Mailbag: incl Is it time to cut and run? June 15, 2025

26:34Yeah, absolutely true. But could you imagine if you did the exact same thing, you just did it two years earlier, and then you're going, oh, my gosh, I am God's gift to investing. This is brilliant. Okay, I put a bit of money. I need to go all in. sweetheart you know what we need to read what are we wasting our money for here offset account i've just made 30 per annum and i'm new to this like warren buffett only got 20 percent compound like and and i i i know people who've been in this situation and so you double down right at the top and it all falls away and so when you when you have a more challenging start it's a nice reality um what's the word for it it's like wake up call reality check thank you where you kind of go, oh gosh, this is a bit harder than I may have envisaged.

27:20And it forces you to reconcile your approach, to think about it, to put more work into it. It actually builds stronger foundations. So don't beat yourself up too badly on that front. Also, frankly, if you consider a 6 % loss, I can tell you there are people who have lost all their money or 50 % of their money because they they did it the wrong way. So if you've come to a certain epiphany, having lost 6%, and look, you're right to talk about it anonymous relative to the benchmark. You're not comparing it against zero. It's still not a tragedy, I guess, is what I'm saying. And I think the first step to change is recognition.

28:04And you've obviously had that. I would say stick at it, though, because of course, it's going to take time to get good at it. And here's the thing that's going to be super, super, super frustrating and difficult is that you can actually, it may have been that you actually did everything right and you're still underperformed. That's right. That's right. And I can tell you, oh, look, I'll happily brag my long-term performance is pretty good. But I can also tell you that there have been many, many multi-year periods where I have significantly underperformed the market. And that's true of all investors, really, like even Buffett himself or We always mention Bubba, there's a thousand other great investors.

28:41They all the same, they're irregular periods of underperformance. So it is par for the course. So the hard part is, did I really get it wrong or is it just that it hasn't borne fruit yet? And as I say, sometimes you can do great results by doing the exact wrong thing. So it's super hard.

29:05Yeah. Now that you've gone mostly in ETFs, it's hard to go too wrong there, at least on a relative basis. And you can just leg into the direct stuff more and more as you build the confidence and the skills and et cetera, et cetera. And so I've always said it's not a black and white kind of thing. So I think you've done well. and just remember when doing the post-mortem, and this is hard because your ego is always going to try and push you towards the more favourable interpretation of things, but did you get it? What did you get wrong specifically? And was that foreseeable and something that you could have avoided or was it just one of those things that in a probabilistic game you're just not going to get it all right or what, right?

29:51And it may just be that the market is wrong here in certain situations and it might take years for it to recognize that you're actually right. And yeah, so I'm babbling at this point. What about you, mate? What would you say? I think you're spot on. The one bit of extra advice I'd give our listeners is, and this sounds difficult to the point of impossibility, but probably then talks about portfolio weightings, is I would ask them to think about why they thought they would beat the market using the investments that they bought, which sounds both obvious and difficult at the same time. So I imagine this is not anonymous as issues, but imagine you says, look, so what I did, I heard you guys talk about investing.

30:38So I went and bought 15 speccy mining stocks and a couple of biotechs and I lost money. And so investing is not for me. Now, I would say that the approach of trying to invest, picking stocks, adding, compounding, building for your future, that's all great. But why did you choose those companies? And I guess this is going to sound even harsher, but why did you think you could beat the market? And I don't mean don't try. What I mean is early on, what approach are you bringing to the table that you think gives you the chance to outperform the market? Because if you don't, I don't want anyone to listen to this podcast and invest and say, the guy said it's possible to beat the market, therefore I'm going to go buy some stocks and see if I can beat the market.

31:16I mean, that's what you do. But in between those two bits is, so I'm going to learn about investing and decide what approach I'm going to use and why I think I'm going to beat the market using it. And that's a really, really, really, really, really hard thing to do. And I have had plenty of mistakes and found a way to be market beating so far, touch wood. But that doesn't mean we don't make mistakes. Totally, totally right. The last 12 months, I can give you six or seven, right? Exactly. But despite that, I guess, you know, so we have found a model that works for us so far, and that's about as much you can ever do.

31:52for anonymous you bought some stock did you buy you know what why do you think those stocks were going to be market beating and and really ask yourself and i always do this when i send people ask yourself these questions they're easy to answer right oh because they're great companies okay well then ask you that the old toyota do the five wise why are they great what makes them great companies and really interrogate your stock picking process try and find a way to test that either against others who've been successful or man kind of already mentioned with the etfs use really small positions to see if you're right about those things.

32:22You could have been someone who said, you know what, I am going to beat the market by buying the big banks because they're great businesses. They've been really profitable. They pay a decent dividend yield. And five years ago, you would have done that and you would have lagged the market and probably lost money overall. And you kind of think, well, hang on, that's what I thought I was doing. Now, my question would have been then, why did you think they would continue to be great businesses? What elements of their business were going to keep delivering market-beating performance? How was their price relative to that view.

32:48And again, I know these are unanswerable questions in absolute terms, but conceptually you've got to have done that work. So I don't want to discourage Anonymous at all. But what I do want to do is say, I bought some stocks and I'm down. I thought I was supposed to go up when I picked stocks. Remember the average stock does the average market. And so, by the way, over a short period of time, over 16 months or whatever it is, that's a blink of an eye, as Ram's already said. That's an absolute blink of an eye. I've had some horrible years and I've had some really good years and I didn't pick either of them because no one can forecast share price movements.

