Mailbag: incl. Love your companies... but not too much. April 9, 2023

33:10But you scratch below the surface and there's nothing there. I'd far prefer to know nothing about 90 % of companies, but I know a lot about the ones that I follow. Are they, should I maybe be focusing more on other companies and less on the ones I am? Absolutely. I'm sure that's the case. But I do feel as though it provides me something of an edge for the companies that I've held for five years plus and know extremely well. Yeah. Yeah.

33:39I'm going to ask you a half tangent question, but not really, just to rephrase the question from that dude. because the only thing I would say is you can go cash tomorrow and sell everything is the right response, except that if you love the company, you're going to buy them back anyway. So it doesn't break the love thing. It breaks the sunk cost fallacy. I get that bit of it. If you're looking at it, well, I already own them, so I won't do anything with them. That's the sell and rebuy or consider it. At least, you know, just think about it that way. If you fall in love with them, it kind of clouds the analysis a little bit.

34:08Maybe you're not going to be as rational. Maybe you're not going to be as thoughtful. Maybe you're going to give the company too much rope or wash away, wish away faults or failures. Have you had a situation where that's happened or how you work that out? Yeah. Gosh, I want to give you an answer that's really hyper-rational and scientific, but I'd be lying to you and myself and to all the listeners if I thought that was the case. It's more the intellectual exercise of going through that. Like, okay, I look at my portfolio and my positions and they're up and they're down, I really should just be looking at the total dollar value there and saying, you know, how would I like to allocate this if I didn't have any considerations around brokerage costs or tax?

34:50How would it look? I think it's more that intellectual kind of thing. And I actually don't think there's a problem with falling in love with a company for the right reasons. There are some companies very deserving of your love. They're rare companies, but they're the ones that you want to continue to stay in love with and actually have more than a one-night stand. You want a long-term meaningful relationship with this company, right? So love can be a beautiful thing when it's a healthy relationship and it's a very good partner. I think that's actually a great thing to have. And that's not a hard thing to do when things are going well.

35:31Like a company keeps achieving, price keeps going up. The challenge there is actually averaging up and buying more, which I'm a big proponent of. I think that's a really smart thing to do as company, not just because the price is going up, but because it's actually the business is performing and it's not only justifying that increasing price, but it's still pointing to value. I think that's a beautiful thing. The harder challenge is when you fall in love with a company and then it's materially break, your thesis is broken. The reasons for your love are absolutely proved unfounded. Here was this company you fell in love with, but they're off breaking your heart behind your back and having all kinds of other relationships with, you know, ne 'er-do-wells.

36:12Yeah, give it CG. Thank you. Just to torture the analogy. And they're the ones you've really got to watch because you will do all kinds of things to protect your ego and protect that unrequited love in the sense that you will average down on things that you shouldn't to make your loss look a little bit worse, et cetera, et cetera. And that's the dangerous. That's where it gets toxic in the relationship. I agree. And how do you avoid that? Sorry, I think I know I always say this, but it's always best repeating. Keep an investment diary. Write down in advance. Before you touch that buy button, what's going to cause me to sell?

36:50Now that's not a foolproof strategy, but it does help keep you honest. Looking your own words in black and white back at you is sobering if nothing else. It kind of reminds you that, geez, I don't know. Doesn't mean you can't talk yourself out of it, but you just, yeah, exactly. And remember too, I have to remind myself of this all the time. I can buy it back. so I'm not sure I've lost conviction I did say if these things didn't happen or you know there was something I didn't expect to happen but it's objectively bad I can sell and then in the clear light of day without the pressures of the market and ownership and the rest of it maybe I can reassess it maybe I come back and go no I was wrong to sell and and you don't have a tax consideration in those standpoint in those situations usually because it's a loss right so there's no tax to pay in fact there's a tax loss to carry forward so you can buy back in under that situation.

37:34But I do, I'm very big on what you often talk about, which is being slow to buy and slower to sell. But I would also say, speak out both sides of my mouth, if you are faced with a high degree of uncertainty and you're at a loss, I'm not negative on the idea of just selling and then reappraising, because I think you do reappraise in a more objective fashion without the chains of ownership around your neck. And you can buy back if you think, no, that was wrong. Not because, again, because the share price has done anything, because I've had time to evaluate the facts. I still think it's a good risk-reward proposition and I can buy back.

