Mailbag: incl. Lessons from losers. The stocks, that is. August 13, 2023

29:16And what you might... Buffett talks about people, he says they risk what they have and need for what they don't have and don't need, which is madness. If you're on track to get$2 million, imagine someone said, here's a lotto ticket. I guarantee you it's a winning ticket. You'll have it in 10 or 25 years' time. This is a$2 million lotto ticket. That's literally what you've got right now. You pay$200 ,000 to get it. It's not free. but it's okay so you got you got the ticket someone says hey tell you what um let's take the ticket down the down the casino see if you see if you make more money than that risk risk the lotto win because you might get more you might get less but have a go i don't know i reckon the the greed is what gets you to to make that risk i'm not it's not i don't mean critical when i say greed it's just human nature as we've talked about before uh that that'd be my my best advice i love um one of there's a lot of things i hate about the share market and all the the grubbiness that's around it.

30:10But one of the really special things about it is it really democratizes access. The things that in a bygone era was only the very rich and powerful could do. And you could be on 50 grand a year, you know, but if you can scrape together a little bit of money and once a year you buy $500 worth of stock, you can own a part of the biggest, most profitable companies in the world, whether that Berkshire or Apple, CSL or Cochlear here in Australia. Like there's lots of really good things. You can do that. And you can do it through an app these days. And you can do it for virtually no brokerage as well.

30:44It's just, it's such a powerful thing. And we rightly think a lot about money because it is the, you know, the lubricant of civilization. But when you really go back to first principles, the things that really matter, I mean, they're scarce, right? And they're just, there's only one apple. There's only one Berkshire. You or I can't replicate those things. We just can't. Maybe someone could eventually, but it's very, very hard to do. So whatever happens to the economy in the future, whichever way things sort of shape, they will all people, whatever inflation does, right? People will always value those productive assets that have the capacity to deliver products and services that will always be in demand and they have some pricing power around that.

31:31And that is, keep it simple, right? That's what I want to own. What do rich people own? They own that. They own Manhattan real estate and really great companies. That's what they own. And look, yes, price matters. So don't try and catch me into saying that I just recommend a property.

31:53But that's what matters, right? And there was a time where you could say that was just not, I can't do that. But now, particularly in Australia, you can. I don't care what amount of money that you're on. You can save aside a little bit each week, even if it's$10 a week. You'll get – yeah, anyway, point, mate. We are astonishingly fortunate. Yeah, the other thing, Alex – well, last one, last – Alex. Anthony, sorry, Anthony. I'll move to Alex's question, which is next. The other thing is think about why you're doing it, right? Think about what you want that money for, what you hope to achieve in your life, and make that the centerpiece.

32:31So I don't know, too many bucks, that's financial freedom, right? That's I'm done. And if you want to be able to say, I'm not worried about money anymore. So for me personally, I want to have an income stream from my investments that replaces my work income. So that if I decide I've had enough of this, the Motley Fool says, thanks, Scott, we've had fun, but off you go. We get canceled, as you said on Friday, Ram. Matter of time. Well, it's just, you don't have those worries, right? Like the ability to live a life, and this is the stupid thing, we talked about lifestyle inflation on friday the ability to live a life where you're like you know what i'm always again can't give any guarantees right which is stupid but i'll say it with the appropriate disclaimers i will always be okay from here i'm never going to be in a situation where i can't meet my basic needs and my family's basic needs that that is that that offer as you said mate only for the last 150 years have we even had the opportunity to do that as average people less than that probably 50 years 70 years the the the i don't mean blessing in a religious sense the blessing of that the that the stupid everyone in history would have would have literally right back kings and queens would have swapped their eye teeth to be able to say you mean i can work hard put aside a little bit of money yeah maybe i've got to spend a bit less on on exciting things and then the payoff is i will be fine for the rest of my life no matter effectively what okay no promises no absolutes because it's just stupid but you know what i mean i mean the reality is get too many bucks and you yeah if you're with financial trouble with too many bucks you're doing something wrong right so the ability to say i've made it i'm okay that that is that is such a huge huge unprecedented opportunity um focus on that as well just you know get to that point you know get to the point where you're like that's that means i'm good i don't have to try to be silly buggers i just want to get there safely don't risk the chance of not getting there get there go oh thank god made it that that is just an amazing amazing amazing opportunity work work hard for your money and then get to a point where your money yeah it's hard for it honey work hard for the money and then and then get to a point where the money works hard for you oh it's a bumper to do that there you go and and that and then you you you will then be able to live your life to whatever you know i mean and that's not about it's not about driving ferraris and buying yachts and all that stupid stuff.

