to a certain age where it's like I don't bounce back that well. and said no. I didn't do the triathlon this morning. Oh, well, there you go. You've got to give yourself some time off, mate. Self-care, they call it these days. Self-care, yes, exactly. Mate, you sent me some questions.
1:26You sent me two questions, which you allege are from a bloke called Andrew. You also allege they're not from you. Now, the only reason I think that might be the truth, as you pointed out to me in reply, was that neither of these questions are about Bitcoin or property. Yes. And we know very well. I imagine that your perfect question would be something like, dear Andrew, could you please give me your views on both Bitcoin and housing, including the pros and cons of each, and a detailed summary as to why I should invest in your preferred option? I think that would probably be your perfect question.
1:59That is not the question this other Andrew asked, though. So I am going to bypass that one. Because if I don't keep talking, if I take even a slight breath, you're going to jump in and try and start answering it. It's a very common name. I'll say that as well. Allegedly. It definitely wasn't me. So Andrew starts with equal weighted ETFs as a statement. He says, my understanding is they rebalance every month. Isn't that a case of watering the weeds and digging up the flowers? I think the idea of equal weighting has merit, but the investments should be allowed to run their course for a much longer time than a month.
2:33Three years, perhaps, he says, to sort out the winners from the losers. Maybe they should be structured as closed end funds. You said, well, maybe they already exist. Do you want to have a first go? Give me a sender to you or do you want me to kick off? No, you go first. So here's my, I'm going to, Andrew, I've got some thoughts on this because we've had a similar challenge with some of the services we run at The Motley Fool. And the challenge is every investor buys at different points in time. So if you don't rebalance, say you don't rebalance for three years. If I buy the ETF today and RAM buys in 18 months time, I've got three years on mine.
3:09He's not got 18 months left on his. Or if we do it individually, then we have these individual accounts, which have a tiny fraction of an ETF at any point in time. So you kind of have this really weird situation where if you're rebalancing anything, every investor's timeframe is different because they all buy in at different points in time during that ETF's life. So a three-year period from now is fine. But if I buy in any point between now and three years time when it rebalances, I'm getting a half rebalance or a half life or some combination of that for the rebalancing. So I like your idea. I don't know how practical it would be to give every investor the same experience.
3:48So then you start trying to game, well, hang on, do I buy in at the beginning? Do I not buy in between rebalancings? You know, all that kind of stuff. So it's really, really difficult. Again, not a bad idea, just the practicality and the reason i say that is we've looked at it for how we talk about our returns for our investors who've joined some of our services and again they all join at different times as well and so we just said well we have to do it from the beginning of the service because we can't track every individual investor's returns or do it differently so had some i've already had some thoughts about that but it's it's a really really good point in terms of watering the weeds and digging up the flowers i think you're kind of right um it's really that's why equal waiting is so hard right it's why it's why market waiting makes so much sense because it's always is, let me use a really wanky big word, contemporaneous.
4:30In other words, the value is the value is the value at any point in time. And that's what you're trying to do is match the value of the market. So market capitalization weighted makes perfect sense. It's really easy to manage. Anytime you build something that has to be rebalanced, you invite that question of when do you do it? How do you do it? And what's the impact of doing it? At some point, the rebalancing, yes, you're right. It absolutely waters your weeds and pulls out your flowers. there was no getting around that. So what's going to happen? Well, rather than weeds of flowers, what you'll find is it depends on what stage of the market cycle you're in.
5:05We went through an enormous period over the last 15 or so years, maybe it's even 20 now around because I'm getting old, where the composition of the US S &P 500, it's easier to use that one because our composition hasn't changed much here. In the US, the composition has changed from the big companies would have been GE, General Motors, Exxon Mobil probably Berkshire would have been up there somewhere as well it was a bit smaller than other you know Bethlehem Steel AT &T you know these these old old school businesses and then as they as they grew from that sorry as the market grew other companies took over now equal weighting those kind of gives you the upside as that growth happens because you kind of the small companies are worth more early on so you kind of get that but at some point as you say it crosses is over.
5:51And when they become big enough, then keep growing. You do end up with exactly the problem you highlight, which is watering the weeds and digging up the flowers. It's why I don't love, I love the idea as intellectual exercise. I think it works really well in some markets. It doesn't work well in other markets. So you kind of, not deliberately, but by effect, you end up having to try and time it. Or if you don't try, you still benefit or suffer from timing impact for exactly that reason. If the big guys fall a lot, for example, then you don't lose as much as would happen if you are market weighted if the little guys grow faster you're going to get more benefit but if it's the other way around if the big guys grow faster you're missing out the opportunity to to capitalize and all that sort of stuff so you kind of it ends up being an active strategy because of that rebalancing how you do it differently i don't know that you can because the weights will always change between the two types of indexing because of the way that works.
6:45And again, it depends on when you start because the weighting will change over time and you'll simply get different results. So I know a lot of the research says some of the products have seen the equal weight outperform. I would suspect, and I claim no expertise here and certainly no ability to forecast, but I would suspect it's more to do with the type of market we're in and the types of companies that are growing faster than the others rather than anything about the equal weighted index itself. Ray? Yeah, it is a tough one, isn't it? While you were speaking there, I brought up the MVW, the VanEck equal weighted ETF for the ASX.
7:23And that has lagged just the Vanguard S &P ASX 200 ETF by a little bit. One's done 1.5 % over the last year. Dividends excluded. The other's up to three quarters of 1%. Right. Interestingly though, you sort of go to three years and the equal weight has done 13 % odd and the Vanguard traditional ETF is up 8%. And then you go to five and 10 years and it's actually quite stark. I'm always mindful though. This is where backtest, I always, I'm always very skeptical of backtesting because I, you know, I think all investors at one point go, actually, here's a cool tool. I can go back and see what works and go, you know, had I done this, this, this, and this, I would have massively outperformed the market.
8:12And that's a statement of fact, right? With the benefit of hindsight. The trouble is if that worked, we would all back test and figure out what worked and we would just do it. And what worked for that decade may not work for this decade. And so I haven't done it for the US market, but I suspect there we've seen it has been the bigger companies that have done really well there. So maybe that's not the case. Here in Australia, we've got the banks, which we've often, well, I've certainly loved to put the boot into and said they've done nothing in five years. But CBA is a bit of an outlier there in Macquarie, but the others have done nothing.