38:11Whether you do or not is another thing, but theoretically, I think that's sound. So I think that's really good advice, mate. You kind of mentioned the investment diary, and that was kind of the topic I was going to go on, not the diary specifically, but pre-commitment devices in general. so what i love about the question is that dude knows that he's that sort of person which is great right so now you can say right i know i'm that sort of person so what do i do how do i how do i manage myself in that circumstance uh the investor is a great example i wasn't going to use that one so i'm glad you you picked it up uh second one i'd add is think about so and again i was going to actually mention the slow to buy slower to sell thing which is if you know you're that sort of person i would be i'd be doubly triply careful on what i bought because i know i'm going to fall in love with stuff if i if i buy a dud stock then i'm probably gonna i'm probably gonna mean and i i'm actually i'm actually i don't fall in love with stuff but i sell really slowly right so so in it from a different perspective the same question applies to me which is i better i better make good decisions here and it doesn't mean your decisions can necessarily be better because you want them to be better but it might you know i think about the sort of companies you buy so if you're going to buy a speculative something um you're probably never going to lose faith in that speculation because you're going to hope that next time the time after the time after the time after the time after that you finally get rich right i wouldn't buy those companies if i was that person because i know i'm not going to be able to to sell easily when rationally i should so don't buy it is honestly it's rule would be my rule number one right so keep the door if you're going to but start with don't buy um secondly think about the position sizing if you're if you know you're going to fall in love with the thing and maybe it's great maybe it's terrible but you're probably not going to sell it don't expose your portfolio to unreasonable risk of loss so we're at risk before being loss permanent loss of capital again maybe you might want to limit it to half a percent or one percent of your portfolio or two percent or three percent whatever the right numbers are for you so that when you don't sell but you should it's not going to cost you too much money because again you're you're saying to me and yourself hey i'm not i'm probably going to sell this because i love them and so that's cool but love them in in doses that are tolerable for your portfolio by buying small amounts in the first instance, rather than going in boots at all and loving it more and buying more and love more and buy more and all of a sudden you find yourself in a massive, massive hole.

40:32So think about portfolio sizing, portfolio weighting to keep that kind of thing roughly where it needs to be. I think they're the two. The other thing I would say is, it's back to the quality thing, I suppose, but fall in love with the right things. So work on your, again, pre-commendment work in your process what are the things that i know have a high degree of conviction or i can afford to love what businesses are not going to blow up my money um i'll use an example i own soul pats right we talked before about you know companies on friday companies you hold for 20 years um you know if you think about that company you know if i'm wrong about robert milner it's probably going to hurt right it's going to hurt me as a business but or warren buffett dying same thing right for berkshire i own that as well if and when he dies well i say if i'm still not convinced he's i'm not convinced he's not immortal but i'm i'm told he's mortal um you know when he dies assuming he's still in charge at the time when he steps down the market's going to freak out about that now it's a conglomerate of businesses not the sexiest business in the world never will be but i have a very high degree of confidence that it's going to be able to withstand a lot and not you know not find myself in that position um so that those are the sort of you know the pre-committment biases think about what you're buying how much of it you're buying the sort of quality or otherwise you're looking for and make those your your pre-purchase ways to avoid it andrew's point of investment diary i love i think we should absolutely do that great way to hold yourself accountable to you know when i would sell every motley full recommendation has risks and when we'd sell so you know are those things come to pass yeah probably um the other one last one mate is just i think if you're not going to go quality then make sure you diversify it appropriately in the growth you're looking for David Gardner, Motley Fool co-founder, normally doesn't sell even his biggest losers.

42:22And his argument is just they became so small. And in my total portfolio, if a 1 % position falls by 95%, it's irrelevant, right? So you don't have to sell it in that case because the loss looks after itself. But you need to have a portfolio structured so that when that happens, one, two, three, four, five, six times, the winners more than offset it. If you know you're not going to sell, again, either quality or growth or both, just make sure you're buying companies that give you the best chance of you know if if you said to me design a portfolio of companies i can never sell that's almost why you need to think about if you're not going to that's cool but then you know build that portfolio as i said before weightings but also company wise diversification style structure um so that you're not gonna if you're not gonna sell it's not gonna kill you i got a lot of sympathy for david's approach so for those that don't know david's got an insanely good long-term track record yes the same time he's got a pretty ordinary strike rate so yes exactly for every 10 shares he buys i don't know it's like three or four work out you know i'm not criticizing the guy he's very implicit in his approach in how he does it but he's got lots of asymmetric bets in there and and so when they go well they go really well and that's also where the not selling helps him yes um because whereas more quote unquote intelligent people would look at a certain company that's gone up 400 you take the money at this point right like the trade is complete you've done well and he won't in like even through periods which seem objectively overpriced but that's that's where you get those 10 15 year runs of insane performances on like what's his best one amazon probably or you know just yeah it would be amazon yeah something you know there's a lot of them right and it is like every stage along the way you would be imagining there's a lot of people going sell sell sell look it in.

