Mailbag, incl: Keep my winners, but also rebalance? February 8, 2026

14:17Emily Flippen:even if being bigger meant less profitable, which just bizarrely happens all the time? or are they still in the process of sort of ingesting all of this stuff and that those margins will come back or something else?

14:31Chris Hill:So I don't know. Obviously, no one knows the future. So I'll tell you what I think and then just set up the answer properly. They are massively more profitable than they were pre-COVID still. Right. So what you can't see what Andrew's talking about is a growth between 2016 and 2020 roughly in terms of profitability. Then it jumps massively in 2021 and then slowly kind of erodes between 21 and 25.

14:52Emily Flippen:So I should measure from 2020 as my base point. I wouldn't. Yeah, that's fair. Not only, but in part.

14:58Chris Hill:So you've got a couple of things. The business is continuing to get better, and so the revenue is going up to the right. So it's selling more stuff to more people. Right. The return on equity is consistently about 15%, which is not world-class, but pretty good for a retailer and a reasonable result. Yeah. Their operating margin has fallen. And so since 2021, I should say, still up massively on pre-2020. So, again, they were making 10%, 11 % operating margins. Now, about 18%. So, massively higher. But not anywhere near as good as 2021, where they were at 22.5%. So, what's going on? A few things.

15:32Chris Hill:They got a free kick from the COVID push, as you said, Ram. So, to some degree, you've got to kind of take that out and say what's left over. They also are – we're talking about the economy a lot on Friday. The economy for discretionary retails is really tough. In fact, I own a few of them, and almost all of them are really struggling because sales are growing slower than inflation and cost inflation. And so what that's doing is crimping operating margins. Wait a sec.

15:55Dave Meier:I thought big corporate was gouging Australia. Isn't that the blame for inflation? That's what I've been reading.

16:01Chris Hill:Must be true. Seriously. Yeah, so they've actually eaten margin to stay relevant and to remain on top. Now, I don't know what happens from here. What I do know is, Harvey, in the moment I mentioned before, I own, do I sell any shares in Harvey? I probably do, so I should disclose that. I shouldn't know if I own shares in Harvey, but I can't remember. Did I sell them or did I not? No, I can't sell them because they're on hold for us. So I must still own them. Sorry, I own shares and Harvey Norman. Harvey did a great... Part of Harvey's success, other than just having a great model and executing beautifully, was that they managed over an extended period of time to basically beat out the competitors over and over again.

16:35Chris Hill:And so every time there was a downturn, someone else went out of business and these guys remained in place and became more dominant over time. Super retail is gobbling up a larger and larger share of discretionary spending in those categories. They are just Pac-manning the market. Now, they're making less money doing it. My hope is that post this consumer spending crunch, which frankly, if you talked about on Friday, may have some time to go yet, they will come out of this as the dominant category killer in these areas. And if they do, and if and when cost inflation moderates and or pricing power returns, I suspect they will be in a much better position than they are now.

17:14Chris Hill:Now, that could go horribly wrong. The consumer downturn could last years. There could be a recession. It might be in a new world price-wise, which may be in a newly hyper-competitive world where margins never return to the old levels. If that's the case, they won't be as good as they were in 2021 and 2022. But they are still the dominant retailer. They are a category killer. They're a PE of 14.8 times, according to ComSec, just a quick rough one. You don't have to grow much to justify that. And I think over time, they'll be okay. So when I say they're a great retailer, they're a discretionary retailer, which is always – let me take a half a step back.

17:53Chris Hill:They are a very, very good exponent of retail in their category. They can't, in that category, do differently. If discretionary spending is falling, super retail is not small enough to be able to grow despite a category declining. They are the category or the bulk of the category in a lot of places. and if people spend less on athleisure wear, as the cool kids say these days, if they spend less on camping, if they spend less on cars, then they can't but lose sales in the short term. Margin, sorry, I speak in the long term. I said they're growing sales. They're eating margin to do it. I think over the long term, that's exactly what you should do if you're going to be a category killer retailer.

18:31Chris Hill:You're going to say, well, I'm going to fight the good fight here. I'm going to keep people coming in. I'm going to make sure they don't go somewhere else. I'm not going to lose customers to try and make a dollar today. I'll make a little bit less today. I'll keep the customers coming in. When things get better, they'll still keep coming, and I'll be even bigger and better than I was. And to that point, sales in 2016, revenue is$2.5 billion, now$4 billion. They've grown, and it's not extraordinary growth. This is a mature retailer, right? But they've grown really strongly despite that. EBITDA has tripled, by the way, over that period of time.

19:00Chris Hill:So, you know, things are improving meaningfully and going in the right direction over the long term. They can't and will never escape the economic cycle, in my view, particularly because they're so big now.

19:09Dave Meier:Yeah, well, great answer. I'll just underscore the idea that particularly in retail, but for a lot of other sectors as well. I think one of the really key arts as an investor, and I know I've mentioned it before, but whenever there is a stumble and they're just business, don't pick any business in the world. I don't care. Berkshire, Apple, they always have their bad quarters, their bad halves, whatever. It's that question of structural or cyclical. so you've made the case that it's sort of like well it's cyclical now is that annoying is like yeah but does it under does it does it destroy the thesis if your thesis is no they're bigger and they're a great retailer they'll be around for a long time on average they'll be earning a lot more in five and ten years time but it's just going to be super lumpy along the way it's like okay cool that makes sense if you're buying i think too many people get their fingers burnt in retail where they go oh i think it's a great business oh earnings were down this corner i'm out it's like whoa whoa whoa yeah now if it's kind of like yeah but you're selling fax machines like yes this isn't just a quarterly back step here like you're selling something that's just like diminishing um demand for over time it's a very different thing so um it's also why i really get interested in retail when there's blood on the street yeah i think when after any major sort of crash or correction or whatever you want to call it on the market people get obviously burnt it's a very painful experience.

20:35Dave Meier:And even if you're that minority person who can say, actually, now is a good time to buy shares. What a lot of us do is we go, I will, but I'm going to buy Woolies and I'm going to buy this. I will buy because there's blood on the streets,

20:49Emily Flippen:but you almost buy the wrong thing. And it's very counterintuitive. You want to buy the hypercyclical company at the bottom, or you're never going to know when you're at the bottom, but nearish the bottom because you get the recovery and you get the improvement in the sentiment around that sector as well. So the earnings, you know, go up 30 % and the PE goes from like 12 to 24, which in and of itself gives you a double on top of any gain you get from profit growth. Sorry, big distraction from the question at hand. No, it's a great example.

21:21Chris Hill:And for what it's worth, I'm just going to quickly check now. So we recommended Super Retail, like$6 back in 2020. And we're up 150 cents in cent. Right. And I say that again, not for any other reason, to make your point, which was things have improved meaningfully from them in terms of the business and the PE. And so we just kind of went, well, hang on, this is too cheap to ignore. We think over time, and you're talking about the thesis, particularly with cyclical companies, people talk about cyclicals as if you have to trade cyclicals. You can if you want. I don't.

21:53Emily Flippen:Yeah, I wasn't suggesting that. No, no, no, you weren't. Just to be clear. Yeah, yeah, yeah.

21:57Chris Hill:So the point I wanted to make was, I have no issue with – I have a very decent summit for volatility as to you. And so I'm happy to kind of go, I'm going to buy a discretionary retailer. I know that various times over my holding period, the results will be awful because recessions will happen, consumer changes will happen. It just – Buying a discretionary retailer and expecting the line to be up and to the right in a really nice flat line, it's not going to happen. Now, if you don't want to do that...

22:23Emily Flippen:Let alone a mature business, like a retailer.

22:26Chris Hill:Now, what's great about that is some people ignore them. Your competition is less robust in this space than others because a lot of people say, I don't buy cyclical crap. You say I'll be down too much. So I'm like, okay, you do you, but why would I care? And so for me, the phrase I use, I haven't used it recently, but I use it a lot, is underlying earnings power. And that's all I care about. So were earnings too high in 2020? Yeah, we're not too high, but higher than normal. Of course, because we knew what was going on there. Are earnings lower now than I expect they will be over the fullness of time when pricing power recovers and inflation falls?

22:58Chris Hill:Yeah, I think so. So I don't know the exact underlying earnings power for super retail. No one does. But to your point, mate, I looked at the numbers of 2018, 29, and 2020. I went, okay, well, when normality returns, will more people be going to super retail's outlets? Yes, probably. Will they be spending more? Probably. Some years, no. Other years, yes. But overall, are these guys category killers? Yes. I'm happy to say since the recommendation, that's played out exactly as we thought. Revenues continue to grow. I'd love profit to grow. Of course I would. But the operating margin is still well north of 15%.