33:17So honestly, in the short term, the last 16 months, I'm obviously telling you absolutely nothing about your ability to pick stocks, I've got to say. Now, if you've learned some lessons, that's fine. But in some other circumstance, we're using hindsight bias. You say, oh, these are my four errors. In a different 12-month period, Mineral Resources was on a tear. Dronesew was on the up phase of its meme stockness. The company's pre-revenue might've got the attention of someone and gone to the moon. and you're like, oh, I'm so clever. What I'm going to do is go more overweight into more companies.

33:46I'm going to buy even more meme stocks. I'm going to buy even more pre-revenue stocks because I'm really good at this. This is working really nicely. And so I know I'm absolutely deliberately not trying to come to an easy answer here. I'm deliberately trying to say it's complex. 16 months is not enough. Ask yourself why you think your stock picking process is going to deliver you outperformance. Until you answer those two questions, I would say keep your positions relatively small. Give yourself the benefit of time. Don't put massive lump sums in hoping that it's death or glory from these first buys.

34:16Add to them regularly, as you said, but leg into them as you develop confidence and conviction and as you've proven out your style. How long should you wait? Five years probably, I think. If you're, ignore the ETF portion of your portfolio, don't give yourself credit or blame if that goes well or badly. If I was investing for five years and I look back and went, you know what, I've not managed to beat the market or I've lagged by a significant amount. I reckon it's probably time to either change strategy or wave the flag and jump in ETFs. And again, remember, that's not a bad thing. That's a really good thing.

34:48It's not as good as beating the market, but giving the market return is very, very good. I was just looking at, I haven't looked at DroneShield for a little while. It's doubled in the last three months. After being down what and up what? So exactly right. This is the thing that it's just, everyone gets until they actually step into the ring, right? It's sort of like, everyone wants to buy DroneShield when it's insanely priced. That's right. You know, it got to$2.50. I mean, why? It was winning lots of contracts. The future was bright. Big sales pipeline. No one was questioning that the business has got some good traction and momentum and the future looked pretty bright at that stage, but it just got bit up to a stupid point.

35:30And then all of the hot... Super fast too. It's always easy come, easy go. You attract the wrong kind of shareholder who's just there for a good time, not a long time, right? And the second that that stock stops going up and to the right, they sell out. So it went in a very quick space of time. So where are we here? So we're on May 2024 was at a dollar. In July of 2024, it was at 250. Right. And in August, it was back at a dollar. Isn't that crazy? Did the business change during that time? Yeah, there may have been some news that came out that may have reasonably altered some of the outlooks, whatever, but it didn't.

36:08It didn't two and a half X and then drop by 60 % or whatever it was. Like, it just didn't. And this is, again, it's always frustrating, can be frustrating, but I always make the point that, no, this is good because all these idiots out there doing this stuff is what creates the opportunity. Now, I didn't do it myself. I wish I had kept a close eye on it because things got so beaten down where all of the, you know, the speculators just got washed out. It got all the way down to 60 cents earlier this year. And then I just opened up the most recent presentation. I need, again, analysis on the fly, and there's always devil in the detail.

36:47This is a business with zero debt,$213 million in cash. In the first quarter alone, they sold$33.5 million worth of products, half of which was recurring SaaS revenue, and they've got a$2.3 billion sales pipeline. Bear in mind, I suspect that they're still not making a profit. There's a lot of growth investments. The sales orders could dry up, et cetera. There's lots of examples of things looking good and then being really terrible under the surface. So please, please, please, please do not at me or say that, oh, Andrew was talking favorably about it. What I'm just trying to say is the share price is not going to tell you much about the merits of the investment.

37:25It's going to tell you perfectly what everyone else thinks about the investment. But everyone else is often wrong. Yes. Right? So we talk about, can you beat the market? Yeah, that's how you beat the market. It's just not following everyone like a lemming off the cliff. Oh, I can't tell you the number of friends and family I got text messages from when drone fuel was a thing. All right. I should buy drones, Ukraine, war. Like that was the investment. What's your investment thesis? Shares are going up. Drones are the future. There's a lot of uncertainty in the world. That was the investment thesis.

37:55It's like, okay, cool. What do you think they'll do in profit in five years time? What? More drones, baby. You never looked at it. And I'm not trying to, like, it sounds like I'm trying to have some kind of a superiority complex. I'm just saying, make sure that you've put some work in to have, to validate that opinion. To just say the stock is going up and it's a good business. If that was that easy, we'd all be Warren Buffett, right? Like, it's obviously more complicated than that. Now, whatever you can say about DroneShield, I'd tell you this much, good or bad, I would much prefer to buy shares at$0.60 than$2.50.

38:33Yes. And by the way, you could have bought at a dollar thinking$2.50 was dumb. I'm just, I'm using, again, this is more of an illustrative thing than an example, more than anything specific that I actually think I've done a lot of work on this. I think this is a decent business. I think it's probably worth$2 in five years time, something like that. My gosh, shares were$2.50, they're now$1. I'm super interested. And let's say for the sake of argument, you're right on your analysis. And you go, I'm going to buy and I'm going to buy, I'm going to back up the truck here. This is a great, this is a great opportunity.

39:04Thank you, irrational, you know, bipolar, Mr. Market. This is brilliant. I'm going to do it. And you load up the truck and then you watch it go 40 % down. Now today, are you upset? Probably not. Was that an easy thing to endure? No. And a lot of people will go, oh, I'm out. Again, purely on the basis, like everything was right up until that point. It turns out that a dollar was a good price. It was a bargain, but you couldn't endure the volatility. So you got the hell out. The hubris, the hubris to think that the moment that you buy is the moment the rest of the market goes, oh, we've oversold.