44:04He didn't. And so I actually intellectually, I really like that idea of never selling. And the other thing that feeds into it, that builds the long-term track record for David is he's consistently adding. So he's giving this dollar cost averaging effect as well. I think there's a lot to be learned by that. Just psychologically going into it. I keep talking about it. I never do it because I don't know why. But the idea is this, is just that as an investor, you have to save up whatever you can save and then every month three months whatever it happens is you buy a share but you're never allowed to sell like you never right you never can sell so to your point you're going to have a whole bunch of duds in there that's fine they're going to they're just going to go down to very very low weightings and you have some really great performers in there as well and you're going to be forced to sort of ride them and then you just you do that for 20 years i'm not i'm not unconvinced you wouldn't do extremely well out of that approach yep i think that's right too and that's again focusing on the portfolio not just individual companies right it's so tempting to want to over analyze over trade over whatever every individual company rather than saying that so last one actually for me i was going to say i'm glad you reminded me which is just just know that sometimes stuff is going to suck like that you know just make your peace with you said you can sell and buy back and someone's thinking but what if it goes up in the meantime it's like well then it goes up in the meantime and i don't mean that i actually literally mean that as starkly as I said it like you can't avoid it you're never going to avoid it so yeah but how much is it going to go back up anyway like what are we talking about these times like maybe you miss out on 10 or 15 percent it's such a small amount before the news is good because the market gets excited about it I guess all I'm saying I'm making that point because I want people to know that's possible but do it anyway like that that's almost my point like don't but what if I what if I sell and it goes up what if you don't sell and it goes down what if I do this and that happens what if it's not gonna happen all three you're gonna have horrible horrible bad luck you're going to make some terrible calls you're going to buy some crap companies you're going to miss out on some wonderful companies that's all that is going to happen like that's not what if it's like when it happens you need to be ready to say oh yeah i knew that was going to happen that sucks oh well back on the horse yeah that's literally the point right it's like there's no there's no i'm going to avoid all those mistakes no you're not you're really really not so kind of buckle up and get ready there's a very very long-winded as is our wanton style uh answer this question but But another thing, I'm sure there's a few people out there listening going, well, why don't you just use stop loss orders and then automate the process?

46:32Gets rid of the emotional angle, puts a rules-based system in place, and ensures that you never lose more than a certain amount. And I know that a lot of people really love these things. And I know I've said it before, but I'll put my two cents out very quickly. Again, I don't think it's a very sensible approach. And the reason being is that it more often causes you pain than pleasure. And the reason being is that because prices are volatile, you get stopped out all the time and you don't necessarily always buy back in. And in trying to save yourself from a bit of short-term volatility, what you've saved yourself from was three or five years of 15 % compound annual growth.

47:07That's what more often than not happens. And there's a million examples, but a good one I looked at not too long ago was Ordinate. It's a great company, by the way. I think they're fantastic. I don't own shares, valuation reasons, blah, blah, blah. But the point is they've done incredibly well. And but along the way, I think the share has suffered a 20 % drawdown, like half a dozen times and 10 % drawdowns 35 times. It's just normal. So don't take my handpicked example, find the best performing stock you can find on any global market. And then ask yourself how many times did it drop top to bottom along the way, peak to trough by 10 % or by 20 % or even by 30 % and 50%.

