Mailbag: incl. Is Super the biggest fraud being perpetrated today? April 7, 2024

26:10So I think it can almost be indefinite. Maybe you correct me on that, but I think it can almost be indefinite until the ASX is satisfied that you meet all of the requirements to trade. Correct. So yeah. And what does it mean? Can't sell your shares. Impossible. Not on the market anyway. No. Wow. Good point. Good point. Yes. So I could do an off-market transfer if I could find someone who's prepared to buy my shares and I can fill out the form. And by the way, you can do that anyway. So you can sell. You can't just do it at any price and the rest of it. There are requirements to that. But, yeah, effectively you can't trade it.

26:48So you're kind of stuck until they resume trade. And when they do resume trade, it might gap down to$0.10 or it might go – Yeah, if it resumes trade. I mean, it's probably really a dumbest case, but there is no guarantee that a suspended share will return to the force. I can't imagine if it does resume that it's going to go up. Yeah. It will very likely go down significantly. I mean, there's a chance that if whatever issues were already known are resolved meaningfully and successfully, maybe there's a case of, hey, we've raised some more money. We've found the$26 million. Everything's okay again.

27:18Here it is. It's under the mattress. We forgot. Recovered might be a better word. Yeah, recovered. Yes. Again, I'm only saying that you're right. Almost certainly will go down. But there is a circumstance where a company is in such horrible condition, shares get spendable while it fixes itself. It may well come back having resolved some of the problems it had. Again, not Dubas specifically, just a company in general. And that actually might actually improve the share price rather than harming it if the market is convinced that the decisions made were beneficial, for example. Yep. I would be wary.

27:47Look, I can't give advice.

27:55The difficulties. I've long said that the key responsibility of management is capital allocation and setting the culture. Yes. And the potential here is that the person sort of responsible for those things is – gosh, I'm having to strike. I would suspect that even if there is a core of a really good business here, turning that around after a potential scandal. No one likes to be associated with a losing team, right? If ever you've worked in an institution where it's like that and people turning up because they have to pay the mortgage and whatever, but they are out the second the better opportunity comes.

28:36It's like that movie Office Space. My goal here is to do the bare minimum of work to not get fired. That's my incentive. I'm not going above and beyond here. Just don't get fired. Just not be the worst person in the views of management. And the reason I say all of this is because, and I've been there before, and I think it's a very common trap for investors, is that loss aversion is super powerful, and you will convince yourself it's not a loss until I sell. It's just a paper loss. You can come back. Well, it's a little bit scary now, but look, it's 10 % of the price that it was before, so now it's really cheap, and now I should hold on.

29:12There are some situations where it's just sort of like pull that bandaid off and move on. And maybe that's one of these situations. Yeah. I think that's right. So, look, I think we've hopefully answered the direct question. Companies get suspended for a lot of different reasons. Sometimes their own requests. Sometimes because the ASX requires them to be suspended. They haven't met what we call the listing rules. And if you haven't done that, then you're in trouble. In this case, yeah, we're obviously waiting for more certainty and clarity. The ASX's job is to hopefully have a fully informed market.

29:44Yes. And where there's uncertainty or the chance that things aren't fully informed or there's just new information required, that can cause the ASX to decide not to trade. At a company level, if you're trying to sort stuff out, I've not held shares that can be suspended for a long time, but I've certainly made recommendations where they've been suspended. Oh, all the time. Yeah, in some cases we've had capital raisings suspended for that reason. Can I just emphasize the point you made there before? Because I really took it in the negative direction there. Companies themselves will usually request it because they think, okay, something's happened.

30:23And our fear is people talk, right? These companies have tens of thousands of people working there, right? News gets out and you don't want that allegation. So as soon as you feel as though there's something that's potentially knowable that's out there, the prudent board will say where's hey asx we request a suspension it gives us time to prepare the information and to put it out there and sometimes you'll see an article the afr has a hot scoop and they put something out there and like okay we can suspend shares because we want time to be able to properly respond and we want to make sure the market is informed so i don't i really sorry to interrupt you but i just really want to make the point that and that's why i say it happens all the time plenty of shares i own go into suspension not for a bad thing but because the board is being prudent and proactive to sort of say, listen, we're aware of information that's out there that's not evenly distributed.

31:11It hasn't come from us in the form of a formal disclosure to the ASX. So we want to make sure that no one can trade shares until we get that out there. And once everyone is on the same page, then we can let shares trade as normal, which is a perfectly appropriate and sensible thing to do. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

31:35here's a question from jeff he says hi scott feel free to use my name i recently discovered straw man which i understand is an australian premier online investment club and it looks terrific says jeff i also love the show love the banter and the general education you and ram provide beyond just investing it's a great educational tool that teachers slash preachers maybe the mindset required to be a successful investor good to get contractual obligations out of the way. Good to get contractual obligations and show adulation out of the way, says Jeff, quickly. Must bend the knee. Kiss the ring and bend the knee.