8:46I mean, woeful investments and that's just dragged you lower. So one will perform better under certain circumstances and other will perform better under others. And you might sort of say, The other intellectual argument might be, well, it's like, well, the bigger ones by definition have less scope for growth, usually, or less being equal. So by being equal weight, I'm having more money in the smaller, the tail end of the index, which gives me more upside exposure. So you go round and round and round and round in circles on this thing. And there is just no way to know. There's no way to know. Right now, February of 2024, which one should you go with?
9:28I don't know. I don't know. I personally, given the structure of the, if we're talking about the ASX, where you've got, what is it, 35 % in two miners and four banks. And someone like me who just doesn't, is not a big commodity guy and certainly not a bank fan, I'm going the equal way, right? I don't want that much concentration in stocks I don't like or value propositions at this point in the cycle that I don't like. Let me choose my words carefully. So that's where I'm going to go. But that's just a reflection of my bias and my intuition, which could be 100 % wrong.
10:10So that's a really wishy-washy answer, but it's the best I've got. No, and I think it's just – I would say this agrees with mine, which is it depends on what happens in the market. It depends on the market dynamics at the time. And as you rightly point out, mate, that's exactly what we saw in that one year, then the three-year difference. You've got to know how the market's going to operate. Then you kind of – then as you get into active rather than passive investing, I'm really, really, really not a fan of – once you leave active – once you leave completely passive investing, and you still have to make the choice of which passive investments to have.
10:43but you know you either you're there passively once you are once you in once you do anything even even though Andrew's not trying to be active he was trying to what was this a better passive option the reality is you get different outcomes depending on how the market acts yeah and so you're making active choices at that point you say well okay I want that rather than that because it makes a difference because it's better or worse and there might be different different circumstances then I may be tempted to change that when do I buy it when don't I all that kind of stuff just gets really really difficult really quickly but right really really good question um it's one that people have asked before.
11:13It's a very, very important one. You know what? Here's the beauty of markets and equities and stuff. It's not like a house where, you know, few of us can afford to go, well, I'm just going to buy all of the houses that I like. Exactly. You can do that. You can do that here. I mean, I wouldn't find it too egregious at all if you just said, I don't know. So I'm going to go half in the passive and half in the equal way. Yeah. I think that's, yeah. Even then, it's still like, I still think it's, anyway. Yeah, I mean, there is an, yeah. You can't divorce a certain strategy and viewpoint around that.
11:46But I'm just saying it's an option. If you split, you can reflect that in the actual what you hold. Yeah, good point. I like that. All right. The second question was even more fascinating. ETFs in general, he says, I'm concerned they give too much power to the ETF manager to follow a political agenda, e.g. Larry Fink. Since ETF investors have almost by definition no particular interest in a given company, perhaps the solution is for ETFs to have no voting rights. I mean, you go first this time, Matt. Yeah, I am a little uncomfortable with that too. I mean, BlackRock and Larry, they're really the main drivers of the ESG phenomena.
12:30They've been very big on that. And I would say, given they are the largest asset manager in the world, significantly so, So they have been very responsible for that. You've got to be careful how people interpret that as in like, oh, well, you've got a problem with people being ethical and having good governance and like, no. Why do you hate people, Andrew? I'm very much in favor. You hate people and you hate the planet apparently. It is a good intention that has been captured and productized and I think there's all kinds of nonsense. We've waxed lyrical on all of that before. But the point stands.
13:07What happens if BlackRock was more in favor of, I don't know, choose your preferred political agenda? And yeah, I don't know if I want them having that power. I'm happy for you to sort of bundle this product together so I can get nice, easy, broad, low cost access to the market. Great. Do I want you then to have the power to influence boards and mandates and the rest of it? I don't think so. Yeah. What do you think? i'm equally torn um you know one of the things about principles is they have to apply equally whether you like the outcome or not if it's a principle yeah otherwise otherwise it's just a preference dressed up in noble clothing yep um you know the old right to free speech thing you know i'll defend to the right your death to say it type stuff um defend to the death your right to say it sorry um i so the principle has to apply appropriately if larry decided he actually wanted more coal mines and you know whatever else uh we'd have to be happy with that if you're going to be an active vote at the you know the fact he happens to be pro-esg if you're if you're an esg kind of person you love it oh great gary's you know larry's great there's great principle we've got here that they can be involved unless they change their minds in which case they don't like the principle anymore and it's not a principle i don't i'm i'm not sure mate whether can you can you help me with this with their passive with black rocks passive indexes indices uh passive etfs do they do they vote the same way as they do with their active stuff i'm not sure because that's that's a bit i'm not sure about andrew not you andrew the other andrew is i
14:53they should have a fiduciary duty look well here's the other problem right if you're if you have a fiduciary duty and your view is strongly that exercising that fiduciary duty means keeping out of things that probably will be stranded assets like coal mines for example and again i say probably i mean on their view not mine um although i think i might be right but that's different different question um then what else do you want them to do and the other problem is if you don't have voting rights it kind of turbo charges everyone else's voting right so as a as an investor if blackrock or vanguard or whoever else don't vote my shares then effectively that abstaining or abstinence from voting means anyone else who wants to vote kind of ends up with a larger proportion.
15:33And so their vote carries more weight than it would even if, you know, and again, in different directions. Let's say ESG guys get on and vote and BlackRock doesn't, then ESG has more. If the anti-ESG guys do the same, then BlackRock, again, not voting has its own implications. So it's kind of a bit like if you're equal weight ETFs, you can't avoid the implication either way.
15:57On balance, man, I will say I'm not worried about it. because I don't, I think, I think on balance, the people who are doing it are exercising their best judgment, which as managers, all you can ask them to do. And I think overall, if I disagreed massively and would I take my money out, maybe, yeah. But I think, I think my shares are better represented being voted than abstaining, I think. I think my interests are better managed because again we say we're talking about esg that would also apply to things like who's the best director or do we do we change the way the companies run or do we vote on change of business operations at some point if you're going to again do you just constrain those votes to esg issues or not or is it all issues you know when when do when does an etf vote when don't they vote i think overall i think i want my shares voted or available to be voted by the manager in the best long-term interests of the company in which my ETF invests.
17:01So I think on balance, as much as I'm uncomfortable, like you are in like grammars, but I think on balance, I'd rather them do it than not. Am I speaking out of my mouth here, mate? Yeah, a little bit, but I mean, it depends, doesn't it? Like that's the tricky. I mean, maybe that's the answer. Maybe you just sort of say, listen, we just take, you just don't have the option. You know, as an ETF provider, you don't get to vote. But then as ETSB – and they are growing. They are a very significant part of the market now. Yeah. You get to a point where it's sort of like, well, then who's voting if you can't vote?