23:29Chris Hill:The return on equity is over 15%. Would I like profits to be high? Yeah, every day of the week if I could get it. But I feel pretty good about what's going on, right? Yeah, where's the problem here? When did you recommend it?

23:39Dave Meier:Sorry.

23:42Chris Hill:2021, did you say? I think it was, yeah.

23:45Emily Flippen:Hang on, I won't search for me. I'm just going to make a point here. It follows on from the conversation we had on Friday about a certain cryptocurrency and also various SaaS stocks. And I'm just making the point here. So looking at the chart here, you probably did it mid-2021, I'm going to guess, because that's just that.

24:06Chris Hill:No, February 2020, actually.

24:10Emily Flippen:Oh, you almost picked the exact bottom. Okay, this is a bad example.

24:15Chris Hill:Well, I did recommend it again in 2024. Yep. and again in 2025. Okay, right. Okay.

24:23Emily Flippen:Wow. So the reason I make, because we were having a conversation off air is like never, ever, ever give tips to friends. Never, ever. I don't know how many times do we have to, or I have to learn that lesson. I always feel like, well, I'll give you, it just blows up in your face. And I can imagine you making that argument

24:38Dave Meier:that you did in 2025 when shares are at$18 a share.

24:41Emily Flippen:Yeah.

24:42Dave Meier:And going, and I think the very natural reaction here is,

24:45Emily Flippen:oh, it's$14. I've got a quarter of my value. It's just evaporated. Yeah. Well, Scott, the stock picker. Slow clap. Slow clap for stock.

24:54Dave Meier:And it's like you sort of zoom out and you go, well, actually, the start of 2020, it was$10 and then it got down to$4 and then it rocketed up to$13 and then it went down to$8. And the next year it was up at$16 and then it went down to$12. And this isn't some, again, I just really feel as though this point, It's a point in time where the market average is hiding a lot of pain out there. You know, we talked about the technology ones, WiseTech, CarSale, all these big, very established, great companies when they've come down. And that natural human reaction to go, aha, aha, you got it wrong. And it's kind of like this is a really nice example of a company, to your point, whose underlying earning power is steadily increased and has actually delivered incredible shareholder returns over the period.

25:40Dave Meier:But it's just a lie. I mean, what you don't see in that scorecard there on the Motley Fool page, you go, oh, that's a great return. Brilliant. Wish I'd done that.

25:47Jason Moser:It's like, well, let me fill you in on the journey, bro. Because like, yes, we did it. But like, and I don't want to say like top to bottom,

25:56Dave Meier:these are eight-month-long stretches where you're getting all kinds of hate mail or it's just like I lost 25 % of my money, you idiot. And it's just, it's something to bang the drum on yet again

26:07Jason Moser:and pound the table because I just say it as anyone who's out there contemplating being a stock investor is like, get used to this, right? Even when you're right, this is what it's going to look like. And if you're going to flip out at every quarterly earnings miss or share price volatility, you're just not going to make it. Yeah.

26:29Chris Hill:Yes, I think we'll move on. But yeah, I think that's exactly the point. Hey, a question from Andrew. I assume it's not you, mate, but who would know? It wouldn't be beyond you to maybe ask yourself a question. Dear Scott and Rampage. Why are you so good looking, Andrew? Are you really funny or just very funny? Andrew here. Please feel free to use my name. I figure there were tens of thousands of Andrews out there. It may be too difficult for listeners to know exactly which one I am. But if somehow they guess lucky, I will attempt to not lose too much sleep over it. New year, new me. Nice. Which is a very Andrew Page kind of comment.

26:59Chris Hill:So I'm still not sure I wasn't here. Yeah, you never know. Long time listener, says Andrew. Second time questioner. My approach is a lot like Mitchell Stark taking wickets in his first over. Smooth, at serious pace, with just the right amount of swing, and high fives in the form of bent knees and kiss rings to get your attention and hopefully answer my question. That's good enough, Andrew. That's a pretty good start. Not a lot of praise there, but enough in a Mitchell Stark reference. We'll get you across the line. This one, maybe more for Scott. Recently, you recommended reading David Gardner's book, Rule Breaker Investing.

27:31Chris Hill:Have you read that, Ram?

27:33Emily Flippen:I haven't, but I listened to a podcast that he did on it.

27:37Chris Hill:Nice. With me?

27:38Emily Flippen:obviously the podcast later with him uh yes you did yes i did well i listened to his fail on it

27:44Chris Hill:i need to hear that again well as one of your countless loyal subjects i've done exactly that and i found the book very insightful says the ender who actually does listen to me i must say the rule resonated with me was rule number one let your winners run high it's david's rule number one of rule breaker investing this has indeed worked for david with many holdings Actually, I should say, sorry, David Gardner is the Motley Fool's co-founder, which is why we're talking about David Gardner. I should have texted that earlier. Really good guy, super smart, super successful investor, incredible, incredible track record.

28:16Chris Hill:Terrible strike rate. Yeah, correct, right?

28:18Emily Flippen:And I say that in not critical way whatsoever.

28:22Chris Hill:The most losers ever at the Motley Fool, picked by David Gardner. And something like 60 plus companies have lost more than 90 % of their value. Yep, that's the point. Exactly. All right. Let your winners run high. This has indeed worked for David, says Andrew, with many holdings that have seriously multiplied over time, most notably having seven 100 baggers. Can you imagine him buying Amazon at 16 cents and still holding that position today? Total generational wealth there alone, says Andrew. This rule has also helped me recently regarding a small copper play that I purchased for 22 cents. Thankfully, recently, the share price rose where my gain went to 60%.

28:59Chris Hill:At that point, I'd normally sell. But taking David's advice of rule number one, I held a little longer and I'm still holding. And as a result, the gain is currently 120%. If true to form and prior to reading David's book, I'd be selling for a much lower price, thinking I was being smart by locking in the gain. Far, far below the stock had time to reach its potential. Before, sorry, the stock had time to reach its potential. Apologies for any Pro Medicus nightmares. This may be conjuring for RAM. Andrew said, however, what I can't quite wrap my head around is later in the book. David advises to apportion no more than 5 % to any one stock, so as to have an even spread or distribution.

29:37Chris Hill:This limits risk to any particular share and finds the right, what David calls, sleep number. Designed to remove any anxiety one may suffer if a large holding tanks for any reason. Makes perfect sense. David does explain that if you are fortunate to experience a scenario similar to his Amazon success, that natural will push your weight percentage up considerably higher, well beyond 5 % as it goes to the moon, and to adjust appropriately. My question then is, doesn't that conflict with rule number one of not selling winners that you want to run high, such as all seven of David's 100 baggers still currently held?

30:11Chris Hill:To me, those stocks would push the weighting up well over the also-rends, where it would be impossible to have an even 5 % distribution. Even a higher weighting of 10 % to 15 % on these particular shares is advocated, if you have a higher risk tolerance, still doesn't check out, in my view. Maybe this spreads out if you have a sheer volume of stocks like David, about 70, but I can't help but think you would constantly be investing serious amounts of capital in the new and existing stocks so as to keep the percentages in check. And who has the sort of money to do that if these winners keep running high?

30:40Chris Hill:Clearly I'm missing something crucial and no doubt something very simple here, but I thought it worthwhile to understand how to reallocate my portfolio should I be lucky enough to ever experience what David has with a remarkably performing company or three. Here's hoping. Keep up the great work and fool on. Andrew, aka Anti Anonymous. Like it. Thank you, Andrew. I'll jump in here, Ram. I don't know specifically what David would say. And I don't want to put words in David's mouth. And David is a spectacularly great investor. So if I'm even half as good as him, I'd be very, very happy. David is absolutely not saying cut to 5 % as far as I'm aware.

31:16Chris Hill:I've never heard him say equal weight your portfolio or try to do that. In fact, I know that he doesn't add stuff when it's down to get things back to 5%. I suspect his idea would be to add in large enough proportions that it's impactful, not so large that it's problematic if it goes badly, but not so small as to it being immaterial if it does go really, really well. So I don't know specifically what David would say to do in this circumstance. I'm not going to suggest it. I do know he has trimmed some of his shares that have gone well from very, very, very large positions, but also still owns some of them as well.

31:49Chris Hill:So I can't answer for David. Andrew, I'm not going to try. I apologize for that. Maybe you can... David's got a Rule Break Investing Mailbag episode in his own podcast. Maybe you can flick him a note and ask him. His answer is certainly more useful than mine. If you're asking me what I would do in David's circumstance, I think you want... You talk about the range of them, Andrew. I think this is kind of the point that if you had Amazon and nothing else, you've got a massive balance portfolio. If you've got seven companies that are 100 baggers and they're all 5-ish percent positions where you started, they're not going to be anywhere near identical position wise but they're going to spread that load anyway so to some degree what you're talking about is uh you had big winners but if there's lots of big winners or quite a few big winners they're going to be diversified almost by definition because they've all done well so it's a very different question if i've got amazon and then 15 rubbish stocks i got a very different scenario if i've got like david has amazon nvidia disney um it's intuitive surgical some others he's got i'm not giving away anything that's all public record and they're all up, then they might not be 5%.