32:12Here's my question, says Jeff. The average Australian stock market return over the past 30 years is 9.2 % per annum. He says, source that wonderful Vanguard compounding index chart. However, the average superannuation return over the same period is significantly less and closer to 7.4%. What accounts for this difference? I would propose, says Jeff, it is fees and too conservative an investment strategy that most super administrators provide. Fees are obvious. There is little margin for super providers if invests directly in stocks compared to a proprietorily managed super fund. But why would super funds encourage too conservative an investment strategy?

32:56Again, I think this is self-interest. as super investors are less likely to notice a small loss made consistently over a number of years compared to a one-off big loss experienced during a market correction, which may cause the investor to go elsewhere with their super savings. The super scheme in Australia is rightly coveted by many other countries, but if you and Ram agree with the above, then isn't this the biggest fraud? Or in Charlie Munger's words, he says, for bezelment to be happening today over vast sums of money when the best strategy for most super investors is simply to invest their super in a low-cost, broad-based ETF that more closely aligns to stock market returns, which currently most are not.

33:39Jeff from Perth. Great question and some good comments and some lovely compliments. Thank you, Jeff, as well. Ram, is this the biggest fraud being perpetrated today? I don't know if I would go to that extent, but I share your outrage, Jeff, and you've nailed it. Fees and people trying to protect you from volatility, which is just another way of saying protect you from superior returns. You can have good returns and volatility or low returns and no volatility. You can't have both, right? You just can't. It doesn't exist. and they provide it. Look, now, we've got to be careful not to personalize this too much because I'm speaking from looking through my lens.

34:25If I was 59, well, actually, I'm at a point now where it's more about wealth preservation than wealth creation, wealth growth. And so there is actually perfectly appropriate scenarios where you would want less return because I've got to live off this money at this point. But anyone who's more than 10 years out from retirement, 100 % equities, 100 % passive. The amount of snouts in the trough in this industry, the superannuation industry in Australia has just got too many people trying to be too clever, creating products that are unnecessary, overly expensive and not fit for purpose. It's an absolute debacle.

35:07debacle and so fraud i don't know but yeah it's it's it's pretty silly it's pretty silly i want to agree mostly mate i'm gonna um throw a bit of nuance in from my perspective and then come back out to your point which is i've said before my mother came to me oh geez years ago now many many many years ago um i think even before i was doing this job and said my super fell last year isn't it supposed to go up i'm contributing money to that and i think to jeff just to kind of broaden that your your concern or your point we're dealing with people who have their own needs and objectives and frankly temperaments and experiences we were asked earlier why don't more people invest in shares and we kind of answered that question and then at the same time we're now saying well actually if this is the case where does that where that kind of leave us, right?

35:59And I think this is important because if we kind of really set it out, there are some people who don't want to maximize their returns on a given, over time, frankly, even if they don't know that's true, because they would say, I would rather have a less volatile return, please. Can I please have that? And I actually don't think that's unreasonable if those people want it, right? Particularly if we're giving them the choice of managing super. Now, Now, the bigger, bigger picture here is, would it be appropriate, for example, for super... I mean, let's be honest. We don't worry about whether or not the pension is going to be affordable in 5, 10, 15, 20, 25 years when we retire.

36:36But we worry about whether we're going to have enough money. The flip side of giving people control of their own superannuation savings is that they now worry about whether or not the money will be there. The public service sector, the defined benefit fund that used to happen would say, you will get this much in retirement. And so, people didn't worry about year to year whether the money backing that up was enough or when the market had a bad year, they didn't think, gee, maybe I won't get my government allocated pension or defined benefit pension when I'm 66 because the market fell when I was 58.

37:05But once we give people a lump, someone say, you manage this, your responsibility, you look at the number, you look after it. The benefit of that is we get to make those decisions for ourselves along the lines you suggested. The cost is plenty of people are Like, you know, given the choice, I would rather not know. I would rather, if I knew I could trust my superannuation fund, don't tell me. I'll put my money in. Now, they shouldn't do this because they'll get screwed if they do, because there's some horribly, horribly unconscionable conduct and some dodgy people in our industry, unfortunately.

37:35But in a perfect world, I would love to think there was a super fund. Let's say the future fund, for example, right? I'm pretty sure, in my view, the default super fund for everybody should be the future fund. administered for a tiny, tiny, tiny, tiny, tiny fee. And to your point, Jeff, you've invested in ETFs. That should be the default for everybody. And they should know or reasonably have reason to believe they could just have their money go in there automatically. And when they're retired, they'll find out how much they've got and they'll go and get on with their lives. And that would do a very large minority of the population a massive service.