39:41Now it's time to send it back up. It never happens. Anyway, there's a lot of lessons in Drone Shield. There is. I'm going to add to yours very quickly and we'll move on. But Drone Shield's a hypey meme stock. Maybe there's a business there. Maybe it's not. Maybe it's wonderful. Maybe it's not. Let's talk about Woolworths for a second. and this is just to help Anonymous because Woolies started, I'll just pull up a 12-month chart. A year ago, the shares were$31.13. They're now$31.55. That's a gain of 1.35 % plus dividends on top of that but it's not really relevant for our analysis. So$31 at the beginning of the year.

40:14Three, four months later, they're at$36.62. Now that's a 20-odd percent gain. Not brilliant but it's Woolies, right? So you're up 20%. I'm so good at picking stocks. This is amazing. Yeah. Someone else says, I'm going to buy shares at$31. $36 goes past. Only in March this year, they fell to$27.88. So now you're down 15%. Oh, bloody wool is terrible stock. I've lost some money. And now they've gone back from$27 back to$31.56. Now, if you hold them for 12 months, you're up 1.5%. You're thinking, eh, whatever. Stuff happens. If you bought them at$31, sold at$36, you think you're a genius because you made a 20 % gain.

40:52You bought them at$36, they went to$27, you lost a quarter of your money. You think you're an idiot. You bought at 27 and now at 31. I was so clever. The companies did basically flat over a year. Everything in between that was just, and again, to Ram's point, maybe there were announcements about what it was doing, but this is woolly, so probably not. It's a very, very, very simple business. And even that, the fluctuations, 20 % one way, 25 % the other way. During the year, if I'd have bought shares at 31, they went to 27, I'm thinking, I'm down 10%. I'm a terrible investor. They go back up to 31 thinking, oh, now I'm flat.

41:23I'm not a bad investor. Especially if the market's rising during that time. too. So it's just time. So you absolutely should measure yourself over long periods of time. I think five years is about right. If you're doing well, don't assume your stock process is fantastic. If you're doing badly, don't assume it's terrible. Try and judge as objectively as you can and give it time to play out. And that's why you write it out in advance. I am buying this company because I expect, I think, and generally right, not specifically wrong. There doesn't be 12 decimal places behind every forecast that you have there.

41:56And that's the case with Woolies. For me, it's always been, love it. It's going to be around for forever. It's a mature business though. You know, sometimes Coles will win on the market share front. Sometimes they will, but I probably suck the thumb, at least system level growth over the next decade. I say, let's call that three, five and a half percent. Let's say that there's a productivity improvement in there. Maybe they and get four or 5 % kind of growth. That's going to be the basis for where I think profit will be. What's a rough average multiple to apply to that? Boom, there's my target price, discount it back.

42:29And then I've got a line in the sand and it doesn't mean that I'm going to have to wet everything to that, but I know what needs to kind of happen for this thing to sort of play out. And then to go throw your hands up in the air because Trump tweeted something out in the market, you know, threw its toys out of the cot and Woolies is down 6%, you know, a month later. It doesn't mean anything. But if you've kind of gone, actually, it was based on this, and it turns out that they've been cooking the books for the last five years, and they've got this massive off-balance sheet debt, and blah, blah, blah.

42:59Okay, it's clearly broken. I know it's broken because it wasn't in my original plan, as opposed to, yeah, okay, price has done what it's done, but my thesis was always this, and that is pretty much on track. And if that's pretty much on track, why would I do anything else other than perhaps buy some more because now it's even cheaper? Correct. Doesn't it have to be much more complicated than that? No, it's not. It shouldn't be much easier than that either, by the way. So do the work, which is kind of my point. But yeah, exactly. Yeah. And if you can't, if you can't, well, I'll make the point because this is generally the case for me.

43:29It's like if you, people will, because I say this to friends and go, yeah, but I don't know what they're going to do in the future. It's like, well, don't invest in them then. Correct. 90 % of stocks that come across my desk, I don't invest in them because I hate them or I think they're definitely going to fail. I just don't, I don't know. It's like too hard basket. Like, but don't tacitly admit that you don't know and then buy the shares anyway. Hope is not an investment strategy, as I like to say, right? Like that is, wait till you get there. Wait till you build conviction, then make an investment.

44:04Then you cross the fingers and make a few general statements, general truisms and invest. That's how everyone does it. And we always wonder why the average investor does poorly because of that. I remember the DTFs available in the meantime. You don't have to not invest. You're not missing out while the market's going up. If you're worried about... If you don't want a stock to buy, buy an ETF. And then if you decide you want to buy the stock and you like it more than the ETF, sell the ETF, buy the stock. Don't get paralyzed. The other thing is, you know, yes, do the work. Don't paralyze yourself.

44:31Don't sit with money in the bank for five years where you wait for some ability to accrue. Diversified, low-cost, index-based ETFs for the win until you've got a better idea and then put the money in the better idea. So easy. Yep. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

44:53I'm at Brando says, hi, Scott and Andrew. Thank you for the podcast. I listened to it from my pod machine in London at double speed. Nice. Thanks for listening from London. I wanted to ask a question about the difference between stock picking, ETF investing, and buying conglomerates like Berkshire Hathaway. I should say I own shares in Berkshire Hathaway and Solpats. I mentioned them both. I didn't mention it before. Not that it was relevant, but I should do it. I don't really have the temperament or time to research and pick individual stocks, so I lean more towards ETF investing. That said, I do have some concerns about the market overall.