47:56And the fact is, even for the good ones, that happens all the time. Correct, exactly. All the time. And the person trying to sort of cover their bum for a little bit of a loss, usually that's the loss, is the opportunity costs. Oh, huge. Again, I know the retort will be, yeah, but I'll just buy back in. okay if you can if you can do that but i'm i'm not a fan of them frankly i'm not either mate for exactly the reasons you've you've highlighted it's a um it's very very natural to want to believe it could be done it could be true uh honestly i know i say it all the time and people hate it right they want to be able to master the universe they want to fix all the problems overcome all the issues it's like just you know what you're gonna you're gonna get dunked when you're when you're surfing like you're just going to and that's okay does it invalidate surfing no could you avoid donkey you sit on the beach you miss the surfing just go surfing like just honestly just suck it up prepare yourself for it know it's going to happen don't freak out when it happens get back on the board it's literally like it's it sounds it sounds negligent it sounds like i'm giving up it just yes i'm giving up i'm i'm choosing to see the world as it is not as the way i wish i could make it exactly not going to happen all right should we move on yes here's a great question from jamie mate i'm going to ask you to suspend your disbelief i'm going to ask you to avoid the word none can you do that for me okay none no none okay hi uh hi scott and andrew thanks for the weekly entertainment and the endless banter does it by endless endless following on from your chat about the demise of silicon valley bank and banks in australia if you had to buy shares in an australian bank tomorrow to hold for the next 20 years which would it be and why including the big four second tier lenders neobanks macquarie etc but here's what i like about jamie's jamie's um finish i'm not particularly interested in the banks but i'm curious to hear your thought processes keep up the great work legends and what i like about this is this is a worked example of the process where the process the conversation he knows importantly matters more than the final output which i love so really really smart way to ask that question jamie thank you very much uh also thank you to jamie and others who hit us up and thank us for the svb special episode i might have said this last week i can't remember if i didn't um it was we ended up doing a one topic podcast that was one of the longest ones we've ever done i think it was the longest that says something yeah exactly but you know we enjoyed doing it we hope it was useful we got some really nice feedback of like hey guys well done thank you for doing it i'm sure some people turn off early that's completely cool too um we can't meet everyone's needs all the time but just thank you to those who who uh who enjoyed it appreciate it took the time to let us know we very much appreciate it so jamie's question ram you can't say none i got that out of you early uh that was that was unfair of me but that makes for a more entertaining podcast um any australian bank big bank second tier neo banks macquarie all the stuff um so maybe macquarie maybe either start with what you'd buy or start with how would you think about choosing one the trouble is is they're all so similar um particularly the big four i know i know the purists will say there are differences.

51:06Obviously, there are differences. There's like NAB tends to lean more into business banking and others are more residential. I get all of that. But I mean, at a high level, they're all pretty similar. And amongst the big four, I probably lean towards CBA. And I'd probably base that argument just on when you look over the last 10 years, they've just significantly outperformed their peers. And so it sort of says that, well, you know, Matt Common and Co have probably been doing some smarter things than their competitors. Just to put it in context, their shares are up 35 % over the last 10 years. That's in gross terms, not annualized.

51:40Okay, it's not a great performance over 10 years. Westpac's down 35%. ANZ's down 26%. NAB's down 13%. Now, so I had to give a reason. So, and the reason that CBA is because it's just, it's just done better. And I'm just going to extrapolate that. So that's not very intellectually satisfying, but you asked them. That's what I'm going to go with. Macquarie Group. let's look at that on the chart for 10 years what did i say cba was up 35 percent macquarie's up 362 percent now i'm going to throw a phrase back at you threw at me earlier i think it was friday base effect aren't we really talking about what investors think about the businesses rather than whether the businesses are or were worth buying maybe cba is better to buy or anz because it's down macquarie's up yeah it's the bargain buy maybe investors getting carried away about Macquarie.

52:30Yeah, no, I think that's fair. So I'll give some more reasons. Yeah. I mean, I actually, I often, when I'm first looking at a company, I certainly don't base any serious decision on it, but I'm always interested in that past performance because, you know, it's the old lament, you know, past performance is no guarantee a future performance is not. But I tell you what, I pay more attention to a company that's got a positive history as opposed to one that's just continually gone from blunder to blunder, right? Right, someone's doing something right over there. Maybe it's all luck, but it's just, it's a nice starting point.

53:03And that gap over 10 years too is not, we're not talking about 29 and a half versus 32 and a half. Like these are quantum differences. Order of magnitude. Even if the market was horribly wrong then or now, it's unlikely to be horribly wrong by that degree. I mean, I guess it's possible. It's always possible. Enron, blah, blah, blah, you know, but SVB. But yes. I've done it with Macquarie three years, five years, 10 years, they're just out before. And forget about share price. Go look at the per share earnings growth of the business. It's just done better. I think they're much less exposed to residential property, which no one's surprised on my views there.