38:07Because they don't want to know. They don't need to know. They don't need to be involved. They don't need to do anything with the money. Just give them a really decent return at a very, very low fee for a very long time and the money will look after itself. I think once you start to, though, give people that control, to your point, mate, the cynical view is, Jeff, I mean, not you, Ram, the cynical point is, hang on, they're getting a subpar return, therefore, you know, it's fraud because the super funds are trying to do what they're trying to do. The more generous and frankly, the more real is, and here's the other problem, Ram and I aren't representative of the general financial advice community.

38:42The general financial advice community talks about diversification and spreading your assets, your money across different asset classes. And there's the default MySuper. Every fund has to have this default option called MySuper, right? And that default is a balanced option. The government makes them. The orthodoxy in our industry and for regulators, because regulators are generally risk averse, or in this case, volatility averse, though they would believe it's the same thing. They would say, honestly, and with hand on heart, with no regulatory capture, nothing, the boffins would say, you should own some property and some cash and some shares and some alternative assets because then you're diversified and whatever, they would say, frankly, and this sounds stupid to say out loud, but I'm going to, they would say a 7 % less volatile return is better than a 9 % more volatile return over 40 years, which is madness, right?

39:30Now, when I have - Can't not laugh at that. I represent the Motley Fool. Motley Fool has a financial services license. I'm obliged to do some continuous professional development. When I answer the questions on that form to show that I'm capable, I have to tick the box which says, yes, of course, you should have lots of different asset classes because that's the right thing to do when you're diversified. I don't believe that. Now, I could tick the right answer and be marked wrong. Now, I say the right answer, it's my opinion. I could be horribly wrong and horribly arrogant and heuristic, but I don't think I am.

39:57I think the numbers demonstrate it. But the reality is that the industry, and again, I want to say the industry, I don't even mean the super industry like the people who making money here. The financial advice industry believes that a more diversified, less volatile return is better for everybody, not just those who need a conservative. There's conservative on top of that, which is even more cash and even more property, even less shares. Balanced is a bit of everything. And they call aggressive shares and international shares, Australian shares, oh, and still a bit of property, a bit of cash. It's madness.

40:27It's absolutely madness, Chef. You're absolutely right. I don't for a second believe it is the industry at large being craven or being fraudulent. I think they are told, they literally are told, my super fund must be the balanced option. That's what they're told to do. That's what you must provide, which is crazy. So, yeah, I think there's a problem with the orthodoxy in the industry, mate. I think I don't think it's super funds doing it. I think the fees are far more an issue, far, far, far more an issue than the asset allocation in the context of people doing the wrong thing. I hate, sorry. Please, no, please, I'm ranting.

40:59You go. I just hate the labeling of it because Because anyone new to the space and you're given a box to tick, and you're like, one says aggressive and one says conservative or balanced. Like, I'm not an idiot. This is my future retirement. I'm not very aggressive with that. Conservative, thank you. I don't want to speculate with that. But it's an entirely inappropriate label to use. I mean, it's not aggressive, you know. It is sensible, diversified in the biggest, best companies in the world. And to such an extent that it's not even a bet on any single one company. It's like as long as you believe that in the continued flourishing of the human race in our society, there's a pretty good bet, right?

41:43And if not, well, you know, grab a shotgun and a pack of seeds because that's your alternative here. So it's sort of – but when I first got my proper job, I did exactly that. I ticked the conservative box. Of course you did. And it was years later and God knows how much in foregone returns before I thought, wait a sec, what am I doing? Like, no, 100 % equities. Thank you. You call it aggressive. You can call it whatever term you want to call it. But it's the absolute sensible option. I would say entirely with a perfectly straight face that if you're 10, 15 years from retirement and you're all in cash or you're all in quote unquote low risk, you're actually taking an insanely high amount of risk.

42:28Ridiculously high amount of risk because the risk is almost, it's not even a risk, it's a guarantee that you are going to see your wealth effectively eroded over that period of time. It won't be volatile. It'll be a nice, steady easing into financial mediocrity. But, you know, that's what you're going to get. Cash is massively risky. Bonds, massively risky over any length of time because they're just going to be eroded away. And risky not in terms of lost value, but in terms of missed growth opportunities. Missed growth opportunity. The idea of you could have so much more with that money, you're taking a risk by not having it compound.