45:23It feels a bit frothy right now, and I'm wondering whether we might be heading into a longer period of lower-than-average returns. In that kind of world, where market outperformance is harder to find and the market average is potentially underwhelming, do conglomerates like Berkshire Hathaway or even LICs like Solpats offer a compelling middle ground? Further to this, on a recent episode during a chat about AI, you mentioned it could reduce the number of inefficiencies in the market, making it even harder for stock pickers to outperform, and that we might see returns converge more closely with the index.

45:55But if the index itself is offering a lower risk premium than that environment, doesn't that create a bit of a conundrum for investors? We'd love to hear your thoughts. Cheers, Brando. Let's go with the first question first, mate. If the market's frothy, is there an opportunity to buy Solpats or Berkshire or something else? Is that a middle ground between picking stocks and buying ETFs? Yeah, I mean, I agree with the general sentiment. I think things are reasonably froth, maybe not frothy, but they're certainly... Look, I make an objective statement rather than a subjective one. If you look at things like the cyclically adjusted PE ratio for the market, it's just at the upper end of the range.

46:31Now, normally that thing mean reverts. That doesn't mean it will remain revert and doesn't mean it won't get more frothy before it starts. There's the challenge. You can't use it as a timing tool. All you can do is just say, listen, at least relative to the historical context, valuations are up there. And often when that happens, every time that that happens, more or less that thing tends to revert. By the way, it doesn't have to revert because share prices come down. It could be the earnings growth really accelerates. So there's nuance to all of that. But the other thing I will always say, and is always true, In the frothiest of frothy markets, there are always bargains.

47:10And in the most bombed out bear market, there are overinflated hype stocks. Always. And that is the one, or not the one, that is one of the good advantages of being a direct investor is that you can go to where the opportunity is if you feel as though you can stiff it out. So that's great. So yeah, don't let the overall perception of frothiness dissuade you from stock picking if that's what you want to do. Now, you've just said it's not for you, not your cup of tea. So know thyself is the first rule of investing. And there's no harm, no foul there. Whether it's the ETF, with the ETF, and I'll just assume you mean the broad-based passive index tracking, the major index tracking ETFs.

47:51I mean, whatever you can say about them, one thing you can say is you guarantee the market return, whatever the market return is. Listed investment companies or things like Solpets and Berkshire, they have far more discretion. Like they're not guaranteed to get the market performance. Historically, they've done better than the market performance, but that's no guarantee either. So it comes down to a, do I take the guarantee of market average, whatever that is, or do I take a little bit more of a chance and put some faith in the people who run these conglomerates to do better? And sometimes that faith will be absolutely justified, others it won't.

48:28And so I can't tell you which is, you know, is Solpats going to outperform the market over the next 10 years? I don't know. history would suggest they've probably got a good chance at it, but I should let you speak to it, mate, because you know it far, far, far better than I do. But that's really the conundrum. I can't give you a definitive answer on that. That's the bet. Can they do it? And it might be that the Milners just have a complete brain fart and start investing in all kinds of stupid things and the whole thing collapses within 10 months. Or they could invest in the next big thing and be the best performing stock over the next 10 years?

49:06Super helpful, Andrew. Thanks. Thanks for that.

49:13So if you're not going to pick stocks, I would lean on dollar cost averaging and not worry about whether the market's frothy or not. Because sometimes the market feels frothy and sometimes it is. Sometimes it feels frothy and it's not. And so if you're kind of taking a view which is I need to be a bit passive as an investor, because I don't want to pick stocks. For most people, I can't do it. You do Brando as always. What most people should do, in my opinion, is simply go and dollar cost average. Trust the diversification. Trust the process. Some months will be higher. Some months will be lower.

49:47Some months you get more units. Sometimes you get less units, fewer units. Over time, you'll add up nicely. You'll be fine. Trying to guess... Problem with... I don't mean this about you, Brando, but if it does apply, then feel free to take it on board. People like to have a view on these things, even when we have no right to have the view. And so my honest, I don't have a view on the market. And now Andrew does, and so he's different to me. If you're not - It's got a strong view, by the way. If you asked me, right. If you asked me and said, oh, I'd probably go, well, let's hire or lower than average.

50:17So it's probably not as attractive as it has been in the past. Something like that, right? So kind of what you said, Ram. Would it stop me investing? No, because as you said, maybe price is full, maybe earnings rise. I'm not entirely sure, frankly, on the cape, the cyclically adjusted PE ratio, that we're not just seeing more value being accrued to larger companies and there's more growth in those companies in the future. Think about the likes of the tech giants that are going to do things. Now, maybe it doesn't happen, but could I imagine a scenario where the PE is higher because the market's correctly imagining they're going to create a heap of value in the future?

50:51Yeah, absolutely. Does AI become a huge money spinner and profit maker? Maybe. I don't know. But if it does and the PE is higher now, that makes sense. Remember, Amazon's PE was sky high for the last 25 years. Why? Because the market guessed, in this case, absolutely accurately, that it would become a behemoth. So a high PE isn't necessarily a bad thing. It's not a bad thing if the company can't deliver on the expectations of the market. So is it frothy? I don't know. I really honestly take so little attention to market. I couldn't even tell you what the current market PE is. I don't know what it is.