53:40They've got a very, very good culture, at least historically, of sensible capital allocation. So I think for me that would be the one that I would go for.

53:56i although i'd go for none in reality not now you promised you promised um i would go for macquarie as well and it's almost unfair to include macquarie in the group because it is so different yeah it's different sidestep the question quite honestly and jamie asked the questions i we can we can include he he gave us the gave us the option yeah um because it is so different uh i like macquarie macquarie is geographically diversified uh here and overseas macquarie is diversified by product line um it has a whole lot of stuff other than what the big for its investment banking as opposed to just retail banking now by the way credit swiss is an investment bank and you know commonwealth's not and only one of those went broke in the last two weeks so yeah so you know i i'm not i'm not saying by the way it's it's a perfect solution that diversification can be grounds for mismanagement or excess risk taking other of things so don't don't for a second think that you know you can't be uh you know i'm trying to give a good example here but you know woolies is not a very diversified business it's a very very high quality business and you'd feel very good owning it right so there are there are times when you shouldn't go with diversification for its own sake particularly that diversification carries with it risks i would i would suspect mate it's possible for any one of macquarie's divisions to blow up the whole company yep so you know yeah if you if you diversified if woolies diversified by state none of those states are existential right but if macquarie's has a derivatives trading business somewhere that blows up it could take the rest of the bank with it so diversification is great except if there are existential threats in any one part of that um you know everything can be bought down yeah storing storing dynamite in only one room of your house is not going to solve your problem storing dynamite in every room of your house is not going to solve your problem either because if one of them blows up the whole thing blows up so just just be careful about assuming diversification is always good it can be simply exposing you to more risk rather than rather than taking it away macquarie group dropped 80 in the gfc shares yeah yeah i so that's that's i think those things are all true i think macquarie has done a very good job of hiring and remunerating its people for outcomes that are aligned with shareholders that's also very positive uh we have i think recommend you we have recommend macquarie for share advisor so um for reasons that i've ever recommend the other big banks right so we like it i will say to you though macquarie is higher risk than the others so that's this is also problematic right like let's take cba and macquarie side by side your 35 from cba comes at much much lower risk than your 335 with macquarie so you're going to risk adjust your expectations your portfolio exposure all that kind of stuff to make sure that you're not taking risks that you shouldn't be or that aren't sized appropriately for the rest of your portfolio.

56:41So yeah, I would take Macquarie any day. I will actually say too, Ram, one of the things I would say about the past performance is even over 10 years, this is not actually about Macquarie, it's about CBA, but it could be true about Macquarie as well. You've got to really try and separate out the circumstances and the decisions and execution. So Commonwealth Bank has done much better than the other banks. Why? Because it's super heavy in residential real estate. Now, we can say, Matt Comer's done a great job. What a CEO. What a guy. And it's probably true. You can also say, Andrew and I could have run that business part-time for the last 10 years and done almost as well because the tailwind of rising residential house prices has done almost all the work for it.

57:24Now, I don't mean to say that Matt Comer's not doing a good job. He's not worth his money or there's not issues. They haven't had to be clever. and i don't i don't i'm i am i guess took him down a bit by saying either i could do it my point is that you've got to separate the circumstances because if those circumstances change can matt common make commonwealth bank a 35 percent gainer you know in a recession i would assume not i don't maybe maybe but i assume not right so the fact we haven't had a proper recession in 30 years house prices are going up bad debts are at record lows cba looks like it and by the way it's why it's beating nab because nab's a business bank and where's the growth been in residential mortgages And also ANZ and NAB, they had these offshore dalliances where they took a bunch of shareholder capital and they blew it up.

58:04They just made really bad investments. That's another big part of the story there as well. So NAB was over in the UK and ANZ was making a big push into Asia. I don't think they went, I haven't followed it closely, but I think that's also a big part of it, right? Like they had some bad investment decisions. yes and that's that's also you're speaking a way to blow up a business or materially damage the business you can you can really get it wrong now again we're kind of eventing at the end they could have gone overseas into asia and anz could be the biggest western bank in asia right now yeah so you know in different services now you know so was it stupid to do it no did it hurt yes that's the reality i mentioned bullies and masters are previously same kind of problem so yeah macquarie bank for me um if i had to buy andrew mentioned that all the big banks are roughly the same with different variations.