32:51Chris Hill:They might not be 15 % each because each has gone up. And so the growing pie means the sizes don't outweigh each other dramatically. Does that make sense? Remember I explained that well enough? So if the whole pie grows, because Amazon and NVIDIA and those 15 stocks all grow, then your percentages aren't going to be dramatically out of whack, as opposed to if you've got one company that grows and nothing else does, that gets out of whack real fast. Now, the 700 baggers are going to be worth much more than the 60 plus losers he's got. Not only his portfolio, his scorecard, not 60 of those, 70. He's got lots of winners in there.

33:23Chris Hill:But let's say he's got 70 companies. Let's say five 100 baggers and 12 or 10 baggers and whatever, whatever. Yes, the ones that are really going to be massively outsized. But we're not talking about 90 % for one and then 1 % for the others. We're talking about probably those five might be, I don't know, I'm making stuff up, 15 % each of the portfolio, probably something like that. because then that's 75 % in total. The 10 baggers are probably another 20%. There might be 10 of those. And so you kind of end up with this reasonably balanced portfolio. So I think, Andrew, it really, really, really depends on the composition of the rest of the portfolio outside the big winners.

33:57Chris Hill:If there's one, you've got a bigger issue. If there's five, you've got way, way less of an issue because those five will offset each other to varying degrees. The portfolio gets bigger, but the weightings don't grow as much out of whack because others are growing at the same time. Yeah.

34:11Dave Meier:Yeah. I think David's approach really appeals to me in a lot of ways. I do lean a bit towards that. I think if you've got no stocks in your portfolio or in your past that haven't dropped 50%, you're not trying hard enough. I mean it. It's kind of like I can absolutely avoid that if I want. I'll only buy the most steady, stable companies out there. And even then, I'll probably still suffer a 50 % loss at some point when the next big market correction sort of comes along. But everything has a cost. And the cost of that stability is I'm also never going to get a 100 bagger. I'm never going to get a 10 bagger.

34:52Dave Meier:The only thing that matters for you as an investor is the performance of your portfolio. The individual doesn't matter, right? It's just – it's silly. So you've got to look at it at the aggregate level.

35:06Dave Meier:yeah you're right when it's one stock that goes up a lot that's more of the difficulty and I've been in the well that was actually Pro Medicus back in the day and others have happened to me as well you start looking at 40 or 50 percent well don't let your runners win don't sell I was like yeah the thing I know I know I say this all the time but I'll say it again the market doesn't know whether you're up or down doesn't know when you bought didn't know why you bought and doesn't And it doesn't care. And it actually has no bearing on what happens from now. So unfortunately, we can't travel backwards in time.

35:36Dave Meier:So all that, whether me and Scott might have$100 ,000 each in a basket of shares, we own the same five stocks and the same five weightings. Who's going to do better going forward? Well, we're both going to do identically the same going forward. But what if I told you that all of my stocks at that point in time were, my portfolio was up 90 % and Scott was down 50%. you'd still say, well, it doesn't matter. You've got the same portfolio.

36:02Jason Moser:Going forward from this point, the returns are going to be identical. Like it's really obvious. When you say it out loud, it's like, yeah, duh, like obviously. And I just say that because, you know, it's not to have a go, Andrew,

36:12Dave Meier:but like everyone does this. Everyone frames it up as in, well, I only bought it here. I'm playing with house money. Ergo, it doesn't matter if I lose that. And it's like, no, that is absolutely the wrong way to think.

36:25Jason Moser:The only caveat to this thinking is tax because, unfortunately, some people, you might have a very, very big tax bill, and that's going to mean that if you do sell to reweight

36:35Dave Meier:or for whatever kind of reason, you've got a lot less money to reinvest. So that is absolutely something you want to think about. You don't want it to drive your decision-making. Tax is very much a secondary if not tertiary consideration. There's no point not selling something to lock in a tax loss

36:51Emily Flippen:if you think it's going to zero.

36:52Jason Moser:Like, take the tax hit rather than waiting and having no tax to pay and also having no capital gain as well.

37:01Dave Meier:So, it's a very understandable way of thinking that everyone does. But, again, once you pick at it just for a moment, you realize how silly it is. So, don't let your profit or loss impact it. I just want to go back a little way, Andrew, to – and I don't know the stock in question, so I don't want to assume too much here. But when you look at David's 100 baggers, what is it something that always sticks out? These were, I think, without exception, all category killing businesses that rode a massive structural disruption in their industry. Yes. In other words, there wasn't online shopping, then there was.

37:38Dave Meier:That was Amazon. There wasn't online streaming, then there was. And that was Netflix, another massive winner for him. And there wasn't AI and then there was, and NVIDIA has done incredibly well for them. There wasn't self-driving electric vehicles and now there is, and Tesla's been a big game. None of them were commodity plays.

37:56Emily Flippen:And it's going to sound like I'm going, oh, here we go, put the boot into the commodity. I'm not saying that. Sure you are.

38:02Jason Moser:But a commodity, maybe they're a productive mind with earning good margin or maybe they're just exploring.

38:09Dave Meier:So there's a lot of variation here. But the very nature of commodity-oriented businesses is that they survive on the market price of their commodity and they have no control over the commodity.

38:22Jason Moser:Copper is copper is copper and that is whatever the market price is. And no matter – you can be the best-run copper mine in the world and you still can't impact that.

38:32Dave Meier:So what I'm – not that it's impossible because maybe this is a company that was literally nothing.

38:38Jason Moser:They found a patch of dirt and then they realized that there's$10 billion worth of copper underneath it. That can go on very long, enduring, sustained rises and you don't want to sell out just because you're in a profit.

38:49Dave Meier:Is it – and I'm asking, I don't know because I don't know what the company is. If this is – because we know the copper price has gone up quite a lot lately. Did you buy a copper play that got a massive boost from the sentimental sort of reaction to the rising share price and that it's gone to the moon? if that's what's happened, I wouldn't hang my hat on the fact that that's going to continue for a

39:11Jason Moser:10, 15, 20 year period like Amazon and NVIDIA and Tesla and all these other ones have done, right? They are very, very qualitatively, structurally different things. So without knowing anything about the business and certainly being someone who very much holds for the long term and wants to enjoy the long benefits of compounding, it might not be, but it sounds like that copper play is very much more a trade than an investment. And in those instances, if it is, I'd be tempted to take the profit. I mean, the price of copper could drop 50 % tomorrow. It could also triple, yes, I get that. But again, A, your profit and loss doesn't matter.

39:52Jason Moser:B, David Gardner is talking about structural changes in new industries. This is just, it is of a different character. and I wouldn't apply rule technologies driven rules based in rule breaker investing to commodity place. That's just me.

40:08Chris Hill:Am I wrong, mate? What would you? No, I think you're dead right. Actually, it's a really good point you make. What I think is really important and I won't speak for David, what I would be very sure he would say if he was here and he wouldn't mind me saying is there are traits of a rule breaker investor and there are traits of rule breaker companies and the two go together.

40:26Emily Flippen:Yes.

40:27Chris Hill:Rather than one or the other. And I think you're right to mention that to James. Not James, sorry, to Andrew. Let your winners run is absolutely about the share price going up, but the share price goes up because the business is doing well, because the business is likely to keep doing well, and all the examples you've already given around, you're absolutely right. I wouldn't go as far as to say David would separate the two and say you can't be a rule breaker investor without investing in rule breaking companies, but I also would suggest if you asked him, He would, I'm speculating wildly and he will correct me if I horribly hope I don't misrepresent him.

41:01Chris Hill:But I would be reasonably sure, I'm going to say 83.42 % sure that David would say the traits of a rule breaker investor apply to investing in rule breaker companies, not just any company. And so I think that's the difference for me is exactly to your point around, I'm glad you rose. I should have mentioned it, I didn't occur to me, so I'm glad you thought of it. But yeah, be very careful. Rule breaker investing doesn't work for non-rule breaker companies, which sounds obvious, but it kind of is. So yes, let your winners run high. Let your winners run high because they are generational companies.

41:33Chris Hill:David, what's his top trade rule breaker company? Top dog and first mover in an important emerging industry. Yes. Now, if that doesn't apply, should you let your winners run high? Maybe still. He may say, Scott, nice try, but you're entirely wrong. So I don't want to misrepresent him. I would imagine with an 82.43%, whatever I said, percent confidence, he would say, don't apply rule breaker investing traits to non-rule breaker companies. He's not buying Myers at 80 times earnings,

42:00Emily Flippen:thinking that it'll grow into a valuation. It's not going to happen. Can I just make one more? I'm going to pound the tip one more time. Go on. It's such a great example. Smash that table.

