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Podcast Summary: Motley Fool Money - Mailbag Edition (December 10, 2023)
Overview In this special Mailbag edition of the Motley Fool Money podcast, hosts Scott Phillips and Andrew Page address various listener questions related to investing, market predictions, and personal finance, all while reflecting on the upcoming holiday season.
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Key Discussions
- Listener Engagement
- The hosts express gratitude for their dedicated listeners, highlighting two fans who logged significant listening hours on Spotify, with one being in the top 0.5% of listeners.
- The Future of Market Performance
- Question from Nick: Is the market likely to perform as well in the coming decades as it has in the past?
- Key Points:
- Historical context of market performance indicates a "golden age" that may not be sustainable.
- The hosts discuss factors like declining interest rates and the impact of technological advancements (e.g., AI) on productivity.
- Emphasis on the unpredictability of the future, suggesting a "now casting" approach for investment decisions focusing on current business fundamentals rather than long-term predictions.
- Investment Strategies
- Question from Andrew: How to avoid becoming overly concentrated in investments?
- Key Points:
- The importance of assessing both conviction and value in holdings.
- Suggested thresholds for concentration (e.g., 5% in a single stock might be too low for high-conviction investments).
- Discussion of the balance between adding to winning stocks versus losing stocks.
- Bitcoin Investment
- Question from Scott: How much Bitcoin should one own?
- Key Points:
- Andrew discusses his growing conviction in Bitcoin and its role as a diversified asset.
- The hosts emphasize understanding the asset's fundamentals rather than purely price movements.
- Discussion of when to rebalance holdings in Bitcoin relative to other investments.
- Selling Shares to Buy a Home
- Question from Dan: Which assets should be sold to form a deposit for purchasing a home?
- Key Points:
- The discussion centers on selling shares versus utilizing retirement savings.
- Consideration of tax advantages in retirement accounts (like KiwiSaver) versus selling shares with potential capital gains tax implications.
- Currency and Market Timing
- Question from Dan: Should one sell stable shares to take advantage of a favorable exchange rate?
- Key Points:
- The hosts caution against timing the market based on currency fluctuations.
- Long-term investment in strong businesses is emphasized over short-term gains from currency trading.
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Key Takeaways
- Gratitude for Listener Engagement: The hosts appreciate their audience, acknowledging their commitment to the podcast.
- Market Predictions: Historical performance may not be indicative of the future; focus on current business fundamentals instead.
- Investment Strategy: Avoid becoming overly concentrated in a few stocks; maintain flexibility to adjust holdings based on conviction and value.
- Bitcoin Allocation: Consider Bitcoin as part of a diversified portfolio, understanding its potential and risks.
- Selling Assets for Home Deposits: Prioritize tax-advantaged accounts for retirement savings over liquidating investments.
- Market Timing Risks: Avoid trying to time currency movements; focus instead on long-term growth from solid investments.
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Conclusion The episode encapsulates the importance of thoughtful investing, audience engagement, and the unpredictability of markets. The hosts emphasize a grounded approach to finance, encouraging listeners to make informed decisions without succumbing to market hype or short-term fluctuations.
Written by AI. May contain mistakes. Listen to the episode to check what was said.
Transcript
Automatic transcript. May contain errors.0:09Welcome to Motley Fool Money, our very special Sunday Mailbag edition. even more special because Christmas is in the air. The time of goodwill and peace and all those kind of wonderful things. And that makes it appropriate that I speak to the optimist of the crew, the man who just has nothing but smiles and kind words for everybody, the genteel, the genuine, Mr. Andrew Ram Page. G'day, mate. How are you? You know I'm all about rainbows and lollipops and sunshine and all the bitcoins. yeah what's not to love with the state of the world exactly mate and I'm glad you're here to share that with us are you ready for Christmas?
0:52no I'm not here's the least surprising statement of the year I love the for me boxing day any day I will take that Christmas is love, I enjoy it but it's the it's the lead up to Christmas that is just so stressful and costly. Everything's got to be done by Christmas. And then even the Christmas day itself, I shouldn't complain. It's lovely to catch up with him. There's a lot of running around, keeping various family members happy, and then Boxing Day is like, I can just relax. The kids are happy. They're preoccupied. This is where it's at. So, yeah, that's what I'm looking forward to. Nice. Mate, can I start off?