58:53If I excluded Macquarie from the deal, I would actually, well, I wouldn't buy, I wouldn't buy any of them. And if I didn't, I wouldn't buy just one. But if you ask me to buy just one, then I would go with the biggest, the one, sorry, say that again, the cheapest of the big four. Like the highest yield or the lowest PE or something like that. Yeah, exactly. Yeah, yeah. And specifically because you can throw a blanket over them and I'm not convinced the Commonwealth's secret source is A, necessarily all of its own work and B, justifies a PE that's like 70 % higher than some of the other banks. I mean, it's a good business.

59:27Yes, good. You're paying for it. You're paying up massively for it. Last time I saw it, 17 odd times earnings for Commonwealth. Yep, I just checked. You're right, 17. Maybe 11 or 12 for some of the other banks. ANZ is 9.9 versus 17. Okay. So Commonwealth Bank's almost twice as expensive per dollar of earnings. Now, maybe it is a higher quality. Maybe earnings growth will be better. Those things may well happen. Is it worth double? Almost? No, I don't think so. So I would buy the cheapest of the big four on a PE basis, on the basis that they're all reasonably similar. And so I simply maximize my upside and minimize my downside in a relative sense by choosing the cheapest of them because if they all go terribly, then the cheapest one's got less far to fall.

1:00:07If they all go well, the cheapest one will do okay. If PE is 10 to mean revert over time, then I feel better buying ANZ at 10 rather than CBA at 17. Is CBA better? Yes. Will it always have a higher PE? Maybe. If investors love the hell out of it, maybe it'll have a higher PE forever. I talked about CSL and Ausbis this week and the PE is 41 times. Now, the growth in the last five years has been like 5 % a year for a PE of 40. Why? Because investors have convinced themselves this is a quality business. Now, maybe it justifies itself in time. Maybe you look back and go, yep, that was cheap because in 2024, profits doubled.

1:00:43And so that was a really cheap. Actually, that's the forecast is for 2025 for$12 per share in earnings versus$690. as of 2022. So that's, I mean, it's a forecast, but yeah. Right. Maybe you get it. Or maybe you don't. So, you know, I'm, I think it's, I think it's a gutsy call to go from$6 to$12 in two years. Maybe it happens. And I hope it does for all those CSL holders out there, knock yourselves out. But the idea that CSL is a quality company is actually been mixed up in people's heads with CSL share price goes up. Well, maybe those two things are related. Maybe one's a self-filling prophecy.

1:01:18Maybe it's not. Enron was a wonderfully profitable, successful company and the share price went up and it was a quality business until it wasn't. You've already mentioned the banks, Ram. I mean, up until 10 years ago, people would have said, ANZ never loses money. You'll make a fortune. It's a high quality company. People still say it today, despite that 10 years miserable track record, right? And so I think - I know you've got a factor in dividends, so just preempt that as well. It doesn't cover itself in glory, even when you do that, I should correct you. And that's the point, right? So if people who said 10 years ago, So ANZ is a quality business.

1:01:49Big four, they're great. You'll never do badly buying these guys. Well, 10 years later, you say, look at that. Maybe CSL is the one, maybe it's not. My point broadly is people are still paying up for CSL. Maybe they'll keep paying up for Commonwealth Bank or maybe like ANZ, they won't. Yeah, it's a good point. Yeah. One of the simplest ways to mitigate your downside is just buy cheaply. Now, don't buy rubbish, but if they're all roughly the same, I think they are, why pay up for one of them? I could buy the other ones cheaper. I think I've told you my play for the banks is Hold me to this if and when it ever happens.

1:02:20But if ever we do have a bit of a nasty recession, because, again, I know it kind of needs to be reminded for us here in Australia because we haven't really experienced it. But banks are, by nature, hypercyclical kind of companies. They just are. It's just a fact of life. It's like retailers are very cyclical. Banks are really cyclical too. So there will be a point, I don't know when, we'll have a nasty recession and they'll go down. Some of them will need to recapitalise. That's exactly what happened in the GFC. They'll need to shore up their balance sheet and cover their losses and the rest of it.