17:35And then does that give boards and directors more of a free reign or does it give smaller holders much more of a say? That's a tricky one. I'd have to really meditate on it for a little bit. But yeah, these are very tricky issues with unintended consequences. Yeah. I'd probably lean towards saying no, but I reserve the right to change my mind. Yeah. I think I'm yes on the same way because I think removing the vote is an active decision that I don't think we need to take for its own sake. And there's no reason why. If I own the share directly, I could vote them. am i am i better or worse served as a shareholder by my share not voted um i don't know mate here's a question from scott for a question for anjur for a question for scott this is also not from me um scott says good afternoon gents i'm a very long time listener and still loving every episode on ye oldie podcast machine which i like i have a question about the australian banking sector oligopoly we spoke a little bit about that on friday and how a so-called challenger could stand a chance in this environment.
18:49In particular, I'm curious about Judo Bank. By all accounts, they seem to be crushing it. They're executing as planned, have an experienced management team. They found a layer of insider ownership and a shareholder focused. However, the market has continued to punish the share price, even when they release positive earnings, according to plans and forecast. Please, gents, help me, quotes, square this circle. Cheers. from Scott R. Not Scott P, Scott R. I just proved that it wasn't me asking the question. It's a good one, mate. There is so much benefit of incumbency for the big four Australian banks.
19:25The last lot of challenges kind of got brought up. Bank West went, St. George went, Bank SA went, Bank of Melbourne went. The little guys, the little regionals that remain have really never, ever made any inroads into the big guys. It just seems to be a bit of a, you know, it seems pretty cut and dry. I don't think anyone's making any headway. Scott's asking about Judo, obviously. Talking about the bank itself, but to some degree also the share price. They're kind of different questions too, I think. The challenge of bank in terms of market share or results are one thing. I will say, by the way, the shares have jumped up since we got this question.
19:58Last week or so, they've gone from$0.90 to about$1.20. So maybe things have improved, Scott. Maybe you're less unhappy than you used to be. That's a 30 % gain. That ain't bad. so i kind of not sure exactly how we should deal with what's question i think he's talking about the challenger bank in general but also seems generally less happy about the share price than the company so i guess i'll start there uh scott ignore the share price mate um and the other well ignore the share price for me to say right if your shares are down you're feeling pretty grumpy um the other thing is i don't think there's anything about it being a challenger bank in terms of the share price i mean maybe if you think banks people go straight to cba or they nab or anz or westpac but that's that's gonna be the case with large cap versus small cap anything um i don't think i'd read anything into the share price performance that has anything to do with the fact it's not one of the big four in a in any sort of meaningful way the the share market's big enough there's money to be made someone's buying the shares you know if they think it's a great business uh you don't have to hold the big four only you can add judo you can take some money out of the big four you can hold judo instead or you can own just judo none of the big four I wouldn't suspect there's anything kind of untoward going on there.
21:07It's just the curse of smaller companies generally, and Ram knows all about that, as he's talked about plenty of times. When you're not followed, it's a great opportunity as an investor to buy something cheap because no one's following it. The problem is then as soon as you buy it, you want to work out why no one else is following it, and you wish someone would so they'd pay more for the shares. Maybe it's in that kind of range. Any particular thoughts on competition or judo in general, mate? Yeah, well, I mean, I haven't followed judo. I'm just scrolling through some of the prezos, though, And I see where Scott's coming at.
21:32He's been doing really well. Can I say one of our analysts, Trevor Macchenzie, is a massive fan of G2Bank. Like it a lot. So you're not your Pat Malone there, Scott? Yeah. So the first half to 2024 performance where 24 % increased profit before tax. And they grew their loan book by$800 million for the half. It's three-time system business credit growth. And they're kicking goals. So why is the share price down so much? Now, they've only been listed. We're doing some analysis on the fly, which is always risky. But they listed in sort of late 2021. Now, if you cast your mind back, it was a reasonably frothy time for the market and listings.
22:14My gut is, if I was to guess, I would say that the falling share price was more of a consequence of overinflated expectations at that stage than it was of poor performance. But business has performed well by all accounts. It's just that the market had some pretty, pretty maybe unreasonable expectations. And this is a good thing for those that are focused on the business and not the shares, because you now, even with the rally in recent months, you get to buy it at half price of what it was when it listed near enough. And you've got more water under the bridge that suggests that actually things seem to be going pretty well.
22:54And I'm paying half price now. So if you were unfortunate enough or unlucky enough to sort of buy in early, okay, I get it. It sucks. But that was then, this is now. And that's all you can do as an investor and go, huh, it looks reasonably interesting. I'm not condoning this guy. I've not looked at the business. So maybe it's a complete disaster under the hood. I don't know, but it looks pretty good. And I know that I can get it much, much cheaper than I could before. That's not a scenario where I would be thinking, and not that Scott is necessarily, but I wouldn't be thinking I want to let go of this.
23:26In fact, it's like the investment case seems to have strengthened. Unless your investment case was, it was, okay, it's grown at three times systems growth, but I was expecting eight times systems growth. In which case, yes, your thesis was perhaps a little optimistic. So there's that. One of the negatives of the smaller challenger banks, I'm of the view that I would prefer to have a lot more banks, smaller banks and banks that we were willing to let fail i think that actually does i think we makes a more robust uh system and better competition and i think that the the consumer wins as opposed to having it all concentrated in an oligopoly which is exactly exactly what it is right what what judo doesn't enjoy and this is implicit not explicit is that if they got into trouble, goodbye judo.
24:19If Westpac gets into trouble, they'll be bailed out. Now, you can't guarantee that. Call me a cynic. Yada, yada, yada. But that's going to happen in my view. I will say though, I always get reminding people is if the bank gets bailed, it doesn't mean shareholders are made whole. So the bank may survive as an organization, but the shareholders still might get cleaners. Oh yeah, sure, sure. But the people who made the decisions, these are the moral hazard argument for it. So what does that mean? It means, even though the shareholders might still get it handed to them, I might be far more flamboyant and cavalier on my lending decisions as an operator in the big four than I would be at Judo.