1:36I have a question for you, but not yet. Not yet. I was sent two separate images during the week from our listeners. Now, I don't use Spotify, but Spotify famously has their Spotify. Is it wrapped or unwrapped? Or what they call that thing. That kind of idea of like, you know, here's your year in review. We had two listeners who sent us images from their journey with Motley Fool Money this year. The first one was from Harrison. Harrison just sent it to me. and here's the thing it says, this is Harrison Stats, you've listened for 7 ,518 minutes. You're a top 1 % fan, which I thought was extraordinary.
2:19In fact, I thought it was extraordinary until we got one more for another listener whose details I can't quite find. I wonder if it was sent to me some other way because I pasted it to you anyway. I wish I could name this person but I can't because I've clipped it. this listener you've listened for 8 ,632 minutes you're a top 0.5 % fan so I'm going to just say the best Christmas gift we could get from our listeners is that dedicated followership now some of these are more listening because they had to catch up on previous years episodes harder if you've just listened to what we've done this year you did say to me on Twitter mate you said holy hell 143 hours and I said well that's like 7 episodes for us so maybe it's not that big a deal but uh no really really so just i want to say i mean we'll get closer to christmas and we'll do some christmas thoughts when we get closer but uh as an early christmas present uh i just want to say thank you for everyone who spent any time listening to us so far this year it's uh it's an absolute privilege to get between your ears uh you've got a million other things you could you could listen to and spend time doing so uh we just truly truly appreciate you spending some time i'm just waiting for spotify to offer us a joe rogan kind of deal you know which which I will take.
3:37Spotify. Andrew Page goes, Joe, there you go. Hashtag Spotify. A hundred million will do it. It'll get me across the line. Just saying. That'll be completely fine. The good people, the listener, of course, who are publishing this, would rather stay with, stay with listeners than with Spotify, but you know. Hey, it's a competitive market. Money talks. Listener, you know, offers are open, offers are being accepted. Oh dear. Before we get thrown off the platform, Andrew, I guess I probably should find out what straw man is then. We are a private online Investment Club. I'm glad to hear it. Mate, let's kick into some questions from our listeners that are, oh, by the way, we did get one person, one gnarly listener who really has obviously started the Christmas spirit kind of period, a little more Scrooge than a little more kind of, you know, a little pre-Christmas ghost Scrooge than post-Christmas ghost Scrooge.
4:26Apparently, there's one listener who doesn't like the ongoing joke about straw man, which I am staggered by. Okay. You know, it's where there's one, there's probably others is all I'll say. Harsh. Anyway, Nick says, hi, Scott. Here's a question for the podcast. Feel free to use my first name. So I will, Nick. Thank you. On behalf of all the retail investors listening to the pod machine, says Nick, I'd like to share a recent passage. I like those jokes, Andrew. From The Economist, which warned investors the future will not be as rosy as the past. Now, I'm going to ask you to keep pessimistic, keep Ghost of Christmas Future here, Andrew, as I read this out.
5:05Quote, even accounting for the global financial crisis of 07 to 09, the four decades to 2021 were a golden age for investors. A broad index of global shares posted an annualised real return of 7.4%. Not only was this well above the figure of 4.3 % for the preceding eight decades, but it was accompanied by a blistering run in the bond market. The golden age is now almost certainly over, end quote. Nick asks, is the economist right to say the market as a whole will not perform as well in the coming decades as in past decades? Thanks, Nick. Gosh. What do you reckon, mate? Who knows? I mean, I get it, right?
5:51And I've made similar comments. I think we all mistake good fortune for good skill sometimes. And you and I have pretty much our entire careers have been during a period of structurally declining interest rates, which, hey, is a great time to be alive if you're an investor, right? Now, how much of that was pure genius and how much was that right place, right time? Yeah, correct. I'm not trying to be self-deprecating for the sake of it, but it is something that I am mindful of. Property investors take note as well. That's a factor for you guys too. It just changes valuations. It's a very strong tailwind to have in your sales.
6:46and I think that period is over. So that is something that is going to make it harder and also even though things, depending on what segment of the market you're looking at, you know, things have come back a little bit but overall when you look at valuation metrics for markets as a whole, they're sort of at the higher end of things. So we're going into this different environment of maybe not, let's not say it's going to rise, interest rates are going to rise for 40 years, but I don't know if that – well, mathematically, unless we – well, gosh, unless you want to start talking about negative interest rates, you just can't – even with the – I know people are saying, yeah, but what about, what about all of the rises recently?