42:09Dave Meier:Well, imagine you bought NVIDIA when Trump got elected in November of 2024. Six months later, you lost 40%. Yeah.

42:19Emily Flippen:Now, it's gone up 75 % after doing that. Yeah, right.

42:22Dave Meier:I just have to – it's a good time in the market to make these points because everyone loves to sort of go, aha. You know, we look at these very short-term movements, and I've even seen it – actually, even recently, a lot of these tech stocks have come back. And does it mean anything? Not necessarily. There is very legitimate views on both sides of the argument as to whether these are good value or not. All I'm saying is that even extreme 100 bag of success is littered. The journey is littered with not like 5 % or 10 % drawdown.

42:57Emily Flippen:We're talking about brutal, soul-crushing volatility where nearly half of your wealth gets wiped out in six-month periods. Like you just own that. Own that. I'm going to keep banging the table on that because this is just what happens. And you can imagine your Uncle Bob bringing you up going, Oh, hey, Scotty, how's your Nvidia shares going? Oh, AI is the future, is it? And they're like, you'll get that. And if it's not Uncle Bob, you know, or your mates, it'll be the little guy on your shoulder when you're trying to sleep at night. That's right.

43:26Chris Hill:Yeah, totally. Sorry to hammer that. No, it's a good one. Thanks, Andrew, for the question, mate.

43:30Jason Moser:Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

43:40Chris Hill:Here's a comment from Youngish Bastard who we may recall from a previous episode. Scott, your guest was not far off, says Youngish Bastard. I'm American, but I was stationed in the UK for the four years prior to immigrating here. That was not a bad get for me. My wife, he says, is from this lovely place. And the Costanza wallet was a compliment and a wish of good luck. Seinfeld's character, George Costanza, was known for having a ridiculously fat wallet. I also just want to say thank you to you both for taking the time to answer the question of what to do with our home sale proceeds. Listen to the response with my wife and we feel a bit more comfortable, as comfortable as you can be with this type of decision, with our approach.

44:16Chris Hill:And most importantly, we are on the same page with this approach. Cheers. Or I guess I should say, thanks y 'all, youngish bastard. Thanks for writing back in. We actually really like to hear that. Again, as you know, it wasn't personal advice, but glad that the general rambling thoughts from both of us helped you guys at least think it through. That's the best we can hope for. So that's a great result.

44:37Emily Flippen:Yeah.

44:38Chris Hill:Nathan sent us a question, Ram. Hi, Scott and Ram, which is important because I'm Scott and you're Ram, so he's got that right. Question for the pod machine mailbag, if I may. Of course you can. I'm a long-time listener and look forward to the weekly wisdom and deserved rants that make my daily commuting more tolerable. I think that's the best thing we can say about this podcast, it's not as bad as commuting. So it's always upside, right? It's always upside. Mostly thanks to booming house prices and mismanaged inflation, says Nathan, I'm in the position of having a lot of equity in my current home, with only about a quarter of the current value still owed to the bank.

45:11Chris Hill:I'm also in an upper tax bracket and being bombarded by, quote, wealth managers, end quote, advertising to me, suggesting I can reduce my tax by buying an investment property. Problem is, I don't really want to make the housing situation here worse, and I'd rather people have more opportunities to buy their own place. So the question became, how do we invest more for the future, reduce tax, and not become another slumlord. Nathan, that is not the Australian way. You'll be kicked out of the country for that kind of talk.

45:38Dave Meier:By the way, if you don't do that, Nathan, where are the renters going to live, you selfish bugger? The houses disappear if you don't buy them, Nathan. I literally saw that in the paper again this morning. All the time.

45:48Emily Flippen:So, like, someone's like, oh, if it wasn't for the investors, renters would have nowhere to live because the houses disappeared.

45:53Chris Hill:That's right. The investors all sold up, the houses just went poof, gone. I got looking at borrowing against my home, says Nathan, to buy shares in ASX listed companies and ETFs instead. Sounds like I can use the interest payments on that portion of the mortgage as a tax deduction. My understanding is you can, but I'm not a tax agent. While the value of the shares hopefully outstrips inflation. You want to outstrip not just the inflation, but the repayments, Nathan, for what it's worth. But that's, I think that's, you may mean that or you may not, but just so you, just to put that in there. It's possible to do, he says, but it sounds like it's not commonly done for some reason.

46:27Chris Hill:I'm comfortable with my bigger repayments and with my risk and volatility profile. Excuse me, but what am I missing? He says, or asks. Why is this not common? Yet borrowing against your home to buy a rental place is. I discussed it with my bank who said they won't help me with a split loan. Only if I'm making the existing loan bigger. He says, hello, big spreadsheet tracking tool. Another bank is off to give me two mortgages to make the separation easier to document. Can you get your high-level thoughts and opinions on this strategy while I wait for straw man to be added to the ASX so I can invest in that too?

46:59Chris Hill:Nathan, the bad news is that Strawman's going to go straight to the NASDAQ. The ASX doesn't just have the liquidity to handle the size of business that Strawman is. So we kind of top out about$2 or$3 billion. So he's going to have to go to the US to get any sort of liquidity. Australia's lost the NASDAQ's gain. So sorry, Nathan, we can't help you on that one.

47:17Emily Flippen:It's got to be. It's got to be.

47:20Chris Hill:What's he missing, Ram? Why are people not doing it? Why is the bank not kind of keen?

47:24Dave Meier:It's cultural. There's no rational reason I can give you for that. I mean, people are entitled to their preferences. And when it comes to preferences, there is no wrong answer. There's a lot of people who just prefer property over equities for any number of reasons. And it's not me to tell them that they're right or wrong. But when it's sort of like 99 % preferable over one, you're kind of like, there's got it. Especially when there's no underlying reason.

47:49Emily Flippen:Because when you start, like, call me crazy. I like to introduce facts into a reasoning process. Just me. Just me.

47:57Chris Hill:Mate, you and Nathan are both going to have to leave the country. I'm sorry. You can't do that here either. You know, I do these things in a show.

48:02Emily Flippen:Better go on Vibes, I know.

48:03Dave Meier:But facts, if you want to use facts, it is the best performing asset class, right? Like it is an incredible vehicle for wealth creation. It has a lot less of the ongoing administrative costs than what property has, et cetera, et cetera, et cetera, et cetera. I mean, this isn't a property versus chair thing. I'm just sort of saying when you look at certain high level kind of historical metrics, it's just like at the very least it is. I agree, Nathan. It is strange that virtually no one does it. And even to suggest it, you do look as though you have people look at you like you've got two heads. Now, to be fair, property is not very well.

48:42Dave Meier:Property doesn't appear volatile and shares appear very volatile. and when volatility equals risk in the land of make-believe, which is where a lot of wealth managers live and academic financial people.

48:57Emily Flippen:I thought a financial planner was listening. You know I'm right. You know I'm right. If you're listening, I've got a bridge to sell you. If you want to have a serious debate as to whether volatility and risk are the same thing, then let's bring it on.

49:11Jason Moser:um uh so yeah there's there's no rational reason to do it other than um the fact that volatility

49:19Dave Meier:it's it's constantly not constantly but it's every working day between 10 a.m and 4 p.m you've got a you've got a quoted price whereas your property you don't have any clue what the value is until you sell it right and so and so one appears very stable one appears very volatile volatility can really spell disaster when you have applied leverage, because even if you end up being right in the fullness of time, you might breach an LVR limit and get stopped out. You become a forced seller at the worst possible time. Now, it is a little bit different with a home loan. If the property itself is the collateral and that's what's being measured against, Yeah.

49:59Dave Meier:Why wouldn't you?

50:01Jason Moser:I mean, I do. So that being said, and there's also a world of difference between someone who's got a 90 % loan to valuation ratio

50:12Dave Meier:because they put it all into a speculative commodity player

50:16Jason Moser:versus someone who's taken a 10 % LVR and they've bought

50:19Dave Meier:a broad-based ETF. Both are borrowing into their home to buy shares. But they're just like worlds apart in terms of the risk profile and just the structure of things. So, yeah, if you've sort of convinced yourself that share investing is not some reckless gamble that a lot of people tend to think it is, and you've got to, which it sounds like, you've got absolute massive amounts of equity so you could borrow it at a modest degree and stay a mile away from any risk of being called on that, I can't give you advice, but I can certainly say So it doesn't strike me as a disastrous idea.

51:00Chris Hill:I agree.