25:01Judo has to be a lot more careful because they don't have that implicit guarantee. Or, by the way, the business that is structured to give it internal diversification either. There's something about being a specialist. There's something about being diversified. Yes. If you're in a great place, you can turbocharge the results. If business banking or your particular business banking struggles, you can't kind of turn to the other pillar and say, it's okay, we've got this business over here. And you know what's also crazy? People always prefer the bigger banks, right? Because they feel safer. Now, there's that sort of government guarantee that's in all of that.
25:40But all banks, I believe, have the deposit guarantee available to them. Yeah, we need to be a little bit careful, but effectively all of them do. If it's a small financial institution, just be very, very, very careful and make sure it does. But for all intents and purposes, any significant bank will be covered. They have to meet certain rules. But yes, effectively we can assume that's true. But don't assume that's true when you're doing your own money. For the sake of the exercise, we'll say it's true. Yes. Never rely on that. Always check with your bank. Well, assuming it is true for this particular bank, and I think it is.
26:14I'm pretty sure it is, yeah. You know, sort of like, what's the difference? They're offering you a better deal, and if they do go belly up, you're still, unless it's more than, what is it,$250 ,000 or something, you know, your money is sort of safe. And just to be really clear, just sorry, just quickly, mate. I just looked it up, and yes, they say, under the financial claim scheme, deposits are protected up to a limit of$250 ,000 for each account holder at Judo Bank. There you go. It's off their website. So why wouldn't you do it? If they're offering you as good a service and better interest rates, and I don't know if that is the case, but if they are offering you all of that, why the hell wouldn't you?
26:48I just know a lot of us don't do it because it feels risky. And I feel that's an overhang of a different era when there were vaults and cash at the bank, when it wasn't just numbers in a database somewhere. And you kind of wanted that strength of the institution behind it. But in the modern era, it's not necessarily that much of a difference. So what am I saying there? I don't know. I wish them well. I think that the big four really do need to have more challenger brands sort of come up and keep them honest, at least to a greater degree. Nice. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.
27:38Now here's a great question from Dan. He says, G'day Scott and Ram. My question is likely as much a psychological question as it is an investing question. I have what I would consider a solid portfolio of diversified shares in companies that I really still like as much now, if not more, than the day I first bought them. Having said that, during my young investing journey, I've had to fly through a lot of turbulence as I bought most of the stocks in my portfolio at the end of 2021 when prices were sky high and I hold a lot of tech and small cap stocks. As I said earlier, I still really like the companies I own, despite some of them having some serious ground to make up.
Read the full transcript
28:19My question is in regards to where I go from here. I have no qualms with averaging down with some of the positions I'm down quite notably on, but if it ends with myself, whether given my personal circumstances, it'd be worth doing in fear of watering the weeds of my portfolio. I only consider myself to have a novice ability to value stocks, being a blue collar worker with a self-taught knowledge of investing, as well as being relatively time poor with two kids under two at home. And as a result, not being able to invest as frequently as I would like. My investment goal is to create a portfolio of stocks that I'd never sell.
28:56And given I'm in my 20s and have a long run up to retirement, I'm considering wiping my portfolio of individual stocks clean and just averaging into a couple of index funds. My thinking here is that although I'm down approximately 20 % on my portfolio, which is currently at a market value of about 20 grand, given the fact I can use the losses to offset future capital gain stacks, and I'm so early in my journey of compounding, that at retirement, the losses I'd be crystallizing now will have little impact on my end result. Would this be an acceptable strategy or would I be breaking Charlie Munger's rule of not interrupting compounding unnecessarily if I still hold conviction in the companies that I own?
29:35General advice only, as I'm sure there are other young listeners who would feel the same way as they turn their minds to investing. Thanks a lot, Dan. Great question, Dan. What do you reckon, Ram? It depends. I'm going to go with my it depends answer. It's hard to know without knowing the stocks. And even if I did know the stocks, it assumes that I know what the hell I'm talking about in regard to those specific stocks, which chances are I don't. So, you know, it is frustrating to be down 20%. We've all been there. I think any investor is going to be there at multiple stages throughout their journey, if not more.
30:10Speaking of Charlie Munger, he says, if you're not able to weather a 40 % or 50 % drawdown at multiple times throughout your career, you do not deserve to be a common stockholder. And you deserve the very average returns that you will get. He puts it very bluntly. so you know it it is it is it is not it is normal this is normal like uh yeah you're down 20 does it suck yep um should you sell or buy more or hold well that's why it depends because if now i'll take i'll take the listener at face value here and say that actually their conviction is unshaken because there's nothing changed with the business and it remains intact assuming that analysis and view is correct, then no, keep on it.
30:53Add more to it, right? If you're not confident in that view, then I would lean the other way. I would go, yeah, no, just buy it in the ETF. You're going to have no tax when you sell, so there's no consequences there. Press a few buttons, you're still exposed to the market. The market will probably go very well over the next 40 years, at least relative to other asset classes. You will grow your purchasing power over that period of time and you will not be upset with with that with that decision the other thing is is to remember too is to this is the time to make mistakes so it sucks down to be be down 20 so if the portfolio is down 20 if it's worth 20 grand now do the maths right here that means you've lost five grand now i i don't want to i don't want to like be flippant about it but in in the and i don't want I mean, I do not want to lose five grand myself.
31:47Even if I had a$10 million portfolio, five grand is five grand is five grand. Right, suspend it. I can have some fun with that money. I don't want to lose it. But losing 20 % on a 25 grand portfolio is very different than losing 20 % on a million dollar portfolio. So these are the times to sort of make these mistakes, assuming that you have made a mistake and you may not have at all. So I'm going all over the place with this kind of answer. And I would say this too, you can have that sort of each way bet where we've, and I've certainly advocated as put maybe a majority into the ETFs because it's just easy and it's relatively safe.
32:29And then keep a little bit in direct investments. You get to sort of have the experience, the learnings, as they say, the lessons, and you get to sort of practice your craft. and as you get better and better and better at that, you can continually wait more into the direct kind of stuff. So that's an option as well. It doesn't have to be, do I stay all here or go all there? You can have a little bit each way. Yeah, I don't know. What do you think, mate? So I think you're 100 % right, but also that Dan may choose to do something very different. So Dan, a couple of thoughts for me. I reckon you are questioning your own ability to pick stocks as much as your own long-term strategy why would you wipe the slate clean well probably because you're down 20 % you're thinking this was a bit uncomfortable you wouldn't be thinking it if you were up 20 % right exactly now and you've said many times mate some of the best things you do as a young investor is lose the first time because then you yes you don't think you're infallible and all that kind of stuff so Dan I guess you gotta you gotta try and work out for yourself how long do you want to do this investing thing before you work out whether you're actually good at it i don't mean you personally but i do mean you personally in this case because you asked the question but i mean anybody um i could i could decide to take up competitive tennis and i could say oh i've lost my first i lost my yeah i'm i've lost my first 14 games in a row and stick out eventually you win wimbledon scott i'm like ah i'm probably probably not no probably won't now wimbledon is a winner takes all or at at least someone wins, everyone else loses.