7:29It's like we are still well below the long-term average, right? So it's sort of – it's going – that combination of factors is going to make it harder. And then – but on top of that, you have very – let me phrase it this way. You have the potential for very, very rapid technological change in an area that has the potential for insane productivity gains. I'm talking about AI, of course. I know it's overhyped. I know it's overused. But like any good hype cycle slash bubble, there's a good element of truth in that. There's reality at the heart there somewhere, isn't there? Look, there really isn't.
8:07It's something that I do pay very close attention to. and I can tell you, man, like some of the things that are already coming out is just like, I actually was saying the other day, you know, thinking about the kids, it's like, I would never say this, by the way, but it's like, I don't even think you need to bother going to school anymore. I don't know what you're going to do. Like, what are you going to do? You know, it's, the world is changing so fast and I find it very hard to make predictions three, five years out, let alone decades out. So I'm a big fan of this idea of I think it's called now casting, which is a bit of a stupid word, but I'm not trying to forecast so much but just say what does – and I'm not trying to look at markets per se.
8:58I'm trying very much – you and I are both bottom-up investors so I don't really give a stuff what the market is doing. I'm more interested in buying a stake in a particular business. Yep. And when I say now casting, I'm trying to say, well, what does this business look like today, right? And if I see a business that's got a really healthy balance sheet, it's got established products and services that has certainly demonstrated traction in the market, they've been able to maintain their margins in difficult inflationary environments, et cetera. Now, that doesn't guarantee anything about the future, but that's the kind of horse.
9:28Look, if I'm going to jump, there's a field, you know, and I'm going to jump on a horse and ride across it. Am I going to pick the beautiful, healthy, well-fed, well-watered thoroughbred or am I going to go for like the old nag that's like barely able to stand? Like, yes, it might be the one that just manages to race ahead unexpectedly and happens. But I think that's how I'm trying to look at it. I'm trying – you can't avoid making assumptions and forecasts about the future, but I at least want them to be not exceptionally high bars that have to be hurdled over. And that even if things more or less sort of muddle through that, that's going to put me in a reasonably decent position.
10:11But coupled with that is, and this is where I've admitted I struggled a lot with this, is having the flexibility of mind to recognize when a thesis is broken and act swiftly. That's, let me clarify that. That's not to say, oh, the share price is down. I was wrong. I'm out. No, no, no. My investment thesis rested on my expectation that business would do this, this, and this. The less likely that looks, regardless of the price, frankly, the more I should, whether I will or not is another thing, but the more I should be open to just, you know, walking away, dusting yourself off and trying again. I, I, I don't think it's not the kind of environment where it may have been, um, not really that long ago, historically speaking, where you, you could have a reasonable vision on the future.
11:01I think anyone sort of in 2000 could sort of say, yeah, Coca-Cola is not going anywhere. It's like, oh yeah, people are more alert to sugar. And there's a, there's a definite phenomenon that's there, but it wasn't just going to be disrupted and gone overnight. I think those things are more likely. Yeah. Does that make sense? It does. In a world with rapid change. I think that's right. David Gardner, our want-lifficult co-founder, tells the story of, you know, when you were 300 years ago, a century ago, you know, when you were born and your grandfather was a farmer on the Nile Delta, your father was a farmer on the Nile Delta, you were going to be a farmer on the Nile Delta and your grandkids were going to be a farmer on the Nile.
11:43That's how this worked, right? Yeah. think about the pace of change these days, the last 100 years, the last 50 years, the last 20 years, the last five years, the last year. It's extraordinary, the pace of change. I think you're absolutely right, Ram. I think, kind of riffing off your thoughts a little bit, I don't know either, literally no idea.
12:04There are pros and cons and reasons for both. I think what I would say, by the way, is whenever you see someone make a definite, therefore, ignore that for a starting point, right? It's a compelling headline slash statement. When they say, you know, this won't happen, the golden age is now almost certainly over, end quote. I mean, you know, like seriously? Nothing is certainly anything. You know, there was famously The End of History. The book was written in the 50s, 60s. IBM only needs six mainframe computers in the world. You know, predictions are stupid and so who knows? So a couple of thoughts.