51:04Chris Hill:Why don't more people do it? Because shares are risky, because shares are volatile. Shares are seen as risky. Yeah, sorry, sorry. I'm putting both of the mouth, sorry. Yes, I'm saying inverted quotes. Shares are risky, shares are volatile. You're right. Yes, so in quotes. Why do people, because they say shares are risky, they say shares are volatile. they often cross collateralize so when you take equity out of your own home you're kind of adding that to run the mortgage and using it as a down payment so just the mechanics are different and it's just so it feels different which I just to be very clear you're right I should have put my word inverted commas around more clearly those are the reasons why people don't do it not why they shouldn't do it it's a bit like the RBA what should they do will they do it with different questions why don't people do it that's probably why is that a justification probably not to your point Ram

51:50Dave Meier:um i also misconceptions there too if you just and this is purely anecdotal so i shouldn't do this after just sort of crying about being data driven yeah but i think this will probably resonate for a lot of people it's like when you speak to property investors you'll hear things like never goes down yeah yeah you know doubles every 10 you like these sort of items of faith that get thrown and again like i don't want to get into the debate but it's just whenever you start investing with that degree of certainty which is a level of certainty that's not rationally

52:18Jason Moser:supported um i i think that explains it because he's like well i'm taking on huge amounts of debt but it never goes down to double zero you're like yeah okay but but but but it is a strategy that is that is informed or or at least partially rests on false assumptions to my to my way of thinking

52:36Chris Hill:yep i think that's fair um so why wouldn't you do it i guess you say probably doesn't go down that's true properties never go to zero or at least almost never go to zero shares do um you you're more likely to have permanent loss of capital in shares than property, in my opinion, across the board. Because the median company, or not even the median, what am I trying to say? If you look at the distribution of ASX returns and the distribution of property returns, the distribution of property returns is much, much, much, much, much tighter than the distribution of shares. Now, there's not a reason not to do it, but it is a reminder that if you're borrowing to do something, some people will say, if I borrow money and my range of outcomes is plus and minus 20%, Okay, well, I don't want to lose money, but I get it.

53:18Chris Hill:If I'm borrowing money, my range of outcomes is plus$1 ,000 minus$100. I might still do it on a probabilistic basis. I probably should, depending on how those probabilities actually play out. But you've got to recognize that the borrowed money may go to exactly zero. And you might have to pay more on your mortgage forever because you bought a crap company that went broke. And so that's some of the reason why it is different. And I'm not a property investor. I'm not particularly fond of property. I've said before I'd happily buy one at the right price because I like money more than I like asset classes.

53:46Chris Hill:Yeah, me too. Me too, for the record. Yeah. Of course. So that's kind of what's not done, Nathan. Lack of familiarity with shares, lack of comfort with volatility. Frankly, for some, maybe even most people, they shouldn't do it because if they're going to pick a stock or a few stocks and not manage their portfolios properly, doing that on borrowed money is terrible. So I'm going to speak out of both sides of my mouth. I reckon most people shouldn't use leverage to buy shares, period.

54:10Emily Flippen:Yeah.

54:11Dave Meier:because we just talked about imagine you did that with NVIDIA NVIDIA NVIDIA and you did that in November of 2024 six months later 40 % evaporated right

54:20Chris Hill:and you sell that guy about this was stupid I'm not going to lose any more money I can't deal with the pain now it's bad enough if you actually use your own money if you use borrowed money you're paying that back forever right so not only do you have the pain

54:29Emily Flippen:of locking that loss and that extra debt burden but now you're looking at it going I made a terrible mistake correct why didn't I hold my mortgage is now X dollars higher

54:37Chris Hill:well yeah that's right both you know like that's what's going to get you

54:40Emily Flippen:that's what's going to like drive you to drink.

54:43Chris Hill:So most people shouldn't borrow to buy shares in my humble opinion. I'd like to put a few people on investment properties, but that's a whole different question. And I say most people like, and so my general advice is don't use leverage to buy shares. Now I say that at the same time as recognizing Ram's absolutely right. If, so this sounds stupid arrogant, right? And so just take it, you know me better than this, Nathan. I listen to you better than this. You shouldn't do it. I could. How arrogant is that, right? Now, Nathan, I'm not saying you personally can't. I'm saying every listener right now, the 12 of you listening, if all 12 of you do it and one of you goes broke doing it, then I feel like an idiot and I'm not going to say anyone should do it.

55:19Chris Hill:So I'm going to say, don't do it. Please don't use margin to buy shares. Don't borrow to buy shares. Why? Because if you do it badly, you'll hate me and you'll hate yourself and you'll make the situation worse rather than better. And that's a terrible financial decision. Now, is it possible to use it well and responsibly? Yes. But as I've said a million times, 90 % of us think we're above average drivers. So the amount of hubris and those 12 people that are listening, I'm going to say, because you're all smart people, 90 of you could use it well. Two of you will get average returns. One's going to go badly.

55:48Chris Hill:But all 12 of you or 11 twelfths of you think, I'm above average. I'll be the one who uses it properly. And so that's always the problem. General advice is problematic for all those reasons, right? If you said to me, Scott, you can control the levers, a bit like Michael Burry in The Big Short, right? Burry says, you can't have your money back. I don't care. And you hate me. You hate my guts whenever you're forced to 40%. And I'm like, no, I'm not giving you your money back. Yeah, but I don't care. In that circumstance, if I could make you borrow money, pay really low rates for a very, very, very, very, very long time and be really diversified and not be able to access it when things go badly and not be able to access it when things go well, just have to see it out, I think you should do it, Nathan.

56:29Chris Hill:Not you personally. Okay, give you personal advice. I think anyone should do it. But I know that I don't have that control over the people that we're talking to. Now, am I being an anti-statist? Yes. Am I being a bit condescending to some of our listeners? Absolutely. Some of you are laughing at me and cursing me and give me the side eye and bloody Phillips is so arrogant. He thinks I can't do it and he thinks he can do it. What makes him special? Nothing. A bit of experience makes me a bit more battle-hardened, frankly, but it doesn't make me special. So, yeah, it's a hard one, Nathan. If Andrew said to me, Scott, I'm going to borrow – my house is worth – it's probably worth, what,$7 million, I think, now, your place, the place you've got with the 15 cars.

57:06Dave Meier:The holiday home or the –

57:08Chris Hill:Oh, good point, good point. The estate. The Jordan Castle look was really interesting for you to go with, but I'm there for it. Andrew, he talks about the holiday house and the estate. The reality is they're both in Point Piper, so it's not really even a holiday house. But if Andrew said to me, Scott, I'm going to borrow 10 % of my – I'm going to – I've paid my house off. I've almost paid my house off. I've recorded a left, Nathan, your example. And I'm going to go to the bank manager tomorrow, borrow$100 ,000 and go put it in a diversified range of ETFs. I'm like, dude, that's a great idea. Knock yourself out.

57:35Chris Hill:because I know I'll do the right thing with it. So I'm all over this because I feel very responsible for our listeners. I don't give advice, so do what you want, but I don't want to leave anyone up the garden path. The question, Nathan, I would ask myself is, do I have the experience, not just do I think I might do it this way? Have I been? I wouldn't borrow generally. If you're going to, don't borrow money to invest unless you've been investing for 10 years. But go through a couple of cycles. Did I manage to do the things I was supposed to do? If the answer is yes, that's a pretty good start.

58:09Chris Hill:Which is very different.

58:10Emily Flippen:Do I think I will react the right way?

58:12Chris Hill:Right, exactly. I'm smart. I'm tough. I'll be okay. No. Talking to you off air, right?

58:16Dave Meier:I was just like a mate that I'd spoken to, you know, and it's just like before I made that mistake and I said, okay, but understand, like, it's going to be really crazy and volatile. Yeah, yeah, yeah, yeah. No, I'm totally good. No, I'm serious. Like, it's going. It's not might happen. It will happen. Like, you really got to make, oh, yeah, yeah, yeah. You know, I know every other day there's a text message, you know, and it's just like, oh, none of us act the way that we think we are. And so Scott's point of actually having gone through fire and experienced that sheer terror of seeing your net wealth drop precipitously, you know, and still doing the right thing.

58:49Dave Meier:It's very different to thinking, oh, yeah, I think I can do that. It's like it always looks easy. It's like sitting on the couch drinking a beer and watching the Olympics. Yeah, I can do that. No, you can't.

58:59Jason Moser:Or prove that you can do it. and then maybe make some claims, right?

59:03Chris Hill:Correct, correct. So do it for X years, go through a cycle, go through a downturn and then borrow a reasonably small amount compared to the value of your home so that you're not A, putting yourself at financial risk and B, putting yourself at emotional risk. The bigger it is, the more it's going to hurt when things fall. So you always increase it later. Do that. I would then absolutely be different. Don't pick stocks. If you want to pick stocks, pick 40 stocks or 20 stocks. Don't pick three. If it's ETFs, fine. if it's ETS plus something great, be diversified so you're not going to get smashed.