34:06Share investing is not that. But at some point, I should probably recognize that I'm not going to win Wimbledon. Now, if I am good enough to win Wimbledon, I should keep playing. If I'm not, I can either play for the fun of it and have mediocre results but enjoy it. That's a very reasonable thing to do. Or I can say, I'm going to go and put my money on... I was going to say Boris Becker because I'm old. That's the first name I came to mind around. Whoever wins tennis games these days. That is a trade-off. Rafa or Novak or Roger or someone. um i gotta throw my hoe for the demon alex dimon or um i gotta throw my money on them and let them do their thing and so that's a horribly tortured analogy it's not even very accurate uh when it comes to investing because i think then you're asking yourself i'm down 20 is it me or is it the market and we don't know because you haven't told us what companies you bought and even if you did we wouldn't know what the future holds any more than you do we could have some guesses as ram said but we don't know uh and i think i think there's a really worthwhile conversation for you to have with yourself.
35:02To Ram's point, the amount of money you're working with is a lot, a heap, but hopefully by retirement, you look back and go, oh, it wasn't that much in hindsight. And so you have got time to have a plan, see if it works for you, if you want to keep doing that. If you have decided this is too stressful, difficult, hard, I don't know if I'm good, I don't really want to spend the time, you're talking about being time poor, I think your personal circumstances, you'll work out for yourself whether you actually want to buy stocks. And one thing I would say, particularly to blokes, is not necessarily you, Dan, but just check the ego a little bit.
35:32If I discovered tomorrow I actually sucked at picking stocks, I hope I would have the egolessness to say, I'm just going to put an ETF because I'm not very good at this, rather than doing over and over again and getting crappy results and going, eventually I'll come good. Or I can't admit to myself, I'm not good at this. I'm going to keep going because I'm a bloke and that's what we do. 90 % of us are above average drivers, all that kind of stuff. At some point, someone's not good at investing and they shouldn't try and They should just buy an ETF. So I think that's probably just something for you to think about, mate.
36:03Don't be too despondent about the returns, easy for me to say, since 2011 because the whole market's down in tech and it's been a tough time. That being said, working out whether you should have conviction that you think you do is also worth asking, right? So you're saying, you've got as much conviction? If you're right, you absolutely should have ramped it. Double down. Stay with it. But if you've got conviction and your conviction's wrong, then doubling down right now would be a terrible thing to do. So averaging down is always, you've got to be right. And there is no easy way to know the answer to that.
36:33One last thought from me though, Dan, you've bought some small caps and tech stocks and you want to hold them to retirement. I'm going to suggest to anyone with that strategy, that sounds a bit of cognitive dissonance there in my mind. Not that small companies can't be big companies eventually. Not that Woolies were small once, CSO was small once. Tech companies, tech will be, I think, one of the biggest and best sectors the next 25 years. but if you're aiming to buy companies that are in that space now um unless they're absolute slam dunks you should assume some of them are going to not pass muster uh and some will do really really well uh i'm not so sure whether it's the right strategy for everybody to be buying small and tech stocks with the aim of holding them forever um because the chances of finding those businesses relative to buying them and then getting out where they do well, if you get your value recognized or if things go well.
37:33You know what I mean? Not every small company, even that does well in the next five years, is going to be around in 40 years, let alone being making money in 40 years. So if it's an aim, i.e. we aim to hold for the long term, but we'll sell in the meantime, if it makes sense, then go for it. If you're looking for genuine, I'm never going to sell these you probably in my view want companies that are more proven you won't get the same size outperformance from those companies but you will never have to sell in theory and let me pick some numbers for the fun of it woolies or salt pats which i own or uh i don't know west farmers right doesn't mean you may stop solos as well by the way um but but if you're buying something now at 20 something aiming to never sell it until you're you know in retirement get dividends from it or something uh it's a very very very long putt with small companies in my view just because they are small they are generally new you can have small companies that are long lasting just in really profitable little niches they're never going to be bigger i suppose but just think about make sure your investment selection is uh is in accordance with your portfolio objective portfolio strategy because that may be something that seems to me a little bit different the etf you could hold forever um almost by definition doesn't mean you should uh it doesn't mean it's the right thing to do.
38:44It doesn't mean you can't do better picking stocks, but an ETF would fit that mold. So if you genuinely are trying to say, I'm buying this with a 50-year holding period, just think about what sort of business you would need to find to meet that criteria. Otherwise, there's a bit of dissonance in the portfolio construction in my mind. There's no criticism about small and tech stocks, by the way. Ram owns heaps of them. I own a few of them. I'm not saying don't own them. I'm saying they're wrong to own. I just don't think. Are there any stocks you would happily in your portfolio say, I'll shut the drawer and pick them up in 2017, mate?
39:16Um, no. I don't think so. That's not bad, by the way. I'm not saying you should do that either, Dan. I'm not saying that should be the goal. I'm just saying check the goal and the selection. Make sure they align. Whichever way you do it. You might say, I'll ditch the whole to retirement and make money out of them. And that's great, too. So I'm not suggesting you should not buy smaller tech stocks. I'm just saying keep the strategy aligned with the stock selection. It's just that, I mean, that's my intention. Yes. If I had my way, yeah, I wouldn't touch them. And I wouldn't touch them because they just keep delivering.
39:50And that's where the real life changes happen. It goes from micro cap, small cap, and then it's in the ASX 200. Exactly. That is a thing of beauty. And I've said many times the worst thing you can do is sell because you've made a nice little profit along the way and really just talk yourself out of incredible long-term compounding returns. But I say that would I be happy to like commit to not selling? It's like, well, more often than not is that they don't deliver on expectations. It's very venture capital-like type returns. For every 10 investments I make in small cap growth, I fully expect six, seven to not do well.