12:38Firstly, while I'm not a massive monetarist or a Bitcoiner, but as our listeners well know, it's very hard to escape the fact the last 40 years of higher returns comes with an era of higher debt and there is some debt-fuelled growth in the economy that we've now got$2 million worth of government debt and a lot of private debt to account for it. So that's just worth calling out. Now, is that aiding the last 40 years' worth of growth? Yes. It's an excellent point. Is it detrimental? Is detrimental? Not necessarily, but probably given the size of that debt and the burden of that debt, but it's part of it.
13:15Is technology part of it? Yes, absolutely. Productivity. Here's the thing. The economy should only grow at the pace of the population growth other than for debt, which in theory is temporary, although we're doing our best to make it permanent, or at least the cycles of that anyway, and technology. Productivity is what gets us out of subsistence farming, right? So when the economy, in quotes, measured in 1625, would have been the sum total of all the wheat harvested and the cattle killed and thatched roofs made and you apply some sort of arbitrary value to that and call it an economy. These days, productivity, the industrial revolution, the information technology revolution, to Ram's point, those things have changed things dramatically.
13:54Now, I'm not prepared to say, well, so here's the other thing. Look at the 4.3 % for those preceding eight decades. Compare that to the eight centuries before that, someone would have said, the economy's only grown at 1.5%. It's grown at 4.3 % for the last eight decades. That can't continue. And what did it do? It went to 7.4%. So, you know, a point in time we look back and go, well, obviously this is different, but obviously it must go back to where it was. We really haven't. Now, also, by the way, we've done it by, you know, destroying parts of the environment and having some pretty ordinary social outcomes and other things as well.
14:25So this is not faultless, single direction, no side effects, no collateral damage progress, but it is progress. I wouldn't want to bet that we will necessarily repeat the last four decades in the next four decades, nor am I even close to certain that it needs to be lower. It could be higher, frankly, for reasons that Ramsey talked about. I wouldn't place any bets based on that framework at all. I think it would be madness to do so. In fact, despite the fact the article is supposed to be about, hey, the last 40 years were an anomaly, therefore it should go back to the period before that, All they've really shown is growth patterns change.
15:03And they're not unidirectional. It doesn't have to go to 10 and then 15 and then 25. But there's nothing to say that the circumstances that got us here need to continue. That eight-decade figure looks low compared to the last four decades, but it's massively higher than the previous four centuries. So that's important. My last point, I suppose, Nick, which is really deeply unsatisfying is dot, dot, dot, so what else are you going to do? So let's say it is 4.3%. What are you going to do? Are you going to put money in the bank? Well, if growth is 4.3%, you're unlikely to get 4.5 % interest, is my best guess.
15:37Are you going to put it under the bed? I mean, you're welcome to, but inflation will take that away. Do you want to go start your own business? Go for it. Bird, is that better? You want to buy a property? I don't know. You know, Ram's been a little bit – he's got some thoughts. So, you know, part of me is kind of like it's almost – we've talked a lot about – is it the Howard Marks thing, mate? It's like this two-grid matrix of important and knowable on difference. So if it's important and knowable, you better want to believe it. You better want to find out. If it's not important and knowable, don't waste your time.
16:07If it's not important and not knowable, don't waste your time. But if it's important and still not knowable, well, what are you going to do about it? Nothing. You just got to leave it behind and move on. So I love the question, Nick. I don't blame you for a second for asking it. I'm going to honestly say, mate, I don't know and I'm not going to waste energy. Again, I don't mean this critically. It sounds like I'm being awful. I'm not going to waste energy trying to work it out because it doesn't matter. My only question, like with any investment, is which is the best place, or if you prefer, which is the least worst place for my money?
16:32And if it's this, and I get 7%, great. If it's only 4%, well, okay, that kind of sucks, but better than doing nothing. The growth rate of the market only matters if you have alternative investments which become more attractive at those rates. And that's probably, maybe there is an argument, say maybe cash is attractive. You can get 4 % in cash or 4.3 % in the market. It will knock yourself out, except for one thing. Nick talks about these numbers that are reported from The Economist. The key word here is real. In other words, after inflation. So when you say 4.3%, that's 4.3 % after inflation, on top of inflation, in other words.