51:21I could speculate and guess, but it'd be a complete guess. So I don't worry about it. I'm not saying you shouldn't, but I just, I don't think there's a lot of value in. Here's the other thing. If everyone could do that accurately, people would buy and sell and buy and sell, make a fortune trading the market. They sell when it's high, buy when it's low, do that over and over again, make a fortune and live in the Bahamas. How many people do that? Very few. What does that mean? It means it's really, really hard. The last couple of months are a great example, right? Trump tariffs. I have people on Twitter saying it's time to sell everything because Trump's going to change the world order and everything's going to go.

51:50Democracy as we know it, a couple of years we know it, it's over. Maybe they're right, maybe they're wrong and I don't know, so why bother? you know it turns out the market's made back almost all of the losses in fact as of wednesday the s &p 500 was back in positive territory for the year um for all of everything we've seen so i don't know just trying to interpret those things and turn them into market forecasts as a gutsy call i would dollar cost average that being said i also own soulpats and berkshire so why would i say i'd dollar cost average well if i'm not going to try and pick socks dollar cost average i think berkshire and soulpats are market leaders otherwise i wouldn't own them I could be entirely 100 % completely wrong.

52:27It's a bet on the people, it's a bet on the culture, and it's a bet on the businesses they already own. Particularly Berkshire. Berkshire is a massive amount of people talking about Buffett's stocks he buys and sells. It's a relatively small portion of his total Berkshire market value. Why? Because they own a heap of operating businesses they wholly own inside that thing. Do I think that Berkshire has bought good businesses at good prices? Yes. Do I think Buffett's built a good culture? Yes. Do I think on balance that's likely to do better than the average investor because Buffett's better than the average investor?

52:56Yes. Okay, that's enough for me. Solpats, similarly, great culture, great people. Could it go badly? Yes, absolutely. They could mess it up. They could make a big bet. Problem with growing asset managers, by the way, is they've got to make bigger and bigger bets each time because their capital base grows. And so as much as you might have got the last four or five right, you get the next one wrong. You can wipe out most of the gains of those four or five. So it's nowhere near a zero risk investment. I like both those businesses. I like the management teams of both those businesses. I think they'll be fine to good.

53:25Perkshire is massive. It can't outperform by any significant amount anymore because it's just so big. But could it? Yes. You know. Would I buy them instead of an ETF?

53:37No. I would probably do them as well. Sorry, I own ETFs and I own those too. So there you go. I would do it as well as if it was me. I have in the past suggested to family members that they buy Solpats as a non-index proxy for the Australian market on that kind of single investment. We talked about it. I think we have yet. We will talk about it in coming episodes, the banks and miners and ETFs including those. For me, it was like Solpats was a better alternative to an ETF if you're going to buy one thing. If you're going to buy more, buy Solpats and an ETF or something else. Yep. What about AI?

54:14I was just going to say, yeah, the thing that the DCF is super powerful. So you'll find a whole bunch, you can do the example yourself, but you could say I am investing at the peak of the pre-GFC market in 2007. Now the market fell 50%, it was horrible. And it depends how much you front load it, like how much is the initial principle versus the amount that you're averaging in. And obviously the less it is up front and the more you average in, you very quickly get into profit very, very soon. But even outside of that, like you look at the chart and you go, wow, the market peaked in November, when was it?

54:51October of 2007. And it didn't get back there until 2019. I'm excluding dividends unfairly because I just don't have the total return chart up at the moment. What a disaster. If you had invested, then you've pretty much lost a decade worth of investing. It's like, yeah, if you only put all your money in on that day, you start doing dollar cost averaging to any extent, you're in profit very quickly, right? So we often say there's no free lunch when it comes to investing, but modest diversification and dollar cost averaging pretty much is a free lunch. No, right. It really does protect you from yourself and the unknowns of the market.

55:28So yes, do that. The other thing I would say in terms of, am I imagining this, but there was questions in regard to or inference in regard to if the market is so frothy, where else could it go? or maybe not. I'm wondering whether we might be heading to a longer period of lower than average. Oh, yes, yes, yes. So let's say that's true, right? You've got to remember, let's look at all your options here. Let's look at them all. You've got equity, you've got property, you've got fixed interest, you've got cash. And I'll ignore the other one for the moment, right? So you've got those four ones that are out there.

56:00It's like they're all downstream of equity. They're all downstream of equity. Equity is just a fancy way of saying business. So if business is doing really, really, really bad, the economy's probably not doing great. And bonds probably aren't going to be a great place to sell your money because interest rates are going to be super low, right? Cash is probably not going to be, I mean, relatively it's okay, but it just does, it's not, cash is not productive, right? It just doesn't do anything unless you lend it out and then you're taking risk and then you go back to the sort of the fixed interest conundrum.

56:27And property is obviously downstream of it as well. And business is going well, the economy is going well, property prices will generally be higher as a consequence of that kind of stuff. So even when you have a reasonably bearish equity long-term equity view, it's kind of like, all right, what else are you going to do? Do you think that there's a scenario out there where the equity markets are just bombed out for the next 10 years, but property or fixed interest goes really well? Like, we're all tied at the hit. Everything is connected. You know, it's the Dirk Gently thing, the fundamental interconnectedness of all things.

57:00It's very much a thing when it comes to finance and not just quantum physics. I will say, in Brando's defense, he wasn't suggesting other assets saying he should go No, he wasn't, I imagine that. rather than the ETF. Yes, sorry. I did a map. But I want to make that point though because I've had that comment come up a few times. Like the market's really frothy, so I'm going to invest in this. Now there are, look, when you're on specific assets under those broader asset classes, yes, absolutely. I've just made that point earlier, in fact. But as a general rule, it's just they're all going to be related in one way, shape or form.