43:08and like the rate it could otherwise compound. Yep. And it's like, especially if you're like 40 and below, it's not even a question. Take the most aggressive option you can. It makes you feel like, oh, does this mean that I'm going to be investing in some really high-tech speculative biotechs? No, they just mean equities. They're just equities. That's what they're saying. Commonwealth Bank and News Corp and CSL and Telstra. That's what you get. That's risk deal, apparently. Yeah, exactly. Because again, academics can't distinguish between volatility and risk. and Buffett makes the point again and again and again, one is not the other.

43:42Correct. So anyway, we've hit that, flogged that horse into oblivion. We have, we have, yeah, again, I'm going to add with the exception of those who need the volatility protection from themselves, if you know that's you, then do it because it's going to help you sleep at night. You're not going to freak out. I said, my mother was, you know, is my super fund doing a dodgy here because I lost some money? The market had a bad year. Which it does one in every three on average. Correct, correct. And that's, you have to make your peace with it. The problem is we don't educate, back to the original question, we don't educate people well enough to know what to expect and that is normal.

44:11My mother should have known. If you're, I don't want to be a nanny statist about this, but if you're going to be given your own super fine and told to manage it or to be responsible for it without being then informed and educated properly as to what to expect, I think we're setting people up for failure, right? The idea of, you know, give every kid a gun and hope they learn to shoot it before they shoot themselves in the foot. You know, it's not exactly that dramatic, but the analogy is not that far off. Some will be fine. and some will shoot themselves, some will shoot their mates. You know, there's a point at which you say, can I use the Uncle Ben line?

44:44Yes. With great power comes great responsibility. There is, well, that's it, right? So I, again, so I'm in the financial service industry, right? I'm supposed to say everyone should have an SMSF and do their own thing and come to me for advice. I am reasonably sure there are too many people with SMSFs. Not our listeners, because hopefully they're well informed and know what they're doing. My mother shouldn't have had an SMSF. Her financial advisor, I've said before, made a squillion dollars from her and the old man when he was still alive in fees, which was just a highway robbery, and he should be condemned forever for that, just thousands and thousands of dollars unnecessarily.

45:21But on top of that, honestly, mum was a nurse, dad was a fiery, right? Really wonderful, wonderful people. Couldn't have asked for better parents, but they weren't financially savvy in terms of household budget stuff. But they don't know anything about investing. They're told, here's an SMSF. Put it with this platform. Put it in this wrap. I'll take these fees. They'll take these fees. Here you go. It's only 2%. It's only 2%. 2 % doesn't sound like much. Okay. Correct. Every single year for 10 years, that's 20%. We're talking about six-figure superannuation balances. 2 % of something that's underperforming the index anyway.

45:57That's the other thing, right? Right. I'm reasonably sure most people should have a default option, which is, if not government run, run by not-for-profit with low-cost ETFs and told, again, this sounds really, really paternalistic and I don't mean it to be, but told, we'll look after it, don't worry about it, keep doing your contributions, by the time you retire, you'll have plenty. That honestly, people shouldn't have to be advised to, be invited to, manage their own super unless they genuinely can show they're capable of it, prepared to do it, can do it successfully. Do you want to talk about being conservative?

46:32Blowing up an SMSF because you made some bad investment choices, it's just we do people a massive disservice in that context. Put it away. Let them come up with 67. Surprise. Here's what you got. Wow, that's amazing. I didn't realize. I hadn't noticed that over the last 45 years. That many dollars. Wow, that's amazing. Thank you very much. No stupid decisions. And again, I'm not saying people can't make good decisions. I'm saying a lot of people can't, shouldn't have to. But a bit like property, as we were saying, people kind of assume this stuff. You're supposed to have an SMSF. You're supposed to run your own super.

47:00You're supposed to choose your own fund. We've set up a system that penalizes people who get it wrong in a million different ways when the default should be will look after it for you. If you can and want to and know you can and can show you can manage it, then great. Go and run it for yourself. I know that's penalistic. I know people hate it for an anti-state. But that's, it just, you know. Again, from personal experience, it shouldn't be something that some people have to deal with. unless they want to. And again, that's not everyone in this podcast because people are listening because they want to, which is great.

47:31So I'm not saying people should be stopped from doing it. I'm just saying the default should not be knock yourself out, good luck, hope you do okay. Yeah. Yep. I'm going to ask you a question which is almost exactly the same question, Ram, but I'm going to ask it directly because Paul's asked it and I think the answer will be relatively quick and simple and straightforward. Paul simply says, Hi, Scott and Ram. Hope you're well. It's been a while since I've messaged. I've listened to you guys on the pod for six years now. I know you can't give me advice, but just let me know if I'm on the right track.