40:34And you think, well, why would you do that? Well, it's because the ones that do well do really well. you know they can only quote unquote only go down 100 percent um but the others can go like i could have a 10 bagger 100 bagger you know and and that sort of means that everything is is okay so it's different with when you have the berkshires of the world whatever they are so mature and so dominant and so moated that that's a different proposition you know and and they're the cash flow nothing is guaranteed in life but the cash flows are far more certain it's not so much a question of will they grow or not but will they still be around and making a profit and will it more you know probably be a little bit above what rate of inflation we experience over that time it's just it's just a it's just a different bet um so for those kinds of companies yes i'd be far more comfortable to to do that yeah i like that man hey really interesting question i'm gonna have to stretch my brain here um so lochie says hoskott and ram love the pod it has to be said apparently I don't know if he means it has to be said because he believes it or it has to be said because...
41:36You don't get your question answered. I have two questions for you both, says Lockie. Firstly, I'm currently halfway through reading Peter Lynch's book called One Up on Wall Street. I think I've heard you both mention it before on the pod and was just wondering what were each of your favorite takeaways from the book. Do you remember? Gosh. I do like the idea of looking at the companies that you have an experience with. You know, there's a big line out the door of a particular shop. You know, when you see people lining up for the latest iPhone, that's a signal, you know, and it doesn't mean that you buy or, you know, I had a great experience with a particular company and now I'm definitely going to buy it.
42:21But I do think it's a great place to start. and that resonated with me in the book. I love, and I quote this a lot, I think it's from the book, not just a quote or a speech he gave. I do love the idea of know what you own and why you own it. That is just brilliant. It's such a simple idea, but it's like, yeah, obviously. Not because the shares are going up and I think they'll continue to go up and I heard some idiot on a podcast say that it was a good bet. But, you know, there's, yeah, that is something I think I've said before, if I was to get a tattoo, that'd be a leading candidate, right? Please don't.
43:04I'm trying to think now. Any come to mind from the book? So, no, I think you're, so a couple of things. I think it absolutely talks to small cap investing because there are places to look that the big guys can't or won't. Here's the example of Warren Buffett. You offered Warren Buffett a$100 million opportunity, he probably wouldn't take it. He definitely wouldn't take a million dollar opportunity because he just can't move the dial for the company. If you're a large fund and you need to be investing in that sort of stuff, you just can't play the little spay, little end of the market. So there's really big opportunities there.
43:38The scuttlebutt stuff, which is kind of a different version of what you said about, you know, the things you already had experience with, kind of takes it to the extra level of finding what other people are saying about it, what's actually going on. It's just a variance of your point. So I think that's true. I like that a lot.
44:01I think it's... I think for my... When it comes to... What I love about Lynch is his point about anyone can do it and that we can beat the professionals or at least be on a level playing field with the professionals. I think that one for me is important. He also, he was kind of the first person to talk about the 10-bagger. The idea is that, you've already talked about that round, about the big outperformer. And I think that idea of popularizing super long-term, buying growing companies that have real potential. I think there's, you've probably already heard that one before, Lockie, but that's for me, that's probably the biggest new insight.
44:41Again, it's hard to kind of think back to when I first read it rather than what I get from it now. and I'm going to mention before I'm reading Poor Charlie's Almanac again. A lot of it's kind of like, oh yeah, I knew that but I know it because I've heard someone say it or Charlie said it in the past so it's kind of hard to go back and say, if I didn't have never this book, what I think. That 10 bagger idea, rather than taking a 5%, 10 % profit or a 100 % profit, the idea of finding businesses that can keep growing and growing and growing, keep compounding your money, really, really valuable for me.
45:10Lucky's second question, mate. He says, secondly, I'm a relative beginner investor, 30 years old, past it, and looking to ensure I'm well diversified in the share market. My current strategy for diversifying is to eventually own shares in at least one business in each of the 11 sectors I see on CompSec's website. I'm currently holding shares in six businesses across five different sectors. I also hold shares in two ETFs, an ASX 200 and an S &P 500. What are your thoughts on this diversification strategy? What's the best way to diversify in the share market? Thanks for the great work you both do.
45:43cheers Lockie I don't like it don't like it tell me why tell Lockie why I'm not going to be critical at all Lockie because lots of well-paid experts suggest that's exactly what you do you know I call the Noah's Ark strategy two of everything two of everything you know it kind of guarantees that you can always look at something that's doing really well the trouble is is that why the point of diversification is not to have all my eggs in one basket. And what I really want is assets that aren't too highly correlated. The easy example being, you know, I just own all the banks. You're not diversified at all.
46:29But I can do that without having access to gold or do I need access to retail? There's a lot of industries and sectors that are just sucky. And they're not sucky because they're run by evil, corrupt, incompetent people. They're just in extraordinarily cutthroat industries that are just brutally, brutally difficult. And it's like, well, why am I having – If the only reason to invest there is because it is a different sector as defined by someone at S &P who's come up with these sector classifications, it's madness. I mean, when I look at my – I think ComSec gives you a chart of sector diversification.
47:16It's like very big chunks of these pie slices are very big. And you would look at that and go, oh, my gosh, he is hyper-concentrated because there's a lot of tech and growth in there. And I would say, yeah, but these companies are vastly different. The only thing that they have in common is that the product offering is technology-based, is software-based. Other than that, they service very different niches, very different industries, very different customers. But according to Bloomberg or S &P, you know, no, they're all the same. They're not. They're not all the same. So that's why I think it's different.
47:56For everyone, the tech sector, which is just everything. Amazon through to printed circuit board makers, through to Apple, through to like just, you know. Oh, mate, here we go. Well, why don't we just call Dusk Group that sells scented candles the same as Woolworths because it's retail. Exactly. Like, what? You know, someone will go, yeah, but one's discretionary and one's staples. Yeah, but still like, you know, what's the definition of these sectors? How different are they? I would say they're just like so radically different within that space. Even staples, mate. you have everything from wine to groceries to agriculture.
48:29Yeah. I read about this recently. The Australian Agricultural Company, one of the biggest property owners in the country, next to Woolies, next to a winemaker. It's like, well, they kind of all do food-ish kind of things, but yeah. Yeah. And then, look, even within mining. Like, okay. Yes, right. Well, what are you mining? Well, I'm doing copper. What are you doing? Lithium. All right. Okay. Seems different to me. Fair earths. Yeah, exactly. They're different. So, Lockie, the intent is right. Your intent is spot on. Just don't be guided by some numpty at an investment bank that has decided to come up with a classification scheme.