34:49Honestly, it's not going to make you happy. Rich people are miserable as the rest of us. But it will bring you a level of freedom in your life to sort of have control over your time, which is the most scarce asset of all. And I think you just said it so eloquently, is that you're in a position now, as you are firmly in middle age, if I can say that, because we're the same age. But I mean, it wasn't bestowed upon you from a trust fund or anything like that. You just studied hard, you worked hard, you were born in a very fortunate situation with good genes in a good country. So let's not forget the luck element there.

35:25But you did the unremarkable for a very consistent amount of time, which is just spend less than what you own, put some into some good investments and sat on your bum. And now you're able to sort of boast of this situation. I hope that doesn't sound critical. I mean it in a very flattering way. And it's achievable to anyone, I think. yep i um let's flog this dead horse one more time i'm going to read something i've read before i'll read it again i don't even apologize uh is a john bogle uh paragraph quote here's how i recall the wonderful story that sets the theme for my remarks today at a party given by a billionaire on shelter island the late kurt vonnegut informs his pal the author joseph heller that their host a hedge fund manager had made more money in a single day than heller had earned from his wildly popular novel Catch-22 over its whole history.

36:16Heller responds, quote, yes, but I have something he will never have. Enough. End quote. Love it. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

36:33Let's move on, mate, to a question from Alex I mentioned before. He says, hi, Scott and Ram. I've got a question for the podcast machine. I'm telling you, Ram, they love the podcast machine. It's catching on. My question is in relation to short sellers, Alex. I've noticed two of my stocks, JB Hi-Fi and Pilbara Minerals, are on the list of the top 10 most shorted stocks. But I'm unsure of the impact that this will have. I assume when someone shorts a stock, this lowers the share price as they are selling into the market. And when they close out the short position, this increases the share price as they are required to buy back the stock.

37:07Therefore, does this mean once there is a significant amount of short sellers already in a position, that there's an amount of demand for the stock waiting to be purchased at some point how does the amount of short sellers on a stock impact your analysis of the company keep up the great work fool and straw man on alex good question hey yeah it is we all think about it um i don't i mean we think about it and then and then you reach a point we think yeah let them have their fun i i zero i I'm just checking now actually where it is. So there's a company called Nanasonics. They make a nano nebulant disinfecting machine that sort of helps with ultrasound probes.

37:51Really cool business. By the way, these guys have got so much cash and no doubt, like they're just such a rock solid balance sheet that it's just very difficult to conceive of them ever needing to, ever getting into any kind of trouble. Anyway, I'm not trying to shill for Nanasonics here. but um that was one of the most shorted stocks on the market for a time there and i remember me and some friends who we've got some shares like what's going like because i i'm very interested in the person that that disagrees with me and i'm i'm very i'm like this is it's almost a religion at this point to me um i i i want to understand the bear thesis and i want to really take it seriously and i might dismiss it and and ultimately you're going to have to otherwise you'd never revest in anything.

38:36But if I can't dismiss it, well, I know that I'm probably wrong and I'll get out. But I really want to think that through. And for the life of me, I could not understand like, what is the thesis? The only thesis I could come up with was the short thesis was, it's a bit overvalued. And there was some truth to that. But it's also a company's top line's growing very strongly. Anyway, I'm not going to start shilling for it. But I just ignored it. and you know what company is just fine it's absolutely just fine and i can still see it now is on the list of 100 most shorted stocks i don't know what those dudes are thinking and i say dudes because they're dudes right they're kens they're not barbies and and they are you've said that haven't you yeah it's great it's really good oh yeah it's good i don't want to oversell it you know it's it's a it's a money grab from mattel but you know it was it was done well it was done well um but uh yeah so let me let me summarize that ramble much more eloquently take notice of it absolutely ask try and discover what is the the the thesis here take it seriously um and and if if it doesn't shake your conviction then ignore it and if it does then then sell but remember this too so many of these short we for some reason people think that people on the long side make mistakes all the time but people on the short side are always right like yeah true that's the fear and greed thing right like we know psychologically we feel the the loss of we feel we feel the pain of loss three times the joy of a gain of a similar size so we're predisposed to thinking the long people who are long in other words people who own the stocks are pollyanna and always they're trying to took their book and they're they're probably not very you know they're very thoughtful.