47:56That's kind of the same thing, Paul, but we will deal with the question anyway. We'll allow it. We'll allow it. I think this is a very important question about the younger generation and their super. I wish I'd done this when I was starting out. I'm 55 and I've only just switched my super to, quotes, high risk, exclamation mark. Now, he says, he's got a couple of questions. Isn't this like doing your own portfolio? I know I've had a portfolio with help from you guys, and this is why I swapped to high risk in my super fund, Australian Super. Now, my question is, my kids are just starting out. I'm going to start them at high risk from the start.

48:30Please tell me I'm on the right track. This has been playing on my mind for a while now. Thanks. You guys rock. Now, I think we know the answer, Ram. I think we've just done the answer. The answer is yes. So I'm going to ask you a slightly different question, which Paul didn't ask, which is, if he's going to put his kids in high risk, how should he help them understand what he's doing and why and what they should expect? Because that's the key one, right? But in two years' time when the market falls, or three years or five years or tomorrow, and his kids say, Dad, what the hell did you do? My ship is down 15%.

49:00Johnny over there is only down 5 % because he's got cash and property. I can't believe you cost me this money. What does Paul need to do, and frankly our other listeners need to do, to make sure they put their kids in the right position if they're going to take this path? Well, it's, I mean, big picture, right? At some point you want to retire and when that point comes, you want to be not eating cat food and wrapped in blankets because you've got no money. You want to enjoy your life. And that means having a low time preference. It means sacrificing some spending now for more spending later. You can't do it in cash because by design, if it works well, you're getting 2 % to 3 % poorer each year.

49:41So you've got to do something with it. uh what's the best option the best option is the one that's going to give you the best risk adjusted return the best risk adjusted return i mean again i say risk adjusted and i've got to be careful to explain that because the best return possible is a powerball ticket because you're going to turn three dollars into a hundred million like you just you can't beat that right but but it's also very likely that you won't win so so you need to you need to look at the return through the relative risk that you're taking and it just turns out that you know decades and decades of data in multiple different areas around or just show that that you know entrepreneurism and uh equities is just a wonderful wealth creation vehicle so we're gonna we're gonna that's how we're gonna save for our future we're gonna do it through these vehicles because we can't use cash um and um it's gonna be really lumpy because you know economies rise and fall companies fail and get created all the time but we also know that on average it tends to be it tends to be really really really well and you're doing this over a multi-year period here's the vanguard chart it's going to look probably something like this in another 30 years i don't know where the peaks are going to be i don't know where the troughs are going to be but the general direction is bottom left top right so this isn't something to look at day to day right this is something to look at uh do it do it you know look we i almost guarantee that if you were to plot your returns where you only put a mark on the chart once every five years, there would be no volatility and would only go up.

51:10And that's where property investors are right. It never goes down. It's like, well, in the way that you're tracking it, it probably doesn't. I bought in 1983, I sold in 2024, and it went up. The volatility is invisible because you didn't measure it at every single day, an hour, a minute along the way. So that's the answer, right? And it's like, well, you can have a more consistent ride if you want. Just understand that there is a cost to that. And the cost is a far more impoverished retirement. So you choose. Love it. I can't add much more to that. With the exception of, if the four most dangerous words in investing are this time, it's different.

51:49Maybe the three most profitable words are Vanguard index chart. So Paul, just, you know, the chart tells the story. No guarantees, no promises, but yeah, I think, I can't tell you what you should do with your kids, what they should do. But again, as Ram said before, the other question, I hate the phrase high risk, it's stupid. High volatility at best is probably the far we should go with it. High return would be nice because that's actually what happens over time, but you won't see that. And look in, the problem is regulators. If you labeled high return, moderate return, low return, regulator probably wrap you over the knuckles like you can't do that because that's just, they're a conservative group who have swallowed the financial markets orthodoxy, which is really bad for everybody.

52:30But, yeah, expect some really stomach-churning times. Expect, though, over the long term, some really, really good returns. No go-toes, no promises, but that's certainly how I would talk about it. Yep. Easiest decision you'll ever make. Like, really, it is. It's just such an – there is very few things that you can be very certain of in investing, but I think that's one of them. Yeah, I think that's right. um i this is a question great question from andrew man let's get stock specific or at least stock uh stock relevant andrew says hi scott and rant page a question for the mailbag if i may i've seen several analysts including some folks with the motley fill in america say the valuation of certain tech stock darlings he lists nvidia shopify datadog crowd strike is too high and they've sold their positions or trimmed them and plan to buy back in when they fall.

53:25Isn't this the very definition, says Andrew, of timing the market? I understand not adding to positions when the perceived valuation is too high, but selling seems to run counter to the buy and hold ethos. What am I missing? Thanks, Andrew. Nothing. I'm missing anything. Bang on.