57:32Yes, I think that's probably right. Let's talk about AI. We talked about AI possibly reduces the opportunity for outperformance. Do you have a thought on that one in terms of – he's saying there's a conundrum for investors that's lowering the risk premium because everything kind of converges back to the center. Yeah. Is there a – he doesn't explain what he thinks the conundrum might be, but does it give you a so what? Yeah, it's a hard one to wrestle with. It seems like all the takes on AI are first order. In other words, oh, they'll make business more productive. That's good. It's like, yeah, they're going to be more productive because they don't need you and large segments of the population.

58:12So great for that individual business, but it's hard to worry too much about your investment returns when you're unemployed. So when you're looking at a civilizational wide technological step change, which AI potentially, we don't know, it might fizzle out at this point. But I know it looks pretty promising. Yeah, it's more the bigger impact that it has beyond. It's very easy to sort of say, oh, this will be helpful for business. But what else? And here's the other thing as well. I've made this point before, but I'll make it again, which is, you know, email and having a web page was great for business as well.

58:54But if all your competitors have access to the same technology on a relative basis, there is no advantage. Yes, you're more efficient, but so is everyone else. So where's the excess return? I've long said, and I haven't yet had anything that will dissuade me of this opinion. So at the moment, I'm going with it. Subject to change, as always, as the facts change, I change my mind. If you're really interested in AI, don't just be excited about a company that's using it. be excited about a company that has proprietary data sets. Yeah, go tell me. Well, that's what AI eats. AI eats big data sets for breakfast.

59:38That's what it's good at, right? So I want a company, and I can get a ChatGPT subscription and point it at some data and make things better. But if that data is available to everyone, someone else is going to do it too. The advantage, the edge is going to be arbitraged away. If I'm the only one that has access to this startup, I'll give you a few examples. So ProMedicus, they do a bunch of medical scans. Wow, they have a huge library of medical images. Jeez, that sounds like something that AI might be able to take advantage of. So there might be another company out there going, we're using AI and our medical images are great.

1:00:16You've got one terabyte of images. These guys over here have 4 million terabytes of images. Who do you think is going to have the better trained model with the better results? and as they get better results who do you think is going to use them and as more people use them they're going to get more data if you're catapult for example and you're the one collecting all the data and all these elite athletes like that seems like something that might be helpful for ai so it's just like i'm not please don't run out and buy those companies please for the love of god don't do it just because i mentioned it and you might have other other other points of view on that but that to me is far more interesting than a company that says and i and trust me we We speak to a lot of CEOs and AI is the new black.

1:00:54All of them are, oh, we're using AI. We're using AI. It's like, yeah, but I'm like, why wouldn't you for one? It's like saying we're using electricity. Good for you. So is the rest of the world. Show me how you can use it and exploit it in a way that your competitors can't. Now I'm interested. Does that make sense? It does. Yes. I'm still going to get back to the question in terms of... No, no, no, no, no. I'm trying to give it... No, I want to give enough room because you're right. I think that's... And then there's just the general what businesses are hurt by it and what does it do to competitive differences between businesses?

1:01:33Some it'll expand. To your point, others will contract. But I think, yeah. So I think that's all true. I guess, as we always say, there's the business and there's the investment. To the extent that that's true for Catapult or ProMedicus and the marketer who knows it and or AI can help people know it, what's left for stock pickers to pick over in a world where there is potentially either more efficient pricing in general or I think what Brandon's getting is effectively lower risk premium because you don't need the risk premium because the future is, in theory, in an AI we're more certain or less uncertain.

1:02:09So that kind of idea of who risk premium is because we might be wrong because businesses might fail and other things might happen. In a world where he thinks lower future returns in general, because we're at an elevated level, and AI makes stock picking harder, what does that leave for stock pickers to do? Yeah. I mean, that's more of a question on how good AI gets. So there is on one end of the spectrum, there is an advanced general intelligence, the so-called AGI, the so-called singularity that not only achieves human level consciousness, but then iterates on itself to have something that we can't conceive of.

1:02:43Human, And, you know, sort of like comparing a chicken and a human. Give me the world's smartest chicken and the world's dumbest person. There's no competition, right? And it's just sort of like I don't really care what the world's smartest chicken thinks of the future earnings capacity of soul pads. So in that world, like, yeah, it's going to be – I imagine the future becomes so clear and visible to a hyper super intelligence that there's not much room for us humans. that's a very extreme view though right and i think at least for the the medium term who knows because these are these are non-linear kind of things and i actually had a podcast the other day with the guy behind alpha go and they just basically saying agi is 2032 and it's like you have no idea what's coming and he's doing this been eerily accurate in all their prediction and he's at the cutting edge that doesn't mean they're right but it's like gosh that is amazing but let's to say that it's more of a steady path and AI in its current capacity is great if you want it to say, actually, can you just find a company that meets these characteristics and then I can go and explore it in more detail.

1:03:54It's not going to give you any edge in terms of tell me which company is going to be the best performing over the next 10 years. It can't do it, right? Like it's still going to have to form a subjective opinion on a set of variables and how they will unfold in the future. I even think that even a super advanced AGI has a limit to how far it can see. The fundamental property of time and the universe is that you can't, you know, it's very unpredictable. It's chaotic. It's sensitive, what is it? Dependence on, sensitive dependence on initial conditions or something like that in terms of chaos theory.