49:03What you want is to, I would say, sort of aim for a minimum of 10 and just make sure that they're not all – there's not a big overlap in terms of the customers and industries that they are servicing. If they all happen to be in a very broadly defined sector, but they have very different customers and very different head and tailwinds, then yeah, that's totally cool for me. Yep. I completely agree, Lockie. I don't blame you. Look, you're not going to... The other thing, by the way, if you diversify too broadly, we end up just getting the market result anyway. You might as well buy an ETF and be done with it.
49:35So you kind of want to be... If you're picking stocks, you want to be active. We talk about active and passive, and I sometimes suggest that passive is better than active. It's not. It's just very different. my criticism of people who pretend they're being passive or to be active doing it is a problem but if you're going to be active be active um to rand's point diversify your risk uh don't don't buy one of everything you know you don't know you don't buy one of everything uh but don't buy five lions and nothing else right um grab a couple of lions grab a couple of unicorns noah forgot those very very important um but uh you know more broadly yeah think about what you're exposed to think about what's going to bring you down separate volatility by the way from real genuine risk too at least in terms of your own long-term returns if someone who needs protection from volatility because you just can't deal with share price jumping around that's different but if you're someone who's it doesn't matter about the volatility then really what you're looking for is you know where where are my best chances of upside relative to the downside risk i'm taking and spread enough so that you're not making the same bet four or five times in which case you're making one single bet and if you're wrong you're gonna be spectacularly wrong you want to make four or five different bets on four or five different things that doesn't mean not everything just just four or five things you believe in or i don't mean four or five literally 10 plus as ram says but you know pick a range of things so right well i think e-commerce is going to be big cool so i'll buy an e-commerce retailer uh i think technology is going to continue to grow and people are going to cloud computing is going to be the future okay so i've got a i've got a retail e-commerce bet and i've got by the way this they're both tech or considered tech we're gonna retail bet i've got a cloud computing bet okay cool uh i also happen to think that and you play that from there and then use that as long as they're different ideas as bram says with different risk profiles different interactions different customers different inputs different success factors that's what diversification is not buying just two of everything yep um mate uh jalen sends an email who says hi scott andrew love the podcast guys thank you and what did your wisdom we're not we're not answering unless you say that and what is your wisdom as a novice investor could you please explain the futures to me what is it exactly a crystal ball look at the following day an opportunity to buy and sell outside of normal hours i need to know keep up the great work my my net just dropped just to the front half of that question i will take the i will take it then uh what what what are the futures is the only question that was being asked so i will i'll take it you can jump in okay um so basically what happens is there is a whole lot of it's sophisticated betting uh it started off we talked about this a little bit on friday it started off with farmers who said look i gotta i gotta crop a wheat and i've got to put all this money in i've got to buy the seed buy the tractor water it you know farm it do the farming things to the wheat which i should know but i don't uh and then i'm going to try and sell it now i can do that and hope that when i when i've harvested the wheat i've got a buyer for it i can sell it and get it to market and everything's good but what they said was actually well if i could find a buyer if If I go to Wheat Bix, I go to Sanitarium and say, mate, you make Wheat Bix, I got some wheat.
52:35Can we, you need to know you're going to be able to get some because you need to make a certain number of Wheat Bix for Aussie kids who are Wheat Bix kids. And so you need to have a certain number of Wheat Bix. I'm selling some wheat. I'd like to know I've actually got a customer for this. Why don't you and I do a deal now that in the future, which is the key word, we will exchange some money for the crop at an agreed price at an agreed time. And yeah, and that makes perfect sense for both parties, right? So physical futures, I think, are really, really, really, really great. Artificial or synthetic futures, things that don't relate to a physical product, I think are stupid, which alienates me from most people, particularly options traders who always flame me when I say these things on Twitter.
53:14If it was up to me, I'd ban them altogether. It's never going to happen. I'm not actually going to do it, but they're completely unnecessary. The futures, basically, mate, are people betting on literally a future price of an asset. And you can take both sides of that. You can say, I think it'll be less than that. Andrew says, I think it'll be more than that. and one of us will be right, one of us will make money, the other one will lose money. And that's literally all it is. So on a daily basis, there is a whole group of a lot of people with a lot of money betting on what the ASX 200 will be at the end of trade tomorrow.
53:46So the ASX futures will be the price at which those people are doing those deals. So they think that tomorrow by closer trade, the market will be at a number that's half a percent higher than it is now or was on Friday afternoon. That's all it is. It's literally all it is. You can buy futures out further. There are other so-called derivative contracts or derivative products. Derivative because they derive their value from something else. So you can have an option on buying shares in Woolworths in three years' time at$60 or selling BHP in six months' time at another current BHP share price, $20 or$60.
54:25It's sophisticated gambling in a suit and a shiny office, which makes it seem like it's reasonable. There are limited reasons to do it, almost entirely made up. Physical products, physical features I think are great. Other features I think are just ridiculous and they should be at the tab rather than at the stock market, but that's just my view. Ram, that was a bit of a rant slash answer. Do you have anything you want to add to that? Look, there are some legitimate use cases for that kind of stuff. Oh, come on. You don't normally mention your words. I'm normally the one who's doing this. like maybe you've got some shares as collateral you know as a large financial institution you want to make sure the money is there for a deal that you're looking to make in the in the very near terms you just sort of want to hedge out your position so that any near term volatility is not going to impact you you know the price you're going to get yeah you know the price you're going to get same in the farm I will say that's something I didn't mention is currencies people do that the same way if you're going to take a shipment of tuna in the month's time, and you've got to pay a certain number of Thai Bart for that tuna, and you've got a certain number of Australian dollars, you want to basically know you can convert the money to Thai Bart at a given rate so you can make that payment at that point in time.
55:37There's some value on that too. Even outside of that, I get to... I guess it's ideology, but I kind of think... Look, I'm not a big fan of gambling on horses, but I'm not going to outlaw it. you know i should should people do it i wouldn't i don't i don't muck around with that kind of stuff um even where there is legitimate use cases like you know there's a lot of degenerate just gambling on that but you know your money you want to do it that way and you know fill your boots i say um i'm not when i say abandon i i think it's it's a corruption of the system i don't think i'd actually i don't think i'd bother of all things i would change or ban or bring in or whatever i don't think this would be one on top of my list just i i think it's it's a distraction and it's useless and it adds very little additional value and if the market didn't have it we'd be perfectly fine yes a more i'm almost not a way of me putting it yeah i don't i mean it's a folly but it's just a folly i'm not going to participate in but i i don't want to yeah and you know i'm not saying you said this but i i wouldn't want to stop others from doing it if if they wanted to do it you know um i buy a lottery ticket every week i pay that i pay the hope tax you know is that a right tax Actually, you've upgraded your tax name now.