40:20All of a sudden, there's negative people like, but what about, what about, you're like, oh yeah, they must be right because they're asking critical questions. No, it doesn't make any sense a lot of the time, you know, and it's sort of, and don't forget too, they're playing a different game. So I'm playing this game of trying to own a small piece of a, you know, company that over the coming decades will have good years and bad, but will continue to compound its earnings. These people might be going, I think in the next three months, the share price is going down. Same stock, same share market, totally different game.

40:51You know, I'm playing basketball, they're playing ice hockey. It doesn't, it makes, it's sort of like irrelevant. Now, if we want to have a discussion around a three month timeframe, we can have a discussion around that, but I just don't want to, because I can't do that kind of stuff. So what, you know, just ignore it. So I don't, you know, I wouldn't say just anytime you see a company very high on the shortlist that, you know, just it's always stupid. Maybe it's not, but at the same time, don't assume that it's always right either. Yeah, I think that's right. Look, I'm going to try to have a similar-ish ground, but a little bit of a difference, Alex.

41:32So you asked some specific questions. Let me talk to those quickly. When someone's short stock, this lowers the share price. Yes, relative to what it otherwise would have been because there's an extra seller in the market. And supply and demand means overall, if there's five buyers and five sellers, a sixth seller turns up. it's probably going to put downward pressure on the share price. It's going to be at a point in time and it's going to be a very small impact unless they're a massive, big institution or something. So yes, technically it has downward pressure. When they have to buy it back at some point, is it going to put upward pressure on the price?

42:02Yes, technically at some point they're going to buy back the shares. And so that's going to put some small upward pressure on the price. Where I would, I agree with Ram's point on short sellers, but I will just say very quickly that putting downward pressure on the share price at a buck and then putting upward pressure on the share price if they're right and shares have already fallen to 10 cents is not going to save you and you shouldn't think about the impact of those marginal buyers or sellers on any long-term thesis if they're right the price will fall and so at the point of they're going to buy it back they'll sell it a dollar buy back at 10 cents they've made their money and their impact on the share prices of zero consequence to you as an investor you're still going to get handed your backside.

42:39Similarly, if they're wrong, it's completely irrelevant. The share goes from$1 to$2. Maybe it would have been$1.01. Maybe it's now going to be$1.99. But the net impact is going to be that the company, as always over any long period, is going to, well, not absolutely, but almost certainly going to dictate the share price movement. So just keep that in mind. Don't get too clever or caught up in the mechanics of the short sellers. In terms of how does the amount of short sales on a stock impact your analysis? Two ways. Firstly, I want to make sure I'm not wrong. The more people who hate something, the better the chance they might be right.

43:14So just think about it, right? Why are they short Pilbara? Why are they short JB Hi-Fi? I don't know the answer to that specifically, but if a lot of people are saying, hey, we think JB Hi-Fi is too expensive, we think Pilbara is too highly priced, well, take a very serious look at that and just ask yourself whether you think they're right. And again, think about why the short sellers do it. So there are some short sellers out there who are all about looking for frauds. Just straight out, this company's a fraud. I'm going to short it because when the fraud's discovered, it goes to zero. Others who say that company looks a bit too expensive, it might be a little bit cheaper at some point, I'm happy to make a small margin on a drop of 10 % or 15 % in the share price over a short period of time.

43:52Now, we know that volatility does that anyway. We're talking about Berkshire on Friday. You could have made money shorting Berkshire at certain times. You would have had backside handers to you over any extended period, but you could have made some money now we are lucky we are smart timing right i don't know but you know things happen so it's possible by the way also for short-term short sales to make money and long-term uh you know holders to make money because the time frames are different also also be mindful of that um last thing i would say is just i guess it's actually it's a version of the last point i make which is just remember your time frame is different to their time frame and your thesis might be different to their thesis.