1:04:27In other words, that you might have an incredible intelligence at your disposal, but you change one tiny variable, you know, the proverbial butterfly in the Amazon flapping its wings. And it just leads you to an extraordinarily different outcome given enough time. And I don't think AGI will ever crack the ability to know the full history of the universe in advance. It will never get there. So I don't know. It's the kind of thing where it's like a lot of people start freaking out about quantum and all of this kind of stuff. And it's kind of like, you know what, when it's a thing, we can start worrying about it.

1:04:58But it's always been 50 years away and maybe it's still 50 years away. And it's, it's, it's, I love talking about this stuff. It's super interesting. But as we sit here and now in 2025, it's just such a distant kind of thing. As I said, if you really just want to, by the time it happens, it'll be too late because it'll just be arrive. And then like you blink. And then it's just like, you're just in a completely different world. But until then, just remember, it is just a tool and a pretty good one. And then I'm, but an unthinking one and one that's pretty bad at the qualitative stuff. So you've got to, you want to, did, sorry, man, I'm going on a bit here, but do you, and I know it because we both lived through it.

1:05:42Did personal computing change the game with investing? Did the internet change the game with investing? Yeah. You used to say, we still do, like you get annual reports in the mail. Yeah, yeah. And you'd have to read it. Yep. And you have to type the numbers from the annual report into an Excel spreadsheet manually and all those kind of good things. Yeah. So did computers change things? Yeah, massively. but there was still a role for you to play. It just made that your job was easier, but it was also easier for everything else, everyone else's as well. And I suspect that's probably the better way of looking at AI rather than it's just going to completely nullify any human input whatsoever.

1:06:19And the other thing as well, as we often say is that the real edge in investing is not the intelligence side. It's the emotional side of things. So unless we get advanced general emotional intelligence, maybe we've still got a place. I don't know. Don't bet against it. I think you're largely right. We've been agreeing a lot this episode.

1:06:45I don't think we have the faintest idea where we end up with AI. Like with all predictions, my first honest answer is I don't know. I'm not going to predict it because I don't know. Is there a conundrum? Potentially, yes. And if you're looking for us to reassure you, I can't do that. I'm going to reassure myself. I've got no idea. And the pace of AI. It almost feels old or kind of, you know, like it's been around for a while. The length of time we access chat, what is it, a year, 18 months, chat GPT? It's actually coming up on two, I think. There you go. And it feels like it's been around forever.

1:07:16I'll ask it while you're talking. One of the early days of AI. Computers are a good example, mate. I think there are, investing is the process or the practice of exploiting arbitrage opportunities, right? And what that basically means in normal language is we're looking for mispricings. We're looking for stuff that is simply worth more than it's currently selling for and you want to buy that thing. And if you're a short seller, you're in the reverse. And so that's cool. The problem with mispricings is mispricings have a lot of different sources. They have in the past been informational. That's effectively gone.

1:07:51I mentioned, again, it might be a past or a future podcast, Ben Graham, Warren Buffett's mentor, started by looking around and saying, hang on this thing's selling for 100 bucks with 150 dollars worth of plant equipment and cash on hand i mean i can buy this thing less than it's objectively worth not not in terms of future cash flow it's just like the assets i can buy these 150 bucks worth of assets for 100 bucks would i do that of course i would and he started doing that because no one else was doing it he started doing it and two things happened he told other people about it which was you know probably silly on his behalf but also probably inevitable that people would work it out and other people started doing it and so what happened well people bought those assets that were selling for under their asset value.

1:08:28And so the prices went up. Supply and demand does that thing. Who's going to sell a$150 asset for$130? Nobody, willingly, once they realize what they're doing. The information wasn't available. So they couldn't do it easily. Ben Gray went, I can just read through stuff and work this out and do what makes sense. So he did. That disappeared. Value investing more broadly. Again, the capital V value, you're buying stuff for P of 8. There's only so many of those before the price goes up. There's more people, more money chasing those things. they will probably be there will be less of those in time um there used to be a whole lot of people when when stock markets were um literally physical who would take advantage of price discrepancies because you could that goes away there were people who'd say well hang on i can buy oil in in the us and sell it in europe when the price are different because one market's open the other one's closed that went away and so technology is going to continue to remove and reduce informational advantages and the opportunity to to that's easy that's the easy money there's literally you know that's the easiest money in the world is saying i can buy it 9 10 sell it 20 at the very same time why would i not those people did they bought oil in the us bought it and sold it in europe for different prices and just made that like that's that's money for jam um information technology broadly including but not not limited i takes that away and that's probably good for markets frankly um it there will be i i am absolutely sure by the way there's fewer stockbrokers working in the industry now than there were 10 years ago, 20 years ago too.

1:09:49I would suspect the opportunities for our performance continues to narrow because we're getting better at processing the information that we have. I think that's hard to argue against. Maybe it opens up other opportunities somewhere, I guess, but the more computing power you throw at a thing, the better the chance you're going to wipe out most of the inefficiencies. But Ram's point about both the emotions and the future are the key ones. because predictions are hard, especially about the future, as you've said. People overreact. They always have, they always will. They still do it now, even with computers.