1:02:52And that'll be done at discounted rates and existing shareholders will be brutally diluted and all of those kinds of good things. I'm pretty interested in the banks at that point because I also think that they're so systemically important, they're too big to fail. The government won't, I don't think, be unlikely to let any of the majors fail. So there'll be a bailout at some point. You'll have earnings collapse in that environment. and you have the multiple that the market is prepared to pay on those earnings collapse as well. That's the time I'm really hyper interested in a business that I feel is I still will survive.

1:03:27And that's the time to back up the truck on the banks. Again, I'm not trying to time it. It would be more of a now cast than a forecast. Like, okay, it's happened. Okay, CBA has just announced a capital raise. This is what it's going to look like after the event. I think that's when you run the ruler over things as well. And that historically has been a pretty good time to invest in the banks. yep i agree i i with the with the exception of the 90s we almost had two of them got broke that's true i just want to be there there is there is an outcome where equity is wiped out um or or whatever else happens so i think but i think you're right risk reward i think it's a very smart so how unimaginable is that today though right like i've mentioned that to a few people about how westpac hit the wall and stuff like well no that never happened it totally did It totally did, mate.

1:04:11It totally did. And it could happen again. Again, we can debate the likelihood of it. But I think I told Roger at one point that I was like, you only have to, like if CBA wiped out 10 % or 15 % of its, if its assets valued, broad assets, so it's all the mortgages that's written, all the investments it's made, they drop 15%. It's technically insolvent. Again, it's just the business model. It's just how it kind of works. And again, I'm not saying it will happen, but I think you need to be alert to these kinds of things. and yeah, you make a very good point. I think so that's why I always say the point of interest for me would be once there are discussions and like, okay, we are now recapitalizing.

1:04:51We have now gotten this assistance from the government. So it's sort of like things are really crappy right now and they're going to stay crappy for a little while, but I know it's going to survive. That's correct. That's right. Once you know survival is assured. And that was, honestly, that was a lesson of the COVID. Some of the businesses that were sold for just you know really cheap prices late march 2022 no 2020 so geez feels like a long time ago it was yeah it was three years ago yeah and that's it that's crazy in itself some of those business offers really cheap price in late march april of 2020 when realistically they had cash and unless the world ended as we knew it and in which case we all got bigger problems that was you know there were some really cheap business where people just simply went well i don't know it's a bit scary and it's like oh that was the time to be that was the time to include some of the banks by the way that was the time to be buying for sure i was buying i was 100 buying but before you make the grievous mistake of thinking i know what i'm doing i i was very tentative a little bit here a little bit you know and it's always the regret it's all you always think i'm gonna i just said it before back on the truck no no no reality is is you you you think oh i'll buy a little bit now maybe it'll go further i'll buy a little bit now and then years later you go yeah i technically I was buying, but I really should have been far more aggressive than I would.

1:06:07The same as you, I'm almost always fully invested. So I was just buying with regular cash. Yeah. But at least I was buying. That was like, okay, I've got some money. I've saved my X percent of my salary. Right. I'm going to invest it today. Yeah. It just did. And so, you know, I bought some rubbish. I said before I bought Webjet in February of 2020 because I thought, how bad can this COVID thing be? Yeah. It wasn't the smartest day of my life, but I bought other stocks during and after as well. I think we also, there's a lot of hindsight bias when we look back on these periods, because we look back and go, oh, how obvious that bargain was.

1:06:39Well, as you say, three years is a long time, but I remember it vividly. And there was, it sounds funny to say now, but there was some serious questions over what this meant. I mean, this could have been like the movie Contagion as far as we knew, right? Like it could have been, you know, 5 % of the global population being wiped out. It sounds fanciful at this point, but it was within the bounds of possibilities at that point. That's why you got such incredible discounts. And it was the moment, I think, that we started realizing that while as serious as this is, it's not that level of serious.

1:07:16That's when the bounce back sort of happened. But I guess my point is whatever causes the next big market meltdown, the fact that there is a market meltdown will be by virtue of the fact that no one knows what the hell is going on. That was 2008, right? We literally thought the global economic system was going to collapse. That's why we got the prices. And so it's easy to say, when prices go down, I'll buy it. Yeah, that's right. With civilizations at stake, I'll buy it. That's a different thought. You don't get meltdowns if everyone's got a reasonable degree of confidence that it's not going to be that bad.