17:05So be careful how you compare that. Ram? Yeah. Yeah, I mean, in a world of hyperabundance, I'd probably be after things that are scarce. I'll let people fill in the blank as to what they feel is scarce there and will remain so. But the thing is it's very easy to look at our past and to a past that seems to stretch back a long way and just extrapolate forward. But I think when you take a broader view of things, you realise that things tend to advance in steps and not in a smooth upward fashion. And there's this great, I really like guys, a YouTube channel called Kurzgesagt in a nutshell. And they did this really interesting, it's almost like an artistic piece where they just said, here's the history of the earth.
18:01We're just going to make each second worth 10 million years or something like that. Oh, wow, yeah, okay. And nothing happens for 48 minutes. And they sort of throw in some facts and stuff like, you know, like, you know, billions of years. and then we get single cell life, right? And guess what happens after that? Nothing happens for like another 18 minutes and then multi-cell and then this and then that. And it's just like, we are brand new. That's on geological sort of timeframes, right? But I think even within the human sphere, so human civilization probably dates back 10, 12 ,000 years. We've been around as a species much longer than that, but sort of agriculture and stuff started then.
18:44And again, nothing happened for the longest of times. And to David's point, right, like your great, great, great, great grandfather and your great, great, great, great grandchild had the exact same life, the exact same technological environment that you had. And we get to a stage now where a phone from five years ago is old tech, right? Like it is – I may have used this analogy recently, but I mean exponentials break your brain. If you fold a piece of paper 42 times, it'll get to the moon, right? If you fold it 52 times further, it'll cover the entire observable universe, piece of paper, right?
19:27So it's 2 to the 94, whatever, like, you know, 2 millimeters, 1 millimeter. It's a big number. Extraordinary, isn't it? Yeah, it's extraordinary. And that is kind of where we're at. Now, the reason being is that knowledge and know-how are cumulative. live. Like they, they advance on one another. And this is, this is where I start to get really excited. Oh, scared. I don't, I don't know. One of those, both, both, whatever the word, I'm sure the Germans have a word for meaning excited and scared at the same time. I absolutely would. Brilliant language. But that's what I am. And I, just as you were talking, all right, I've got my WhatsApp open on my phone, a friend sent through an article and it says millions of new materials discovered with deep learning.
20:12So an AI tool called GNOME, G-N-O-M-E, found 2.2 million new crystal structures, all stable, all have potential applications, whether from solar cells to computer chips. That's so cool. And what I'm getting at here is that it's this cross-pollination element. So you can understand, my example go-to is always, you can understand lift dynamics perfectly. You still can't build a jumbo jet without a thorough understanding of material science and the very lightweight strength tensile properties of aluminium. It's just sort of breakthroughs in areas that are really unrelated can spur change and advancement in completely different disciplines.
20:59There are computer programmers today employing algorithms that were discovered as a curiosity for a 16th century aristocrat mathematician that came up with it for fun. Isn't this a cool mathematical quirk? Oh, yeah, it's interesting when zero practical applications. Oh, in terms that we can fold proteins with that. Or, you know, this is an elegant solution for this and that. This is kind of what's happened since the Renaissance and the scientific awakening. We've rapidly advanced our knowledge. The trouble that we hit is that we got to a point now where you can't be a generalist. There is too much information.
21:40Even if you want to devote your entire life to chemistry, that's too broad a description. You need to be organic or inorganic. Actually, even within that, you need to be with this specialization. It's too big. And then we invented AI and machine learning, which eats big data sets for breakfast. so it feels as though we are rapid and like we are at a point where actually we've got the data we've got the material now we've got the way to synthesize that and combine that in really novel and interesting ways i'm like it's going to be wild right like and i'm not i'm not i'm not trying to sort of be a starry-eyed uh techno optimist here because it could be really dark as well when in fact when you have the majority of the world-leading experts saying this is something to worry about.
22:23Maybe, maybe we should pay attention. But, but my point, my point being is, is that it is, it is very wrong to my mind, even to say 2010 to 2020, let's extrapolate that pace of change or whatever. I think you step back and we get to a point where things just like, I can't imagine what the world looks like when my kids are 56, you know, like it's, it's, it's beyond my comprehension to even bother to try and do it. You, you see that, sorry, Sorry, mate, this is a long rant. But this is – you see it when you – with futurists from the past make predictions. And I read this book that I found when I was backpacking around Thailand and found it in a book.