53:45Now, if you get it right, it is the better strategy. If you can sell out before every crash and back up the truck at the bottom of every market, you're going to do far better than the buy and hold investor. You just are. But there are big ifs, very big ifs. I don't want to throw anyone under the bus, but we were speaking about a very well-known Aussie fund, a hedge fund manager who's outperformed the market for more than a decade. Incredibly smart person. Outperformed? Underperformed. Underperformed, yes. Sorry, did I say outperformed? You did. Underperformed. Underperformed the market. You know, and they're going short.

54:23They're doing all kinds of fancy stuff. And it's just like, you know, the little odd lady who just bought an index fund has done better. That's right. It's a beauty of index fund. Honestly, like as much as you don't pick stocks, but fair dinkum, the index funds are a very high bar to clear. And they should be. Yep. Like if you can't beat the market, don't. And if you're a fund manager or your advice can't beat the market, tell them to buy an ETF or take your money out and buy yourself an ETF. Yeah. It's just super easy. So actually, forget the question now. I'll pass it over to you. So talk about timing the market.

54:57Oh, timing the market. Yeah. I mean, look, there is – I mean, I do it, right? I've got to be honest with myself here. I have plenty of times sold down stuff as a long-term investor, as a buy and hold investor. I like what you say, the buy to hold. He's a better way of putting it. So the intention is to hold. But if something's 10X and now represents 40 % of your portfolio and is on a P of 300 or something, it's not reckless to rebalance there. It's not because I'm trying to time the market with a view of buying back in later. It's just sort of like I've got finite capital. I'm currently invested in something which I consider to be excessively valued relative to other opportunities.

55:43And now represents an outsized proportion of, you know, I've got outsized exposure to this. If I was to build a portfolio today, I wouldn't be putting 40 % in a company that's this valued as such. I just wouldn't. So I will do things. By the way, it's often not worked out. And I do look back and go, probably overthought that one a little bit. Yeah, yeah, same. But I guess it feels like I'm talking out of both sides of my mouth, but I think there is reason in that in the sense that I'm not – don't try and time the market because you just can't do it. No one can. But if you are making some of these decisions on concerns over quality or valuation or exposure, that's not unreasonable.

56:25It's not unreasonable. Yeah, I don't know. Help me out. What would you add? So I think I'm going to talk out of both sides of your mouth as well. Andrew, I'm going to – I think we – I talked about humans and heuristics before. We create labels to mean things because it helps us – rather than we explain everything for the first principles, we say market timing or we say buy to hold. It's like, oh, okay, I know what that is. I know all the things that go behind that. I know where we come to. I know where it happens. By the way, you mentioned Motley Fool in America. I will happily disagree with any of my colleagues.

56:55So this will sound like a partial defense. I've not seen the comments you've talked about. But I happily would disagree with people in Australia that I work with as well as in the US. And The Motley Fool is a, when you say some, you're right because we have no house view. So some will say I love Nvidia, buy more. Some will say sell it all and some in between. So this is not about the company just because you mentioned it. You're right to mention it. I'm happy to talk about it, but I don't want to come across as defensive or supportive.

57:23So I'm going to start with buy to hold. You say buy and hold. I've turned buy and hold into buy to hold. In other words, I buy with the intention of holding. And where I don't think you should hold is when a company shares, well, lots of reasons. If the company starts to suck, that's a good reason to sell. If you have a better place for your money, as Ram said, you should sell. If the company's valuation gets way too high, and I say that specifically, not just a little bit too high, not just fair value, in the ethos of being roughly right rather than precisely wrong, if a company looks a little bit expensive, I'm going to say, well, I don't know.

57:58I'll give it some time and see what happens. Sometimes it falls, sometimes it goes up more. Sometimes I'm wrong, sometimes I'm right. If I'm right about the company, I try to oversweat the valuation. So buy to hold means buy unless there's a reason to sell rather than buy and hold regardless. Let's give you, just take an example. If I liked Woolies and I bought the shares at 30 bucks and they go to 100 bucks and the earnings don't change, we'll leave you on a PE of 60. Great business, wonderful culture, great market position. It's not worth that price. And at some point I've got to say, oh, 200 bucks, 500 bucks, whatever, pick your number.