1:07:52By definition. So it's dire. Which again, which is why these sort of regular consistent additions are so good. We just protect yourself from yourself and just go, I don't know. I don't know. It doesn't sound sophisticated. It doesn't sound smart. But I don't know. And I've just got a bit of cash. This looks reasonable value I'm going to buy. Sometimes it'll prove to be the most genius bit of timing ever. Sometimes it'll be horrendous. It tends to work out pretty well though. Yep. and again as we've kind of been the theme of this podcast just kind of just suck it up and do it knowing you'll be wrong sometimes right other times and overall being invested is better than not yep I think we're done what else here's the other thing what else are you going to do with your money yeah I know like honestly what are you going to do with your money you've got to put it somewhere the problem is it's that it's like I'll keep it and then I'll invest it when the time is when the coast is clear when the time is right people have a sense and if this is some of you listening then my apologies in advance people have a sense they can somehow control it i'm smarter than the market so what i will do i'll wait and then when the time is right then i'll invest and i'll get it right and it's just that whole idea of you know yeah meanwhile i'm losing five percent plus in purchasing power each year uh you know it's not but and but not even purchasing power like let's say inflation goes away you're losing the opportunity to make 10 a year on average like just you're literally betting against a market that has on average gained 10 a year for 100 plus years maybe it's eight maybe it's nine maybe it's 12 i don't but you're literally betting against what has been otherwise the consistent rise of share prices the longer you're out of the market statistically the worse you are so you're waiting for a better time by betting you're going to be right against a market that's going up anyway so it's almost like the bear etf conversation it's like how long do you want to wait for this because i've got a friend who's been waiting since 2017 when china was about to implode in his view you know it's I mean, it wasn't like a craziest thesis.

1:09:41It didn't happen, but look how much it's cost you. Here's the flip side, by the way, right? That person will finally give up at a market high at some point. The capitulation trend. All right, the market's gone up. All right, okay, it's all right. It's tripled. All right, fine. Okay, you're right. I'm going to buy now. Like, oh, no. You apply the money in at exactly the wrong time. When, by the way, the coast feels clear because everyone's feeling good, what does it say? You pay a high price in the market for a cheery consensus, as Buffett says. There you go. Look at your Buffett quote for this week.

1:10:06But once it feels good to invest, once everyone's in, it's not often a good time to be putting your life savings to work in one fell swoop. I want to expand on the point you made too of the 10 % or whatever it is per year. Actually, it's never 10%. I think there's been like two years in all of history where the market gained 10%. It actually goes up 30 % and then it falls 20 % and then it's up 15 % and then it's down negative 2 % and then it's up 6 % and then it's down minus 14%. That is what it is. The average is very deceptive. But again, the point is that is normal. So I'll wait for things to get back to normal is just like it is not a sensible statement.

1:10:49It's a nonsensical statement because right now is normal. And next week will be normal and year after, I don't know what's going to happen, but whatever, within the grand arc of market history, it's perfectly normal. So again, people who wait for risk to abate and things to, quote unquote get back to normal are going to be waiting a long time. Or in fact, not recognizing that right now is perfectly normal. And probably losing the opportunity of making some money in the meantime. By the way, that's not saying you just invest hand over fist no matter what. This is why I think we both classify ourselves as what's called bottom-up investors.

1:11:24In other words, people always say, you know, oh, you're investing in the market. It's like, no, I'm not. I'm investing in some companies that happen to be listed on the market, but I'm certainly not investing in the market. You know, it is a subtle but very, very, very important difference. And that's another lesson from history is that any kind of period, there are always opportunities on the market. In the darkest of times, even in the most frothy of times, there always are. And are they easy to find? No, but that's your job. That's the game we're playing here. That's what you've got to do. And yes, certain conditions and environments and situations will sway your thinking and outlooks and your temperaments and your emotions.

1:12:02but just I gives me great purpose to continue going on just by knowing that logically there is something that is out there and and finding that and and acting on that is what makes it also fun and interesting and there's the challenge for the rest of your Sunday we will be back with you next Friday I say we I assume you'll join me yeah you bet 100 try and stop me until then enjoy your weekend follow us on all the socials we've been going too long just just go go and do it now and then come back. And until next week, Fool on. Cheers.