59:34Chris Hill:And then just, I don't know, burn the piece of paper with your brokerage password on it, right? And just let it do its thing. Because you have to be comfortable. You're going to earn more after tax than the interest you're paying after tax and sufficiently more to make it worthwhile. If I'm paying five and a half and earning six, I'm probably not going to bother, right? Because for all the hassle and stress and whatever, I might get ahead. Go around.

59:58Jason Moser:Well, I mean, I thoroughly agree. I couldn't agree more, but I'm laughing to myself because Nathan also had the advice from these extraction managers, wealth managers, sorry, wealth managers, that you need to buy an investment property to pay tax. Now, you're here going, if you're not going to make more money than you spend in interest, that doesn't make any sense. And I'm nodding away and I'm sure my wife's like, yeah, it doesn't matter. Mathematically, why would I do that for him? I'm borrowing money to lose more money. That doesn't make any sense. That is – so when a wealth manager or whoever says to you, buy an investment property so you can pay less tax, the government doesn't give you the ability to avoid tax just by virtue of owning an investment property.

1:00:41Jason Moser:You get to pay less tax if in that fiscal year you lost money on a cash flow basis. I'll say that more simply. If you lose money, you pay less tax. Yeah. And that's the strategy, right? Yeah, correct, correct. So just, sorry, I couldn't help it. And I was like, yes, you're saying the exact right thing. And yet that is exactly the opposite because you're talking shares, right? But if you were to say that in property, people go, no, no, no, no, lose money. Lose money. Correct. Like it is insane. And then I was like, okay, okay. Just before anyone writes in an actual email, I was like, yes, I get it.

1:01:16Jason Moser:It makes sense if the eventual capital gain makes up for the loss and then some. We combine it all on an after-tax basis. And historically for a period, that's been pretty good. But that's what it's all predicated on. It's all predicated, not just on a capital gain, but a sufficiently large capital gain. And it's kind of like, there'll be a lot of people, I think, who at one point look back and go, geez, I wish I paid some more tax on my investment property income.

1:01:41Chris Hill:100%. So yeah, that's my answer. So yeah, technically, can it be done well? Yes, if your return is going to exceed the cost of the borrowing. that's money for carry trade at some point right you borrow six you earn nine you're ahead and you do that every day now are you going to get the six are you going to stay the course all that stuff that's what brings let me write that hackneyed example long term capital management right a hedge fund in the 90s Ram late 90s yeah Google it if you haven't heard of it Google it it's a 12 very important

1:02:15Jason Moser:Nobel laureates from memory

1:02:17Chris Hill:PhDs up the wazoo

1:02:19Jason Moser:IQs just triple, quadruple anything we could even pretend to have. And then we broke. Spectacularly broke and nearly brought down the entire US economy.

1:02:29Chris Hill:Well, Buffett was approached to bail it out. So is it a smart strategy? Yes. If it's executed badly, is it a dumb strategy? Yes. Also, yes. Please know yourself, if in doubt, take less risk. Because if you own three quarters of your house, you've probably got some money you can put aside for investing. at some point the risks you take are not commensurate with the returns you can get I've used Buffett's line a lot people who have who risk what they have and need for what they don't have and don't need don't risk going back to square one don't risk make yourself worse off do sensible things that are going to make likely make you better off over time and kind of you mentioned wealth preservation the other day the having once you get to a certain point I don't know where you are uh for yourself nathan i'm not asking you've part of three quarters of your house at least value wise at some point enough's enough and taking more risk at that point risking going backwards on that it's like yeah you know i do it if you want but at some point it's like i can i can kind of pull my horns in a little bit pull the always in a little bit just because you don't need to take the risk and anything times zero is zero so maybe just keep it Keep it slow.

1:03:39Chris Hill:Yeah, nice. One from Drew, who says, in brackets, my real name. Does he protest too much? Is it really Drew? Or is Drew wanting to think it's really Drew? He's in mind games. None of my friends or family talk about investing, or money even. When I say I invest in shares, they look at me like I'm mad. For some reason. I know that look. Yeah. That was Bitcoin. Not shares.

1:04:03Emily Flippen:Oh, I definitely know that look.

1:04:05Chris Hill:for some reason says drew or allegedly drew talking about money has always been a bit taboo you know who talks about money rich people for the rest of us it's a bit uncouth that's why your podcast is so great see i thought you're gonna talk positive originally eventually drew a compliment you talk about the stuff that all your listeners really want to talk about and really should be talking about thank you mate so here you go from drew this this this puts his his real name in context. So instead of asking you guys a question, I ask one small favor of my fellow listeners. Please don't be anonymous.

1:04:39Chris Hill:Whenever someone writes in and signs off as anonymous, it's just another signal that we're not supposed to be talking about this stuff. It makes me feel like I'm less part of a community of interested people. And here's a tip. It doesn't even have to be your real name. Just make one up. Any name will feel more friendly than anonymous. And I'm sure Scott and Andrew, who put all their thoughts out there attached to their real names and social media handles, would appreciate the gesture. Thanks, Drew, my real name.

1:05:08Emily Flippen:But maybe you made it up, Drew. No, I mean, I agree that it's something that we don't talk about enough. I actually think with children

1:05:22Dave Meier:sort of going through high school at the moment, it's just sort of like bizarre to me how, you know, when you think like, how important is this stuff?

1:05:29Emily Flippen:We don't teach it. We teach them stuff. It's just like, the boy comes home and is like, let me tell you, that's all wrong. You're allowed to fail this. Like, I hope that you fail this exam because that is just absolute poppycock nonsense.

1:05:44Chris Hill:Speaking of RG146 exams.

1:05:47Emily Flippen:Oh my gosh.

1:05:49Chris Hill:So just a quick insight.

1:05:50Emily Flippen:We're compliant. So we obviously know what we're talking about.

1:05:54Chris Hill:Yeah, a quick insight. when you give financial advice, when you're a representative of a licensed financial advice provider, so the Motley Fool is one of those, for example, I have to do a little test to show that I'm capable of knowing the things I need to know to provide financial advice, right? Which is totally appropriate. Some of the questions though, volatility being risk, that's the classic, right? And so when I ask the question about that, I have to answer a certain way because if I don't answer that way, I get the question marked wrong. If I get too many questions marked wrong, I'm not allowed to give financial advice, which is fine, except that Andrew and I would say a decent minority, not a majority, but a decent minority of the questions and the answers are either irrelevant or complete nonsense.

1:06:31Chris Hill:Formulas and algebra and those kind of things.

1:06:34Emily Flippen:And also if you can fog a mirror, you can pass it, right? Like these aren't hard. Like they want you to pass. Like I could tell some stories, but I won't. But I remember the very, very first time I had to do it at a certain organisation, they basically gave us the answers. Like you'll never find anyone admit to that, but it's just, this is a quick insert rant here.

1:06:53Dave Meier:This is why I'm usually pretty negative on regulation, not as a concept, but in terms of the execution of it. There's a lot of extra work and effort that goes into something that never solves the problem it purports to solve in the first place. It's sort of like something bad happens in the financial space. Well, a lot of cowboys out there giving bad advice. We should make sure that everyone knows what they're talking about. It's hard to sort of fault that sentiment, right?

1:07:20Chris Hill:Yeah, yeah.

1:07:21Dave Meier:But then what happens?

1:07:23Emily Flippen:It spawns this sort of pseudo education sector that gets paid on the licenses that people who pass, they make it super easy. It actually like anyone can get through and it just keeps out voices that otherwise might actually be well worth listening to, right, that are out there.

1:07:40Dave Meier:It's very counterproductive, I think. I'll give you an example. I told you, probably a little bit controversial. We're a bit out of town. My grandfather had this old.22 rifle. dad was going to chuck it away i said i wouldn't mind keep it sentimental it doesn't even work

1:07:55Jason Moser:right but i had to get a gun license to do it right so i'm not not a gun nut don't at me i've got a gun right and i've got a legal gun but getting the license was just like it was so it was like i told you off air dude it was such a surreal experience it was like like i don't know how you failed that exam right i i don't know what level of brain injury you need to have to not get your And if you don't pass, you can try again and again and again. Now, let's step back here and you go, wait a second. At some point, someone thought it was probably a good idea that we just don't have all these like murder weapons out there and maybe it's a good idea that we sort of license, you know, rah, rah, rah.

1:08:36Jason Moser:And it's like, but usually these things sort of devolve into this pointless bureaucratic box ticking operation that actually doesn't even solve the problem. And yet, you know. It makes you feel better. It feels like I'm a licensed representative. And one final thing, and I'll shut up. Again, if you're giving advice on property, which is by far most people's largest financial asset, always involves leverage. You don't need. You don't need any license.