44:29We talked about Kogan drink. It went from$25 to$2 something, now back to$6. So who's right? Well, depends on when and why and how long you held and when you bought and all that kind of stuff. If you're a long-term investor, if you believe in the long-term story of the company, unless the short sellers are saying over five years, this is a dud, they're almost certainly not because they're borrowing money to do this. So they're paying for the privilege. They're not going to be there forever unless I think it's going to absolutely zero so just also be a little bit careful of that there are some short sellers who are absolutely right and short sellers are absolutely wrong um just as you said ram you know there are people who go long i hate the i hate the kind of jargon but you know people own the shares who are right and wrong for different reasons as well um how does impact my analysis doesn't at all i consider the case but i consider every bear case anyway why could i be wrong um if a lot of people think i'm wrong maybe i'm a little more cautious to make sure i'm right or understand why they think they're right but otherwise mate it's irrelevant if i think it's cheap today it's going to be worth more in five or ten years time then i'm going to fill my boots if i you know if i don't believe it then i'm not going to go near it one of the more famous examples i can think of is wise tech um so they yeah great cargo wise they do logistics software really interesting business by the way but i remember reading the short report and they made some good arguments you know because the accounting the the accounting was pretty um fuzzy there wasn't any smoking guns in there but there was a lot of sort of this is a business that's grown largely through acquisition and whenever businesses go through acquisition there's more scope for funny buggers stuff to sort of happen and really high profile examples of that anyway it was a compelling case it was a big high profile company and i just thought oh while you were talking i might just look that up again anyway it's at an all-time record high wouldn't you know it right oh there you go uh i don't own shares and i'm not trying i think it's probably pretty expensive but anyway it's an interest it's an interesting point but for the time that was all over the afr and everything right right you know the ceo's coming no no we're all okay and what was it there was another one more recently too i want to say which is pretty high profile um ah anyway they come out from time to time just just yeah yeah they do i think that and that you're right man that that's and by the way some are right people short admire we're absolutely right so you know don't ignore them they're not always wrong um it's not and it's not it's not the longs versus the shorts right it's just smart analysis and if you sometimes you know i will say for what's alex i don't own purple mineral because i'm not sure the value is obvious now maybe i'm wrong and that's cool i don't own jb hi-fi either i own harvey norman we've talked about that before we've recommended jb hi-fi so i'm i'm you know I'm with the short sellers on one and with the longs on the other.

47:09Not that I'm shorting Pilbara, by the way, but there's a group of people out there who believe different things. They think retail is going to suck and JB Hi-Fi's profit is going to fall. And here's the other thing, by the way, when you think about the market mechanics, I think it's very possible JB Hi-Fi's share price fall. They could be absolutely right because the market might say, oh my God, there's a six month downturn. This is terrible for JB Hi-Fi. We're going to sell the shares. Now for me, I'm like, cool, I'll buy them then. If I own them now and they drop, well, that kind of sucks, but I don't really care because I think five years' time they're much higher.

47:37That's my Harvey Norman thesis to a T. Now, those who are shorting Harvey saying the share price might fall in three months' time, I don't know, maybe it might, yeah. I'm not saying it will. If I knew it will, I wouldn't buy the shares, but I don't actually care. And if they're right, then good luck to them. But over time, I think I'm going to be right because I'm going to hold them for an extended period of time and recognize the markets, what I think will be, the realization that it was wrong, that the long term was actually more valuable than the current share price assumes. so you can both be right and that's the other thing so i don't i don't tend to knee-jerk based on what they think or even if they are right in the in the short to medium term here's a little interesting stat uh right now according to shortman.com there is dot au um the there is 24 one two three billion dollars worth of stock shorted across the top 100 stocks right now okay it's about on average hasn't about where it's been for the last year or so uh interestingly enough 20 of that is for the big four banks and i i just i don't even leave that there i'm not making comment on that but that's it's interesting yeah yes um he's thinking do i know i yeah correct no i'm gonna move on i think um okay okay um Okay, let's go to a question from, actually, the Vaspin and Anonymous.

48:59Well done. On this occasion, if you use my question, please withhold my name, says our anonymous questioner. I will do exactly that. I'm currently a subscriber to ShareAdvisor whose recommendations are currently beating the benchmark. Well, they are. Thank you for mentioning that. I find the podcast is interesting listening, especially the Sunday mailbag. The Friday one is also interesting, particularly when you touch on topics that can help us understand how to assess a typical company's financial strength and growth prospects in the current environment, as you did in your pre-recorded ones. We're going to try and do a little bit more of that.