58:28At some point, we all agree, even the best business isn't worth holding at any price. So buy to hold means hopefully hold it for years unless there's a reason to sell. And I don't think it's wrong for someone who owns Nvidia if they said, gee, I liked it at some price, but now it's gone up fourfold over the last year. And gee, I liked it then. I liked it a bit more now, but I don't like it that much more now. I can't justify the current price at all. It's way too overvalued. I think they should sell. I think everyone should sell. and that's not timing the market that is responding to an individual company's share price and its potential value comparing the two and saying oh man like i'm not gonna yeah if someone offered me five million dollars for my house tomorrow i take the money yeah i if they offer me 10 more than it's worth i'd probably say no i don't want to move thank you anyway i don't know what it's worth but let's just whatever it is um i'd say no thanks not be five million dollars i'm like i'm out 10 million dollars like mate i will move i will i will take you to the bank i'll buy you a limo we'll drive down there together i'll help you move the couch yeah exactly right i'll carry the fridge on my back yeah you can you can have my kids um well maybe no uh so you know so that's not timing the market that is simply taking advantage of mr markets um exuberance right uh so that that's not the case the bit that is market timing which i think you're absolutely right about is if you say i will sell nvidia and then buy back when it gets cheaper you're absolutely timing the market because it may not and that would be absolutely silly now if you sell because it's too too expensive and it happens to fall 50%, you might buy back because you go, well, I'm getting offered a great deal again.

59:56That's not timing the market. That's just buying shares when they're cheap, selling when they're expensive. That's perfectly fine. I have no problem with that whatsoever. And that's not timing the market in my view. But if it is, I'm going to buy when it's up 10%, buy now, sell when it's up 10%, wait till it falls 10%, buy in again, then sell and buy in. I'm planning to do this on some sort of cyclical basis because I'm assuming the price is going to rise and fall. I'm going to do that. That is absolutely timing the market. Or if it's, look, I think right now the market is at, the all odds is at 8 ,000 and something points.

1:00:24I think that's too high. I'm selling because it's about to fall. I'm going to buy back in when it gets 6 ,000 because I think that's what's going to happen. That's timing the market. That's crazy. And the old saying is the market can remain, even if the market is irrational, let's say it is. Yes, yes. You know, the market can remain irrational far longer than you can remain solvent. Correct. Plenty of people have been screaming at the sidelines that China is about to crash for years. Oh, yeah. And all the data points and that, you know, it's like, yeah, well. COVID and issues. Yep, yep. Not yet.

1:00:50And maybe you'll be proven right, but it's kind of like at a point now, it's like, well, it's kind of very hard to be proven right because you've been on the sidelines so long and there's so much foregone conclusion. You've often made the point. It's like it could crash to, you know, 20 % above where you could have bought. Correct. Goes up 30%, crashes 10%. See, I bought it when the market crashed. Like, well, yeah, but you lost 20 % waiting for a 10 % reduction. Yeah, yeah, yeah. So, Andrew, I think it comes down to, in my mind, intention and strategy. If your intention is, I will, I'll use my personal one, I intend to buy companies that I think represent good value compared to their long-term potential, right?

1:01:28And whatever that roughly remains right, I will hold those shares. If the shares get horribly overvalued, I will sell them because buy to hold or buy and hold in any circumstance is crazy. Again, if all this goes to$400 and I'm a buy and hold investor, at some point I'm going to say that's still a stupid price I'm going to sell, right? Like serving the ideology of buy to hold in the face of evidence of absolute stupid valuations would be madness, right? That is cultism and religious faith, not sensible investing. But if it goes from a 30 to 35 or a 40 or a 45, I'm probably still holding. Now, Andrew may disagree.

1:02:04Others may disagree. But I think, well, look, it's a bit expensive. No, you don't know how to think it. Right? It's not terribly expensive. I'm happy to hold it. I love the business. I bought it at a cheaper price. I'm happy to see it through. Let's keep going. So it comes down to the intention and the strategy you're pursuing. Yes, but if someone says, to your point, I haven't read the articles, if they said, I'm selling video now because I think it's going to fall, and when it does, I'm going to buy back in, that's market timing, and that is madness. And if that's someone that Motley Fool in the US said, I will disagree with them publicly, not to pick a fight, but because it's reasonable to say, I have a view, and I'm not going to bend that view based on whether or not it's held by a colleague.

1:02:37So yeah, if they said, I'm going to buy back when it happens, they might say i'd love to buy back if it happens that's different because they're not they're not they're not selling because they're expecting it to fall they're selling because it's too high and if it falls they'll take the opportunity to buy back in same again let's use my house um let's say it's worth a million bucks because round numbers someone says i'll give you five yeah absolutely i'm taking the money do i think it's going to fall i don't know i'm just taking the money if it falls to half a million dollars and i get a chance to buy my house back from that bloke i'm going to do it because it's cheap but why wouldn't i am i timing the market no i'm just being opportunistic in both senses.

1:03:10So there's a difference in my mind between those two concepts, and that's where the heuristic kind of catches us. No one should be buy and hold regardless. I also don't think anyone should be timing the market. The nuance between the two is important. Yes. And, yeah, the other thing to remember is that with timing the market, you've got to be right twice in a row. Like you've got to know when to sell and then when to buy back in. So even if you time them out, like, brilliant, I sold and the price fell afterwards. Okay. One, you got that part right. Yes. And this is like, okay, now it's 20 % cheaper.