56:52Yeah, hope is less confrontational. The PR team's been working on that one. Oh, but it just, you know, is there any rational reason for me to do that? No, but I'm happy enough to do it. I mean, I'm not sitting at 3 a.m. at the local leagues club, like putting, you know,$800 into a pokey machine either. There's a spectrum along that line. And maybe at one point you have, I don't know where sort of futures trading comes at that. I tell you what I am against is you see from time to time people on YouTube or wherever offering courses to trade futures and stuff. And that I'm really against because they are misrepresenting the severe risks there.
57:39They're attracting people who tend to be a bit desperate and aren't a little bit naive in the ways of these markets. And you always think, well, if it was that easy, why aren't you doing it? You're making your money by selling a dream to someone and a system and trade FX and look out. I work two hours a day from home and here's my Ferrari and I do it all because I paid for this course. And they're like, I'm really against that kind of stuff. So buyer beware on that. Yeah, but it's out there. We'd have the same discussion of short selling and all the rest of it. I wasn't going to mention that one, but you're right.
58:14Yeah, yeah. It is a – I mean, how paternal do we want to be? And I really do flip and flop on this because the example I gave with all these dodgy operators selling futures trading courses and stuff, you know, it's like should we ban them? Like I probably have some sympathy for that because I think they're all scumbags. But then people say, well, then maybe we should ban this and ban that. And it's just like, oh, it's a very slippery slope. It's a very slippery slope. So I actually, it's a tough one. But in terms of what we're talking about here and now on the podcast, to those that are listening, you know, you do what you want to do.
58:54You're an adult. It's your money. But I wouldn't do it. Yeah, exactly. I wouldn't do it. Yeah, the band thing's funny, mate. I'm actually really happy being in the middle of a slippery slope. You know, I think the argument, the slippery slope argument is generally used to be we can't do this because that might happen. it's like you know uh and that's kind of you know if we people say if we increase taxes then government will take all their money away from us so well guess what sport there's already been taxes for you know 100 something 200 years you know it hasn't been yeah but it's going to well okay sure you know like so we should have no tax in case one one element tax means government take all their money that i think i think i think there is you're being very generous mate and i and i appreciate that um i'm okay on the slippery slope it's like you know what i i'm i'm i'm a pragmatist right i'm not an ideal guy my pragmatist and it's simply a case of maximizing the gains minimizes the losses governments do it every day that's what our laws are our laws are i will stop you doing that thing i was thinking about the other day you know cpr signs in pools right i was literally this is this is how bad my life is i was laying in bed at some ungodly hour because i woke up and i was thinking to myself i wonder what the roi is in terms of lives saved based on the number of the amount of people spent on cpr signs in pools because you have to have one if you've got a pool right you got to put up on the thing so this is i don't know why i'm thinking about this i just am and uh i don't know the answer to that right i'm i don't i don't mind doing it because it costs five bucks for a sign and if it saves a life then you know who cares but there is to your point a slip what else do you do we've got pool fences okay you got the signs okay what else do you need what shouldn't you need what should you need all that kind of stuff and it's every home pool should have a lifeguard on on june right exactly really okay no no no kid under 18 will be allowed in the pool unless a parent is within five meters of them yep no pool should be deeper than 10 centimeters exactly exactly and so so the but that doesn't mean we shouldn't have pool fences because we because we you know so it's i i think we i think it's i think it's okay to be pragmatically picking a spot and saying okay we acknowledge there's no perfect we're talking about again on friday there's no perfect answer to this all we can do is use our best judgment and say on the balance of i'll say return on i'll say roi i don't mean literal physical cash return on cash money but based on what we ask people to go without or to have to do or to do more of or less of or whatever it is for the outcome i want then there's a there's a return there's a there's a potential return and if i can make that work is it worth a sign in my pool so that some kid doesn't drown in western australia in two years time to my mind absolutely now i know cpr is there a chance that someone dies in my pool and there happens to be a sign there and the person who happens to be there, happens to see the sign, use the sign to save someone's life?
1:01:29Maybe. And if it wasn't there, I'd feel terrible. But as you say, if the pool, maybe it was less than 10 centimetres, I'd be okay too. So then what do you do? There's no perfect answer. I think this is where good people, let's get philosophical, good people with goodwill find an answer or work out what combination of factors. Where do we draw that line? It's a fuzzy line. It has to be. I think that's okay. I don't, well, would i ban them probably not because that that's overreach terms of nanny state stuff i think i would i would i would actively discourage anyone from ever doing it would i ban it probably not short selling i might honestly um would i do it for futures contracts probably not um and again it's on the basis of who's doing it what's the impact that i mean cfds for example contacts for difference have been effectively banned because they were you know it was effectively their gambling product being offered on the ASX.
1:02:23God, I hated CFDs. You know what I'd probably do with futures? I'd probably make them go to a different exchange. And of course, you can do that, but let's not pretend this is investing. You know, there's a lot of - You've got to sign a form that says, I, Scott Phillips, acknowledge that this is hyper risky. Yeah. And I am doing this in full awareness that the vast majority of people lose money doing this. And it might not be sports bet, but it shouldn't be the ASX either. You know, this is not investing. And, you know, so can you actually say yes? Maybe there's a higher brokerage or maybe there's a, I don't know.
1:02:58I don't know. I think there's more we can do to help people not fall victim to, frankly, the shysters and the charlatans and the spruikers. And we shouldn't do all those things. Should we stop them arbitrarily, forever doing it if they want to? I don't think so. I think as long as they're properly well-informed and understand, and as long as they're not incapacitated in some way that makes them more vulnerable than average to be taken advantage of. But I think in those circumstances, you'd probably leave it. But let's not call it investing on the Australian Security Exchange. Let's call it, you know, I don't know, what do you want to do with it?
1:03:30But the nudge thing, I think, of behavioral psychology probably helps a lot here as well. Yep, yep. I like that. On that philosophical note, mate, I reckon we are done. Mate, will you join me on Friday? Yes! Yes. Oh, you know, it's a highlight of the week, so you couldn't stop me if you tried. There you go. It is mine to email. Email. Start again. Ask at info at fool.com.au. If you want your question answered on the mobile, we'll do our level best to get it done. Until next Friday, when we have a chance to rant and rave and carry on and hopefully make your lives a bit more interesting, a bit more fun.
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