49:30Andrew, I've already talked a little bit about. Yeah. The hardest part is making the audio friendly, guys, because, you know, talking about a company's gross margins, trying to keep that in mind, we'll talk about then the growth opportunities and talk about the kind of concepts and the numbers get muddy really fast. So making it audio friendly is going to be our challenge, but we will try and take up that challenge and see how we go. Look, the first question you ask, speaking of audio, So you're comparing the capital gains treatment on two stocks, and it's a really difficult, complex question.

49:59I'm going to skip that one, Mr. Anonymous. It's very long indeed. If this and then that, and if that, but this happens, then what would happen here? It's really hard to follow that on audio. So I'm going to skip that if you don't mind. But here's the second question. One of the ways of improving one's investment results, says our anonymous, or ask our anonymous questioner, is to learn from one's mistakes. so you avoid making the same mistakes in future to prevent history repeating itself with another company. As we've heard many times on The Motley Fool, quoted by Peter Lynch, he says, you are likely to have a positive investment journey if six out of every 10 investments perform well.

50:35You'll perform even better, says our questioner, if the other four out of 10 aren't atrocious or if you see the writing on the wall for the poor investment early before it really tanks. The Mailbag is a free podcast. Therefore, I'm not suggesting you share some of your winners or buy recommendations, but rather to share some of your losers and the lessons learned from having selected them in the first place. As well as the companies that are still considered buyers on the ShareAdvisor scorecard, there are several who have been recommended buyers in the past and then changed to sell at either a profit or a loss.

51:06Some of the reasons may or may not include, and you guys saw a list here, the companies have been subject to a takeover offer. The original thesis has been broken. There was risk the company itself may fail. The share price was unreasonably high given the future prospects. the business was low quality or decreased in quality and or the company's business now seems unlikely to provide market beating returns he gives a list of stocks that have done a bit ordinarily it talks about your time at dividend investor andrew back in the day for those who remember uh maybe you could have couldn't have foreseen where the company's journey would take it he says maybe the balance of risk to reward was too great maybe there were red flags at the time of buying that in hindsight you can now see maybe red flags just developed over time etc etc etc.

51:48He said, apart from making comments about any of these companies, and he could also comment about any recommendations that didn't work out from his time running dividend investor. So let's go to that question made of lessons from winners and lessons from losers in particular. Can you think of a couple of examples made of lessons you've learned from holding and then either selling or not selling or losing stock? Yeah. Oh, gosh, yeah. I mean, I will preface it by saying that there are several, many examples of investments that have lost money but that I don't regard as a mistake. And that sounds like I'm going to try and tie myself in knots trying to rationalize how I'm not really an idiot.

52:29Okay, so I get how this is going to come across. But I think when you have a very good process as an investor, and if you are a good investor, you have a good process, it's sort of axiomatic, right? It is a probabilistic game. And you can have all these heuristics that you apply and you know that they just don't work. It's just not going to work 100 % of the time. So just very broadly, I only invest in companies with, I'm not saying this is me, by the way, but just to paint out an example, no debt, have profitable and have shown growth in earnings each and every year over the last five years and a return on equity above 10%.

53:08I'm just pulling numbers out here, right? And over time, that's worked for me pretty well. Seven out of 10 times I've been right, let's say. And then I do it again and it checks all the boxes. Yep, does that, does that, does that, does that, check. And I do it and then it doesn't work out. Was that a mistake? Actually, no, I don't think it is a mistake. That is me flipping a loaded coin, knowing that it's not guaranteed to land on. It might be 70 % chance of landing on heads, but it doesn't mean it's going to be every single time. So if it lands on tails and then lands on tails again and then lands on tails again.

53:40Do I take my bat and ball and go home? No, I just keep flipping because the odds are in my favor. So that's not a mistake. Does that make sense? What is a mistake is when there is absolutely no objective reason to continue to flip that coin or to continue to hold that. And I've also got lots of examples for this. These are the ones that are far more relevant. oh geez what can i look at collection house was a big mistake for me uh retail food group thank you yeah thorn group this is radio rentals back back in the day um uh and and the mistake that i made here was that i didn't i i think the thesis in all of these was clearly broken or at least it wasn't to a point where i could with high conviction say that it was still on track and and my investment started off reasonably well formulated but then crept towards one of ego preservation and wishful thinking because i wanted it so badly not to be a mistake and i would buy more and i would bury my head in the stand and then i would go oh i know it's really bad but it's now the shares are down 50 it's in the price and i can rationalize and i and i've i've done that a few times so i'm trying to get better i'm a pretty good buyer um but i'm a pretty bad seller I need to get better at selling.