23:05It was called The Third Wave or something like that. And it made all these really cool predictions of the future. And they were just so far off the mark, right? Look at what they thought space travel was going to be like when they put Star Trek together. You're doing dials and knobs and levers. Yeah, exactly. You know, they didn't even get the touchscreen right, let alone a gazillion other things. And it's, well, they did get some things that were pretty right. But, you know, my point being is that at the time they were very sensible sort of assumptions. And so we could sit here. In fact, we could get together the best minds that are out there and say, what do you think the next, what's the world look like in 50 years?
23:42That's right. And I will guarantee you that it's not just that they were wrong in the timing of things and the direction of things, But the biggest thing was completely not even imagined, right? It's a very – yeah. Yeah. And I don't know what to make of that. It does mean that investing is a lot harder. Honestly, I do think that this is why it's probably increasingly important to have an ETF allocation because it's just a very broad bet. Look at the Magnificent Seven over in the US, seven tech stocks holding up the entire market. If you're a stock picker and you didn't get any of those, you're doing terribly, relatively at least, you know, in some cases absolutely terribly.
24:28And what's going to be, you know, the magnificent five or six or seven or whatever happens to be, you know, when we look back in the year 2033? I don't know. At least I know with an ETF I'm going to get some of it. Yeah, exactly. Anyway, sorry, I went all over the place then. We've probably should get to other questions. Beautifully done, mate. I like it a lot. It is the challenge of forecasting. ETF, as Andrew says, look at businesses, fundamentals. I think those things are all true. Be humble. Be humble. I'd say, right, just don't. And that goes through everything. I have really high conviction on this thing.
25:03Okay, but maybe you're still wrong. So be humble. If that means lower allocation, that means more diversification, that means ETFs, that means whatever, do we need to stay humble because you better find – here's the uncomfortable truth. you're better off underperforming than going back to zero because you had a high conviction bet that went badly right so just you know that's the bottom line let's move on mate just otherwise we'll spend the entire time talking about it one from Andrew who says good day Mr Phillips and Mr Rant Page Esquire that's right Andrew I have a query for the podcast machine and Brax says that's right we the people like the podcast machine they do I'm in touch with the people let's lean into that Andrew says a dollar cost average oh no it's not you because you wouldn't say that Andrew says So a dollar cost average every month into about 20 individual stocks.
25:49I've been doing this for about three years now, and I'm starting to see my efforts bear fruit. Well done. However, I've always struggled with what guardrails to put around my investments to prevent me from becoming overly concentrated. What I have been doing is skipping over my investments that have grown to be over 5 % of my portfolio. As volatility moves things around, I feel like this has made me buy more of stocks that are cheaper on a nominal basis, which I think is great. Early in one's investment journey as you need to give the investment thesis time to play out. As the years go by, he says, I'm afraid what I might be doing is not adding to my winners but only adding to my losers by default.
26:29How do you gentlemen prevent yourselves from becoming too concentrated while also ensuring that you add to your winners? Kind of goes, there's a nice corollary to what we were just saying then, mate. What do you reckon? I get it. Did it stop adding to anything over 5 %? Adding to the others? What's your thought? I want to give the standard answer, but I'm not. I'm going to give my answer, which is I think 5 % is way too low a threshold, way too low. And it depends on the style of investor you are. Like if everything you've got are very mature, quote-unquote, blue-chip businesses, that's probably something, i.e.
27:06there's not the opportunity. We can sing the praises of Woolies all day long. It's never going to sustain 10%, 15 % compound annual growth rate in its earnings. It's just not, right? So the spectrum of possibilities tends to be a little bit smaller. So if that started to become incredibly overweight because the PE went to 50, I'd be very worried about that. If I'm looking at earlier stage, I'm not even saying – I'm certainly not saying speculative, in fact. If I'm just saying companies that have a lot more growth potential, for me personally that has been a massive mistake taking a profit and overthinking portfolio allocations and then I've whined about that many times on the podcast there is obviously a point where it makes sense because you you can get to a point where it's 90 % of your portfolio is in this one thing right it's like you might have a super high conviction but there's always the black swan and the rest of it.