1:10:2320, 30, 40 years later, look at the COVID crash, right? There was no lack of computing power available at that point. It wasn't AI. There was no lack of computing power. And the fall of that was, you know, fastest bear market in history. So I'm not sure we're learning much more as humans, our emotions, and also our views of the future. There was no computer system that could work out whether Amazon was going to be a hit or pets.com was going to be hit whether yahoo was going to beat google at some point you can look at the changes as they went and make it make intelligent bets at some point but if you said well there's two search engines myspace and facebook um blockbuster and netflix you know at some point someone worked out it was going to work and at some point you get on board at some point the share price reflected that so i i suspect emotions in the future are the difference i do think it's going to be harder to do i think that's hard to argue against i think there were fewer opportunities i think it's harder to argue against i am probably just talking my own book here no not trying to make money but trying to make myself feel better i reckon the style of investing that we are doing which is not quantitative investing or date i wouldn't be a day trader for quids against ai i wouldn't be a quantitative investor trying to trying to look at charts and stuff why because ai is going to get rid of that stuff too and someone's going to make an ai based chart reader that is free and it's going to do the trades for you and that gets arbitraged away so i could be wrong if you're a chart if you're a technical trader good luck to you if you're day trader good luck to you i'd rather be someone who says i'm going to look objectively at businesses it's got to be subjective i guess by definition and try and work out what they might look like in the future and how much that's worth that's the human judgment element if that'll still narrow by the way i think with ai i think it has to technology will help it why because you can do discounted cash flow models in excel now you couldn't do that 20 thought not 40 years ago you couldn't do it right um you can't process you can process large amounts of data you can screen for companies without reading an individual annual report and find the opportunities now.

1:12:13So the opportunities will narrow. They'll get smaller. I think they'll ever get to zero because the future is always unknowable. But can you reliably do it? At some point, maybe not. For now, I think it's fine. And I guess more importantly, if you look over time at the sources of value, one of my colleagues, Chris Copley, did some work for us for our members. It was taken from a book called The Wealth of Common Sense. And they highlight the sources of equity returns, which sounds like a really over-the-top term. Basically, why did share prices go up or down? And there's company earnings, there's dividends, there's change in the PE, and that was it.

1:12:52And so that's kind of all there is. So at some level, shares will continue to do well because companies continue to grow. The equity risk premium, you don't really need in that sense because the growth will look after that. It's just a question of how far in events are you paying for those returns? and dividends look after themselves as well. So maybe it's an issue. It's a fantastic theoretical thought to have. And at some point, if I look around and go, I've got no edge left, I guess I'd go to ETFs and get another job. And that might be a year away, might be 10 years away, might be 20 years away, I don't know.

1:13:25But I suspect AI makes the job harder, but it shuts down the programmatic investing, day trading, technical trading, all that kind of stuff before it shuts down business analysis and assessment of future prospects. Yep, yep. And it's so far away. You reminded me of a... I had to look it up. I've come a long way real quick. I'm not prepared to give that away. The first version of ChatGPT released to the public, at least, was November 22. So it's coming out in three years. Yeah. Did you see the stuff from Google recently, the VO video stuff? No. So you've always been... Well, we've always... You talk about technological advancement.

1:14:07So AI is scary good. But when maybe you'd see some of these deep fakes, it's like, yeah, it just looks. And we're pretty quick at figuring it out, right? People would show you stuff and go, that's AI. I can tell. That just looks like AI. She's got six fingers, right? And her arm just disappeared into her side. Like that's not a real image, you know, not a real video. It's so good now that it's almost impossible to do. And now they can make the images speak and lip sync it up. you know it's just it is so crazy good just google google veo and you'll see what i'm talking about how if you haven't seen it already it's just mind-blowing but but the point is it's just like you and also you will you may be familiar with the will smith spaghetti video it's like one of the very early videos created by our will smith eating spaghetti and it's like this really trippy i've just dropped a whole bunch of acid like version of it the first one and now it's gone to like no this could be the real deal i i can't tell okay that's impressive the advancement but more impressive is that that's happened in a space of just a couple of years so you just gotta wonder again it's dangerous to extrapolate because these are stepwise technologies like usually not linear but but it's just like what does this look like in the year 2027 let alone 2037 or 2047 right it's crazy um but the quote i was thinking of which we always love from it's a biologist from edward Wilson.

1:15:28He goes, the real problem with humanity is the following. We have neolithic emotions, medieval institutions, and godlike technology. And that's really the crazy thing, right? Because if we really crack this AI thing, and I mean, really sort of crack it, it's sort of like, we're still running on wetware that is, you know, 100 ,000 years old. And we're still trying to make it work within institutions that were developed during the Renaissance. Like, it's, we are born into extraordinarily interesting times. Oh, yeah, I made that point a lot. He doesn't much better than I do, but evolution has not kept up with societal progress.

1:16:03Like, it's getting further and further away. The speed of evolution is much slower than the speed of societal progress. Yep. I mean, advancement maybe, change, no progress, but yeah, that gap is growing. And by the way, that's the title of why investing is a thing. Like, we owe exactly that, and that's why Buffett is so good, is because he is uncommonly good without controlling his biological evolutionary emotions rather than letting him have his head. That's kind of all they need to know and to do to make a difference. Yep. That probably does us then. I think it does it, yeah. All right. Let's go and enjoy the rest of our weekends in a biologically, evolutionarily involved kind of way, see what we can manage, see what Ram can do with his other feats of endurance and strength in the meantime.

1:16:48Until we chat again, have a great week and full on. Cheers. The Motley Fool and people appearing in this program may have positions in the companies mentioned. General advice only. Please speak to your financial professional to understand how it may pertain to your situation. Subscribe to the free newsletter at fool.com.au forward slash listener. The Motley Fool operates under financial services license 400691.