55:07And I say that with someone who's very intentionally a long-term buy and hold and ideally hold forever kind of investor. But the reality is that things don't always work out. And I need to better recognize that and take it behind the shed and put a bullet in it when that's the case because there's no point. And I've often said too, when those things happen, I can always buy back in, right? I don't have to say that that's forever. if I have lost conviction and, and it just, just doesn't stack up anymore. I can do that. So I think, I think those are the mistakes, the mistakes being that I, I shifted my thinking.

55:49And I think this is always worth doing before you buy anything right out while you're going to buy it. I like this company because I think the earnings of this company are going to be more in the future because these are the milestones I'm going to look for on the way. Not that next quarter, it's going to have 3.267 cents earnings per share. None of that nonsense. But directionally, this is kind of what I'm looking for. And you'll come across all kinds of examples like, that's just not, this is not, it might change and pivot at some point and get better, but it's just clearly not. And when that happens, sell.

56:20And then come back and dust yourself off. And I think that is a much, yeah, that's a much better approach. Yeah, I like that, mate. I'm going to echo what you said at the beginning around what is a mistake and what's not a mistake I have said this before I actually routinely tell the team at the Motley Fool rather than hey learn from your mistakes what I say more often is don't learn the wrong lessons yeah the thing that causes you to lose money on an investment may well be stupidity, hubris, bad analysis bad luck right so those things are possible it's also possible the thing that makes you lose money is the very thing so let's pick two let's rub my nose on something for a second right let's say i bought kogan at six dollars fifty so i'm still underwater but i bought amazon at whatever the price was when i bought it i don't know i'm a cup yeah i'm up reasonably well so now if i'd bought kogan first and lost money would i have not bought amazon subsequently maybe if i'd said ah the mistake here is don't buy uh on my retailers that have a high pe early in their growth period yeah yep now conversely uh it's possible as you mentioned retail food group collection as others to also just be dead wrong so but but my key my so the first thing i would say is don't beat yourself up too much about the losers as long as you have a an investment approach that gives you enough winners and that six out of ten you absolutely have already referenced to go with it because that's where the the prize is right so um i reread good to great recently the business book right and oh yeah one of the things they talk about is putting your people on your biggest opportunities not your biggest problems yes now i'm not a swing for the fences growth investor i'm not saying put my every possibility hope one of them comes off that's not what i'm saying at all what i am saying is you want to maximize your winners and repeat the process that gives you your winners rather than trying too hard to avoid the losers and i get that for some people that feels hard to take because every loser sucks and i even get in the question where you said hey you know um cut your winners early cut your losers earlier now again could i have sold kogan at 15 rather than wait until we got to three yeah sure but equally at that point if i'd sold it then said okay i'm finally out i would have missed the return back to six so again what was the right strategy now we won't know until the fullness of time maybe it never gets back to 25 or maybe it goes to 50 in which case selling at any point you know yes i would have sold 15 bought at three hindsight it's all 20 20 i could pick the eyes out of it in hindsight but if i'm right overall about some of this stuff trying to cut the loser to it has also been a big mistake some of the most some of the how do i put this best we've made a lot of money for our members by holding on to stuff that's down and letting it recover.

58:53Not because we're waiting for it to get back to its previous price, not because we're trying to anchor to anything. Just because we're like, hang on, we bought it at six. Now it's three. I reckon it's worth more than three. Just because I was down 50%, it sucks. Hate it, right? Members don't like it. I don't like costing our members money. It sucks. But holding on and letting it go from three back to five, even if they got back to six, we're still a 60 % return on that money. If they'd sold, where else would I have found a 60 % return? Maybe somewhere, maybe nowhere. So just be careful about thinking about winners or losers because it's really, once you start to contextualize your investments in the context of where the price has been, you start to fall foul of those behavioral traps we talked about earlier and we've talked about repeatedly.