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28:04So I guess depending on your style, I would say 5 % is too low. I would say the other dimension, two dimensions to look through, one is conviction. So if I have an investment that is 30 % of my portfolio, but I'm really high conviction on it, like I have never been more confident about the outlook for the asset, I'm not too uncomfortable with that as long as the second pillar of that which is value is reasonable I'm not going to use the word cheap because it's probably unlikely to be so but reasonable if I've again so just to make up some numbers if I had a 30 % position in something and I thought the value was not silly and the conviction was really high me personally I'm not uncomfortable with that.
28:57Here's, we should do a bit of a reflection on Charlie Munger for one of these upcoming pre-records. Vale Charlie, he was 99 and out a couple of weeks ago, but he made, he's got so many great quotes, but I'm not going to, I'm going to paraphrase because I can't remember the wording, but a good idea is rare. Full stop. It's certainly a case in investing. You don't, you and I spend all my every day looking and hunting for turning over rocks, trying to find the next whatever, Pro Medicus or Amazon or whatever it happens to be. They're like hen's teeth. They're really, really, really, really rare. And so when you do find one, and if you're diligent, you will, and you buy it and you put, I'm really high conviction, I love it, finally, I'm going to swing big.
29:45I'm putting 5 % of my portfolio into it. Doubles to 10 % and you go, and I'm out. You will regret that, I would imagine, in a lot of cases, or you will potentially regret that if your conviction proves to be well-founded because you're never going to have that – I've got to be careful with my language here. We shouldn't be looking for the moonshot. Moonshot investing is very dangerous, but you're definitely never going to get that moonshot wealth creation opportunity if all you do is continually trim down your position. And in re-weighting, you are by definition allocating into lower conviction ideas.
30:28So you're watering the weeds and you're weeding the flowers. So I don't have a specific formula to use, but I would say, and I say this from brutal experience, is don't overthink it because your valuation is a guess, right? Things on the upside and downside last longer than you think is possible and they go further than you think could ever be achieved it just does you're like look how ridiculous this is and then it triples right like yeah there are melt-ups and there are meltdowns so i guess i guess what i'm saying is is yeah be be more relaxed with it but just just look through those lenses of of conviction and uh and value like it mate i like it a lot i um i'm gonna take a slightly different approach not to yours necessarily just to kind of add some different angle.
31:22The other thing I think it's worth thinking about, Nick, is you're talking about 20 stocks you're adding to and that number seems reasonably arbitrary and I think you're right about letting the thesis play out and you're right about dollar cost averaging in some of those companies. I think that's absolutely true. I think if you went 40 years and you only invested in those 20 companies, you've probably got an issue. The other thing I think though, just keeping yourself true to your 20 best ideas, if 20 is the right number for you and your portfolio, then your 20 best ideas rather than just the 20 you've already got and what you might find over time is you're not necessarily watering your weeds if you're adding better ideas each time.
31:56In other words, even if you put a number, whether it's 5 or 10 or something else percent, and you say, I already earned 10 % of this, I'm not going to add any more, but I'll buy something else. If it was one of your arbitrary 19 others and five of them were already at 5 % and six were already over that, and so you've got seven less to choose from, and you choose the least worst of the seven, then you're absolutely, I think, to the rest of the making a mistake. I think, okay, we can't tell you what you should do so I shouldn't use those words otherwise ASIC will be very unhappy. Someone in that position might be making a mistake, put it that way.
32:27But I think if you kind of draw it a bit further through though and you kind of go, okay, adding to my best ideas plural, I don't know. Ram's right about not being overly specific. That said, if you've got five great ideas, the chance that all over 5 % or 10 % or whatever number you choose and you can't do any of them, maybe it might be a little bit lighter than otherwise you might think. And you've got to keep adding money after that, right? So that's the other thing is 5 % now versus 5 % of the final portfolio in 10, 20, 30, 40, 50 years' time is also a very, very different number. So I'd be slow to be arbitrary on this stuff.