1:09:03Chris Hill:Property is exempt from financial services licensing that shares require. Right?

1:09:07Jason Moser:But if I tell you buy an ETF, you could sue me. If I say leverage up 100 to 1 on 12 different investment

1:09:16Chris Hill:properties of negative cash flow, I'm golden. the thing is even if the ETF went it doesn't matter how the ETF goes ASIC could still because it'll take you to court giving advice even if the advice was great yeah without a license you still get taken to court and you still have action fines and whatever against you and if you're right you're going to have one hey come and buy this timeshare property in Queensland and leverage up you know 20 to 1 because I have 5 set deposit these days so let's go 20 to 1 and I can make all these sort of promises and I can do all this stuff there are some rules around misrepresentation that kind of fall under consumer protections but there's absolutely nothing in the financial services legislation to stop people giving you advice on property.

1:09:52Jason Moser:Isn't that just – It's bizarre. It's so – It's not bizarre actually.

1:09:56Chris Hill:It's completely understandable and just ridiculously wrong.

1:09:59Dave Meier:Yeah. Yeah. And the final point is it's just like you can have an opinion but you can't have your own facts. It's like we've had RG146 compliance regulations for decades and just look at the amount of malfeasance in the sector. Okay. Everywhere.

1:10:17Jason Moser:Everywhere. I'm just like, it doesn't work, guys. Maybe it would be even worse if we didn't have -

1:10:22Chris Hill:We don't know the counterfactual, but you're right. Sure. It's certainly not having the desired effect. Right. It's falling short of what we should hope it would achieve. Yes. That's unquestionable. It's absolutely the case. It really does. And again, because it tells you what you need to know to give financial advice. It doesn't make the financial advice good advice. Yeah, absolutely. And that's kind of like the - And it's why I'm really on the fence, mate. By the way, Joe Longo was stepping down as ASIC chair. He has done a spectacularly good job, I reckon, as ASIC chair over his tenure. So massive shout out to Joe.

1:10:52Chris Hill:Not about the licensing staff that's by the by. I actually kind of half agree with you. I'll get back to that. But he's done a really good job of chasing down a lot of corporate malfeasance, I think, frankly, better than his predecessors have. So I just want to give him a shout out because I don't know if he's a bar of soap. It serves a shout out just because of how limited they are

1:11:08Emily Flippen:in their power, authority, and budget as well. Yeah, totally right. I do throw a bit of shade at ASIC from time to time. But, you know, there's a lot that they don't get. And there's a lot that, like a lot of police,

1:11:20Chris Hill:there's a lot of people like, that's a bad guy.

1:11:23Jason Moser:I actually expect that. I can't, I don't know if you have it. Like, I bet you if you tripled their budget and, you know, et cetera, et cetera, there'd be a lot of more stuff that they would find. Yeah, of course.

1:11:33Chris Hill:Anyway, so just to shout out to him. On the license stuff, I'm with you broadly, mate, I think. I don't think it's unreasonable to make sure that people have a basic understanding of the financial sector before giving advice? Because there's something about, you know. Yeah, the intent is reasonable. Anyone who could pass it, they still at least have to do a little bit of work to know the answers. You can't do it with general knowledge. I couldn't grab my, you know, 30-year-old and throw him in front of the session and pass this. You wouldn't know the answer to some of the questions because they're finance-specific, right?

1:12:02Emily Flippen:Yeah.

1:12:02Chris Hill:But it's not hard to do, as you say. So I kind of, on one level, this is always the good intentions problem without going too far off a tangent. is it reasonable to hope that people providing advice have at least a base level of understanding? Yeah, probably Does that though make sure the advice they're giving is quality advice? No and that's where the really big issue is Does it stop bad actors being bad actors? No, there's bad actors with a qualification, right? So it's really difficult, so that's why I'm kind of half with you and half I think it's worth having to demonstrate some understanding but to then say, oh good, you've passed the test, you're on the inside now, free reign, knock yourself out, who cares what you do next.

1:12:41Chris Hill:And not that ASIC does that, but there's no requirement or it's not necessarily the case that just because you pass the test, your advice will be good. And that's the hard part. Here's the other problem though, and this is where the licensing is both good and bad, is you and I would disagree on what good advice is compared to the test requirements. Things like diversification and bonds and portfolios and all that kind of stuff. Do bonds help diversify a portfolio? Yes. Would I reckon them? Hell no. What have I got to answer in the question? I'm going to answer, yes, they help diversify a portfolio because that's the right answer.

1:13:11Emily Flippen:And you'd have to say with a straight face that they're really low risk. Right, exactly. Right, there's a lot of risk, yeah, exactly. It's a direct contradiction to very specific and accurate historical evidence, right?

1:13:22Chris Hill:So it's kind of hard. I don't blame them for wanting to have a standard. To your point, is it just box ticking? Does it actually help? Funny story, this is kind of – I'll follow this on to the kids who are all right. So I – years ago, like when TV was in black and white, I used to have a boat licence. and my young bloke's getting into fishing and he's loving his fishing. So I told him that if he got his boat life, we'll give him a little tinny. So that's kind of in our future. So last weekend, we went down to Sussex Inlet, which is on the south coast of New South Wales. We sat down with really good people at Marine Rescue.

1:13:53Chris Hill:They're all volunteers. They do a really great job. So shout out to the Marine Rescue guys. Nice. Right up and down the coast and I believe in other states as well. But yeah, so they gave up half their day to take a sewer course and really great. So it was me, my young bloke, my mate's kid, and three, I think, other adults there. And we did the test. And they gave us a three-hour course. We studied the book beforehand and that kind of stuff. The boys, and thankfully I, passed it first go, walked away. The other three adults all failed. And it was just kind of, to open a foggy mirror and work, I don't know, just the kids are all right.

1:14:28Chris Hill:The kids actually made the effort. And I think there was some element of, I don't want to, lovely people, by the way. Why did the adults get it wrong and the kids get it right? but probably because the kids don't have a level of expected result or think they know what they know. It's too easy to cast dispersions in both directions, but the kids did the work and they passed. The adults, now they had a second sit, to your point about sitting the test a couple of times. We left after first one because we got ours, so we were sweet and we were out. We didn't have lunch. Yeah, it was one of those kind of cool things that, I don't know, it was nice to see the kids do well and the adults were lovely and they gave the kids congratulations and it was a really nice environment.

1:15:02Chris Hill:But I don't know if the kids just kind of didn't assume they knew everything and kind of got on with it. There's something – there's a parallel somewhere there to investing of knowing what you don't know or doing the work or putting aside your preconceptions or whatever it is you think you know. By the way, I'm sure if I had to pass the New South Wales road driver's test knowledge test, I'd probably fail these days. I got my license a long time ago. If I had to do it now, I'd say you're safe.

1:15:27Emily Flippen:I'd feel much safer in a car with you than I would someone who's had six months of driving experience that can pass the test, right? True that.

1:15:33Chris Hill:And that's probably the – does it mean anything? Probably not. You mentioned tests and the gun license stuff. And I just thought it was just kind of, A, it was cool for the kids to get their license or pass their test. That was kind of fun. Yeah, just they did it and the adults maybe, again, for whatever reason, there's something there. I don't know what it is, but there's something there.

1:15:49Emily Flippen:I guess the so what would be in this context would be if you see someone for advice, and there's a lot of great people who give you a lot of great advice, so absolutely acknowledge that. but don't see the certificate on the wall as evidence of that. You know, it's just like you've - That's a really good point, actually. You know, it's credentialism is a thing and it doesn't -

1:16:11Dave Meier:I would say this as a general anecdotal observation in my own life of all of the best investors I own. I'm not talking about the Buffetts and that that I don't know personally. Of all the investors I personally know, I struggle to think of any that were classically trained. In other words, they were all people who had various backgrounds who, like listeners to this podcast, just had a curiosity and an interest towards investing. That's right. You mentioned Michael Burry before. He was a medical doctor.

1:16:36Emily Flippen:Yeah, that's right. He used to work in fast-moving consumer goods. Yeah, yeah. I got a degree in microbiology. You know, I could just go through the list of all of our – you know half of these guys as well, right, and girls?

1:16:48Dave Meier:And they just sort of like – but they were super curious. They learned. They made all the mistakes. They stayed with it. They read the books. You know, it's just sort of like, you know, if I had to give my money to them or someone fresh out of an MBA who's never invested like a thousand dollars of their own money, I just like just I don't really care about your credentials. I care about your track record and the qualities you have as a human being.