59:32It's completely, completely, completely irrelevant. Now, if I've made mistakes, I want to know what those mistakes were. So why did the shares fall? Was it something I did wrong? What did I get wrong? Absolutely, I want to know that. But just be a little bit careful. You don't start by saying, this was a loser. How do I avoid more of these losers in the future? What you want to say, was my thesis wrong? In the movement of the price, firstly, is the price movement justified? So in the case of retail food group, yes. The business fundamentally screwed up. This is not the market saying, temporarily, this is worth less, right?

1:00:02This is a$4 stock now at$0.07, right? There was something fundamentally broken about the business. And that's a lesson to learn. But not just because the shares are down. You want to learn less because the business's profitability failed. So I would start by saying, look at the business, not the share price. And then look and see if there's anything about the business itself you can identify that costs you money, that you can avoid next time. And things like a crappy business. Okay, well, that's easy. There are no winners that have crappy businesses. Or if there are, they're just fads you got lucky on share price.

1:00:32So just be careful there. There are business-related issues you can absolutely identify and say, I won't buy a business unless I believe X to be true. or this was wrong or this was bad or I didn't look at this or I missed that idea or that possibility. Just be careful not to, I said, not for my ego, not for your ego, for your money, for your wallet. Don't avoid the losers and cost yourself the winners in the process. The other thing I want to add to is that I've said this before and it's so true for me at least is that the big regrets aren't the ones that lost me money. They're the ones that made me money.

1:01:08and and and i say that because i made money on them actually pretty good money um but i cost my the opportunity cost was insane because i i i never go bro taking a profit is the old adage you know and i i i i bought something it went up you know a lot and and then i look back and go you know what if i never did anything i would so so when answering this question while you're talking about i opened up my share site which is sort of tracks my portfolio i've given this example before but i just i don't know why i do this to myself but just to make other people feel better uh september 5th 2014 i bought two and a half grand of pro medicus at 90 94 cents and the 31st of october i bought a bunch at 86 cents 2300 units and then in february of 2015 i i averaged up There's a good lesson, by the way.

1:02:03I'm doing everything right here. Averaging up is sometimes a really smart thing to do. And I bought 6 ,453 shares at$1.50. I bought 10 grand back at that point in time, right? It doubled nearly the price when I bought it at 86 cents. And because of the conviction, it had grown. Now, if you add all that up, now what I also did was, and then in 2017, I sold some at$4.50. And then in 2018, I sold some at$12. And then in 2019, I sold some at$17. By the way, it's worth$70 a share now, right? If I had never done anything, that would be worth almost$800 ,000. Now, you ask me what I regret. You ask me what my mistakes are.

1:02:47That is a mistake, right? And I say that as a genuine mistake because there was nothing fundamentally wrong with the business. In fact, if anything, over that since 2014, the business has strengthened. It's gone from a relatively early stage company to one that's a completely different animal than it was then. In fact, it was more expensive, but on a risk-adjusted basis, it got better and better and better. Actually noticing here, I did something in March of 2020. I bought a whole bunch at$15.50. Remember COVID? Remember that? It was like everything just like, oh, I did the right. I bought five grand's worth of shares then.

1:03:22and subsequently sold at$40. Like, you know, God, I'm an idiot. Like if there's the, and you say like, what are the things you need to sort of learn again and again before you finally get it? Well, I haven't finally gotten it yet, but I'm saying it out loud for my own sake as much as anyone else's, is that when you have a very high quality business and the market throws its toys out of the cot and you have an opportunity to buy it, do it. And if it gets a little bit expensive, that's okay. Because that is, we were talking about Berkshire before, right? on Friday. Like, for God's sake, if you had sold that every time that got to a record high, all you've done is cost yourself money.

1:03:58So, I mean, you wouldn't do it for a little thing and this is just a pretty ordinary company. Just do it cheap. I'm going to buy it and one day the market record. That's different. Super, super, super high quality. Buy and just get out of the damn way, you idiot. There's something to be said, you know, for all of the mistakes stuff. I've said so many times, there's a difference between technically good advice and advice with good outcomes, right? So the idea of like, you know, what should you do? Technically, there are this rule, that rule, the other rule. The rules you're likely to follow though, the strategy, the financial plan is likely to end up with the best result is important.