1:03:48I'm going to buy back in. Well, maybe it's going to drop another 90 % from there. You don't know. So to get both of those turning points accurately, statistically, I mean, just ask. Here's a very simple observation. Like, I said to my kids the other day, I was talking about ghosts. I was like, well, isn't it funny? Everyone in the world's got a camera and no one's ever taken a picture of these things. It's just like, it's odd. It's odd. I'd find that surprising. And I also find it surprising with all these people who are supposedly able to time the market perfectly that I don't know any of their names.

1:04:20Like everyone knows Warren Buffett. Everyone knows Peter Lynch. Everyone knows Charlie Munger. Everyone knows Howard Marks. Everyone knows there's a gazillion famous investors out there. None of them are market timers. So I don't know. Isn't that odd? Isn't that really odd that we don't know? And I'm sure someone will go, well, there is this one. And there's probably some obscure person who has done it. Because just with the infinite monkey theorem, like, you know, you put enough monkeys at a typewriter, someone's going to reproduce Hamlet, I'm sure. But it's just like, you're the one in a billion people that happened to be the exception that proves the rule.

1:04:53It's a very interesting factoid that there isn't anyone notable that's out there. And yet every day someone will say, yeah, but I can do it. Good for you. You may be the first one ever, but I wish you well. I'm going to stick with this other approach. Thank you. Yes. It's interesting. By the way, the reason there's no ghosts is because of the Ghostbusters. There you go. That's all I'm saying. There's a reason. The only reason we can sleep at night is because the Ghostbusters are out there and they're keeping us safe. I disagree with your analogy, though I agree with your broader point. No, you're exactly right.

1:05:32So, yeah, I think that's right. There's no, don't be ideological about investing. The money doesn't care how it's made. So don't hold stuff just because you said you're a buy and hold investor. Sell it if it makes sense to sell it. Buy it if it makes sense to buy it. But make each decision on its merits. You're right about being right twice. So you mentioned a fund manager before. There's a whole lot of fund managers who sold out at the beginning of COVID because they were worried about what might happen next and didn't buy back in because they were waiting for COVID to finish. And they've lost an absolute squillion in absolute dollars, but also they've missed the opportunity.

1:06:02The recovery has been phenomenal. We're now back at all-time highs, right? The loss of not being invested because you're being too clever. I'm going to wait until X happens and assumes you can know what the prices will happen between X and Y. If it doesn't happen, you're in a world of hope. No one's that clever. I reckon we're done, mate. Thank you for spending a bit of time this morning. Thank you for your questions. Our Facebook-only questions this week. Thank you for doing that. If you want to get in contact with us, speaking of Facebook, hit us up, info at fool.com.au. our member services fools will make sure the emails make their way to me you can follow us on the twitter machine it is still twitter as i've said many many times can i say during the week ram i was tagged it's funny being iconoclastic right people remember stuff i was tagged uh by a follower who shared with me mark hamill the mark hamill mark hamill of return of the jedi fame and other star wars movies who said of course it's not x of course it's still twitter and someone Someone did tag me on that one.

1:06:59So if it's good enough for Mark Hamill, if it's good enough for Luke Skywalker, it is good enough for me. It is Twitter. You can follow Andrew there at strawmaninvest or at sage underscore simian. You can follow me. I say they're all around, isn't it? At sage simian or at strawman. Which one is it? At sage underscore simian. There you go. I was right the first time. At strawmaninvest or at sage underscore simian. Follow me there at tmfscottp. I'm on Insta at the same thing. Also, I think Mastodon and Blue Sky or something else. I'm never there. so don't worry about that one. You can follow me on Facebook too.

1:07:33Facebook.com forward slash Scott Phillips money. Please do send us your questions. We would love to hear them. We would love to answer them next week. We will be back. I'm sure Andrew will be back after his. I'm not sure. You're going to embrace the Ironman. Have you got inspiration from our question? Have you decided you'll be tackling the Ironman course next week? Oh, mate. Yeah, I mean, of course I will. And that's just the warm-up for the ice climb or whatever the other thing I was doing. And the free diving. The free diving, that's the one. You're a very, very busy man. Until next Friday, Fool on.

1:08:04Cheers. The Motley Fool and people appearing in this program may have positions in the companies mentioned. General advice only. Please speak to your financial professional to understand how it may pertain to your situation. Subscribe to the free newsletter at fool.com.au forward slash listener. The Motley Fool operates under Financial Services Licence 400691.