1:17:12Chris Hill:So I love some of my colleagues who've done further financial education. You know, graduate diploma of applied finance and investment. You can do a master's of applied finance and investment. you can do a CFA, a chartered financial analyst course, which apparently is super rigorous. Yeah, that one's not an easy test. And some of my team have done that, and they're smart guys, and they want to do it because I wanted to do it. I've got to say, I started the graduate diploma in applied finance investment twice, and I got through the first couple of studies, just gave up because it was just – you think the – I don't know if you've ever looked at it, mate.

1:17:45Chris Hill:The RG146 is annoying enough in terms of the stuff you're supposed to think and believe. The graduate diploma – We've had people ask before about, you know, what should they get a career in the industry? Probably do it because that's what the credentials they're looking for, to your point. You do it to get the job, I suppose. I already had the job. I was like, I just could not make myself be interested enough to go through the motions for something that is largely just, boilerplate, you know, cookie cutter, this is what the industry says you should do and what you should know and what formulas you should use.

1:18:15Chris Hill:It's the formula for the capital asset pricing model. Right, that's what it was. I was like, I mean, it's useful. Know your enemies, right, it's useful. So I'm not saying it's nothing. but yeah that was exactly what it was and i just i just i started it twice and just went i'm not wasting my time and money on this i just i'm just i just not it's not it's not going to make me a better investor same with the cfa and again i say that knowing some of my colleagues who are smart capable people think it's really useful and so my opinion is just different to theirs have i ever considered doing it not for a second uh not because i've got nothing to learn because i'm that arrogant i'm not i don't know everything but do i want to do central casting you know finance course and learn about options pricing models and capital asset and efficient mark hypothesis no i just i just it doesn't help me understand businesses and understand reasonable prices to pay for those companies so i kind of you know i don't want i'm not trying to throw shade for the sake of it but we create these why do we create the credentials because it helps climb the greasy pole and if you've got a cfa you'll get you'll get an interview ahead of someone with a master's applied finance and investment you've got a master you get an interview ahead of someone with a graduate diploma if you've got a graduate diploma you get an interview in front of someone's got a bachelor's.

1:19:17Chris Hill:Is that the way it should work? To your point, mate, I agree with you completely. Some of the best investors we know have not done that, have come through different ways, different directions. They've learnt their skills elsewhere.

1:19:32Emily Flippen:It's called their curiosity and built experience. It's called being a waste of time.

1:19:36Chris Hill:Anyway, so everyone's different. Do your own thing. Don't chase the credential. I think my last point on the qualification in terms of the RG146. By the way, that's the regulatory guide 146 where it comes from, for anyone who's still listening and is curious. It's just what they do. Someone who's giving financial advice on behalf of a license holder should know these things. That's the regulatory guide we're giving you. And so that's the number of the guide and that's the code it's given. So that's what we all do. As a matter of course, I think you should find someone with that qualification or that certification.

1:20:11Chris Hill:Just don't, it's, as we had a lot of other areas, necessary but not sufficient. If they haven't got it at all, you're asking yourself, why am I listening to this person? And that doesn't mean they're not worthy of giving advice, but it's a pretty good starting point that at least they've made some sort of effort. They're representing some sort of license holder. There's some effort being made to go through that motion and do at least the bare minimum. Just know that it is the bare minimum. It doesn't mean they're going to give you great advice. It doesn't even mean they're going to give you unconflicted advice.

1:20:38Chris Hill:It just means they've done enough to get to that step. So I would say look for that at least. Most will have it almost by definition. just don't go, oh, stipulate on the wall, therefore this advice must be good advice. It's often wrong. It's often conflicted. Not always, maybe not even most of the time. Just be careful about falling for the stipulate on the wall. You know, this person must know something about something. The asymmetry, the kind of power asymmetry of the person in the suit, normally a bloke, behind a desk with stipulates and big binders worth of information who speak in Greek letters and formulas and make you feel like you couldn't possibly do it yourself.

1:21:12Chris Hill:They can add value for sure. They know a lot of specifics that you may not know. So I'm not saying know them at all. I'm just saying just keep that in mind when you listen to someone and are tempted to give them more credibility than maybe they deserve just because they've done the box-ticking exercise and have the certificates of letters after their name or whatever else comes with it. Yeah, and just extending on that, it's also don't – it's your money.

1:21:37Emily Flippen:It's your decision. Seek advice. All of us should seek advice.

1:21:41Dave Meier:You know, even if that is advice is just bouncing ideas off a friend, but just, you know, no one's an island, right? So there's absolutely, but I don't care. Even if Warren Buffett himself comes over to your house and says, Bob, you should buy this.

1:21:56Emily Flippen:I would say, well, that's a pretty good lead, but you have to own that decision.

1:22:01Dave Meier:You have to own that decision. So someone who provides really good advice will tell you what they think with the specifics, but they'll also tell you why they think that and they'll back up the reasoning around it. You need to make your peace with that, right? Like we spoke of David Gardner earlier in this pod. He comes around and he says, I love this stock. This is the highest conviction stock I've ever had. Now, should you pile all your money into that? No. You should think about it. He's probably worth listening to. But he's also probably would say, well, strike rate's really low. Six out of ten don't go that well.

1:22:33Dave Meier:and so this is just literally one stock and even the ones that go well don't go well straight away

1:22:36Jason Moser:and I could be completely wrong but I mean what I would do in that scenario is go that's really interesting I'm really going to have a close look at this maybe I should maybe I should look at it right but but you you you can as I say you can borrow an idea you can't borrow the conviction right and so you it is a little bit something that sticks in my craw where it's kind of like the

1:22:55Dave Meier:I think a lot of us like getting financial advice because it allows us to abdicate responsibility and it's always your responsibility. You're the one who's pulling the trigger at the end of the day

1:23:06Jason Moser:and you've got to be comfortable with that. I know it is uncomfortable as a general rule, but, you know, it's just that discomfort will sharpen your thinking and heighten your awareness of risk. It's a good thing rather than the false security blanket of a certificate on a wall and, you know, some finance bro and a fancy suit and a fancy office. It feels comforting, right? Yeah, yeah.

1:23:35Chris Hill:Can I answer that a little bit, mate? I think it's worth calling out – you mentioned Buffett. If Buffett's going to buy a stock, I'm buying the stock probably, right? I know you're an extreme example. But here's why not only should you check to make sure you actually agree with the rationale, but as soon as Buffett leaves, then you own the stock. And it's your job to work out, do I hold it tomorrow or do I sell it tomorrow? What about in a year's time? What about when the next earnings results come out? What about when every analyst says sell? What about when the economy turns down? What about when they take on some more debt?

1:24:10Chris Hill:What about when they make an acquisition? And if you have, so it's, even at that point in time, even if he's right at that point in time, Buffett could sell it the next day. Not because he's screwing you. He read something new and changed his mind. New information, new price, whatever. And so not only should you make sure you're buying well and on your own volition, So even for the buy recommendation, your point around the buy decision, you're absolutely right. I think as important, maybe even more importantly, particularly if you trust the person giving you the advice is, what about in six months?

1:24:36Chris Hill:Is it still a buy then? What if you can't get Uncle Warren on the phone, then what do you do? If I sell, it goes up, I'll kick myself. If I don't sell, it goes down, I'll kick myself. I don't know what to do now. If you know why you're buying, if you know what you own and why you own it, it's a Peter Lynch. That opportunity is the answer to some degree to give you that answer. that's the story so make sure you know when you're buying for sure but as it turns out I reckon it's even more important because then you gotta know whether or when to hold and whether or when to sell and those things are a whole different thing I think that's why having the conviction knowing your own idea for me that's why it's so valuable yep yep

1:25:15Emily Flippen:piece of paper or no piece of paper yeah

1:25:17Chris Hill:there you go done nice

1:25:20Emily Flippen:I reckon we're done Mr. Page will you come back next Friday as long as I don't have to get a license to do so, then yes, I will. Imagine if we had a podcast license.

1:25:29Chris Hill:What would we have to do to pass our podcast licenses, do you reckon?

1:25:34Emily Flippen:You'd have to say like and subscribe a lot.

1:25:37Chris Hill:Smash them. That's YouTube, though. Do you get some podcasts?

1:25:41Emily Flippen:Oh, I guess leave a nice review. I don't know. There you go. I don't know. Yeah. The world would be a poorer place, though.

1:25:47Dave Meier:I mean, isn't that a fascinating thing? Like the absolute depth, breadth, and quality of podcasts that are out there is probably because there's no barrier to entry. That's a good point. You don't want to know what happened.

1:26:00Emily Flippen:Yeah, yeah, yeah. If you had, like back in the old days, you had to get a TV licence before you could broadcast, well, we'd have three or four different opinions out there, isn't it? Isn't it a wonderful thing that there's such a diversity

1:26:11Dave Meier:of different opinion and thought out there?

1:26:14Chris Hill:And thank you for sticking around for our diversity. Until next Friday. We love you. Fool on. Cheers.

1:26:21Jason Moser: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.