1:04:36I'm really not entirely sure that I should not have sold no companies ever. You know, for me and for our members. If I look at, if I'd never sold a single share of stock for me or for our members in our services, I'm not entirely sure we wouldn't have more money. now and and and largely because i've said this before you know you've you've mentioned my kind of favorite of you know i'm slow to buy and slower to sell um i love that if i'm if i'm right more often than not when it comes to the quality of the businesses i don't know mate like to your point about the stuff you've sold you know i've made the same mistake with dominoes it was eight and sold it at 13 or something and now it's 40 which is nice got 140 at some point um you know the lost opportunity there if i just if i just said you know what i'm gonna buy quality business and let and do their thing and add more money to other businesses or the same business when I've got the opportunity, but I'm never going to sell.

1:05:24Again, technically, should you say you lose it? Yes. If there's a crap company, should I sell it? Yes. Should I sell retail food group? Yes. Should I sell a collection house? Yes. I would have lost more money had I not sold them. But the amount of money I lost versus the amount of money that I would have made if I held on the other ones that I sold too early, I'm just still not entirely sure that I shouldn't have just gone, you know what, buy it and just let them do their thing and go with that. Again, To your point about simple and Buffett's thing, right? It sounds too simple to be true. Shouldn't you try and trade this thing and sell this and buy it that and sell this and buy it that?

1:05:58Yeah, in a perfect world, sure. But given my own human fallibility and everyone's human fallibility listening right now, would I have been better to buy and never sell? I think so, yeah. Will it be true in future? I don't know. Maybe not. Maybe I get smarter. Hopefully I get smarter. But I'm not entirely sure. I'm actually interesting. I just add up all the stocks that I've ever bought through this structure. It's coming up on my 10-year anniversary, actually, in November. It's almost exactly six out of 10 that have done well. And, in fact, it's 43 % of the companies I've bought in the last 10 years have lost money.

1:06:32Some of them spectacularly urbanized. Oh, man, what a dog's breakfast that was. Austin Engineering. There's some real crap. There's just so much crap in there. But, you know, the average is really decent. I want to say it's actually too decent. That'll mean revert to something more standard lately. But, I mean, like that is – I say that because I think too often I see people shaken out of investing because they have a few bad experiences. That's really true too. You know, when it's just like it's absolutely normal. And don't take me for any – for goodness sake, use Buffett or someone like that.

1:07:06Like dumb investments all over the place. You'll be the first to tell you about them. It's normal. So just, you know, roll with the punches, but stay invested. And yeah, anywhere near six out of 10 is going to do you very well. Good point. Mate, I reckon on that note, we should wrap up this particular podcast, but not before sharing the way you can get in touch and stay in touch with us. You can go to, I want to start with email, info, I-N-F-O at fool.com.au. If you have a question for the podcast, that's where you can find us, particularly for longer questions if you don't want to bash it out using the phone on Insta or something.

1:07:41Info at fool.com.au. You can, though, communicate with us and follow us on all the other socials. Jump on to... Let's go with Rams first. Twitter, at strawmaninvest or at sage underscore simian. What's Twitter? I'm not calling it X, mate. I refuse. I'm going to retweet and I'm going to tweet for the rest of my life. I'm not going to post. Repost. God help. Tell you what, I'm talking about taking a brand and trashing the whole thing. What about... Anyway, let's not start. Disaster. Twitter, at Sage underscore Simeon, at Strawman Invest. You can follow me on Twitter or Insta or threads at TMFScottP or The Motley Fool at The Motley Fool AU or Facebook, facebook.com forward slash Scott Phillips money.

1:08:25Do that. Grab the... Jump on or list one of those to do yourself a favor. Grab the Vanguard Index chart. Get it from their website, by the way, but if you want to make it easier, do that. Otherwise, Google Vanguard Index chart. Hey, will you come back on Friday, mate? I'd love to. Try and stop me. I have a job for you. Okay. I'd like you to come up with a four-word answer to the question of whatistrawman.com. Do you reckon you do that for me? Four words. I can do that. Yeah. I'll give it a go. See how you go. Until next Friday. Listen, if you want to have a guess, you can try and imagine what Andrew might say.

1:08:57See if you get roughly right. We'll see how we go. Other than that, full on. Cheers. The Motley Fool and people appearing in this program may have positions in the companies mentioned. General advice only. Please speak to your financial professional to understand how it may pertain to your situation. Subscribe to the free newsletter at fool.com.au forward slash listener. The Motley Fool operates under Financial Services License 400691.