33:00I definitely wouldn't be so clearly arbitrary that you're uncomfortable. I will also – let me just share this around for fun. I run a Motley Fool – I wasn't going to mention this but it just came to mind. I run a portfolio service, the Motley Fool. It's called Motley Fool Odyssey, right? It's not an ad. If you want to join, you can join later. I think it was open for joining now anyway, so it's not an ad. but I'm just going to quickly log into the site and pull up the portfolio because I just want to share for the sake of
33:25how I think about it so this is a portfolio I run on behalf of our members basically we run the portfolio members can follow it if they want to that's kind of why they join we don't manage their money our largest position is 8 % second largest is 8 % third largest is 7 % fourth largest is 6.5 % and it goes down from there that's relatively early on this portfolio has only been going for about eight months. So we're already at that. In fact, we added to the top two positions relatively recently. So that's us. I'm not saying you should not do it that way. I'm just saying that's what I've been comfortable doing to your point around about, you know.
33:59What worries me a little bit, Nick, is if you say, well, hang on, 5 % each, you've got 20 positions, you're kind of already doing the maths for you. You're maximizing each one and each one's going to end up being 5 % eventually anyway because that's how you're going to manage the portfolio. You're going to keep adding to those that are less than that until you eventually kind of push them all up to that. That is absolutely watering your weeds. If your worst position is down 95 % and, you know, it's the 20th one and you're only going to have those 20 and the big ones are already winning, so you're saying, well, okay, I'll add those ones at the bottom, you are literally, you know, chasing those losers.
34:26If you have 20 great companies, great, but to Ram's point before, there's only seven odd in the US that are doing really well. Adding to the 20th best idea in that market might be fine, but probably, you know, you'll do better off adding to one that's doing well. That's very short term. I don't want to draw too long a bow on that one because things will change and next year the Magnificent that might have terrible periods. Remember the FANG stocks we talked about and there's others before that and it's a little bit marketing. The nifty-fifty if you want to go back far enough. Yeah, exactly, right.
34:50So I don't mind you being comfortable about what the right size is. If 5 % feels uncomfortable for you, then by all means do that. I would just encourage you to not have just 20 stocks. If your biggest is only ever going to be 5%, I know you're not going to sell down, you're going to let it run. But let's assume that maybe a couple go to 10 or 15 because they do really, really well. The others probably don't. So just the sheer maths of that suggests that 520s or 25s, it's kind of a little bit too close for comfort to me. You're going to end up with what you're setting out to do. The outcome is always defined by the structure you choose to use, which is you're not with even positions in – even-ish positions in most of those.
35:26Now, math nerds don't at me. I know it won't be exactly the same for many different reasons. You get the idea, though. You're kind of setting up this structure where it's 20 by 5. I would encourage you to think more about – yeah, don't make it 15 % or 20 % if you don't want to, but more than 5 is probably okay as long as you're investing wisely and diversifying. But also don't limit yourself just to 20. Have 20 in total if you want, but don't have the only 20 you start with, is I guess my key point. Yeah. I hate to keep coming back to these questions because they're just the first two we've had are really good ones.
35:58So they're worth expanding on a little bit. Don't answer this if you don't want to. I really don't mean to put you on the spot. Go for it. But what's the largest waiting you've ever had? Not now, but throughout your career. Oh, that's a good question. What is the highest you ever got to? Oh, man. I actually don't know that number, mate. I would suspect it's almost certainly going to be Berkshire. Corporate travel for a little bit got up, but it kind of fell back again. So it probably isn't quite there now. Are we talking 2030, 50, 60? No, it wouldn't have been that high. Would Berkshire have been?
36:35Berkshire could well have been more than half at some point, yeah. Of all the things to be overweight in, like, yeah. it's not the most exciting example of you know uh corporate travel i i had i want to say i had over 20 percent of my portfolio on corporate travel at one point my asx portfolio sorry don't include my us so yeah whatever yeah that was pretty high um corporate travel and and berkshire would be the only two that were genuinely possibles um i will say just for the fun of it now i'm looking at my my us portfolio just pulling it up as we as we chat um so berkshire is currently
37:15while you're looking. Riveting. Berkshire is 70 % of my US portfolio, 68.9 % of my US portfolio. And my US portfolio is about half of my total. So there you go. Okay. Berkshire is probably about a third of my investments. Okay. You? 70%. Off. Yeah. You win. By a long way. Yeah. Overall, in fact, I'm not far off it. at the moment. And yeah, it is, you've got to be careful to learn the right lessons. I think with investing, there's a, because we've talked about this a lot, you can do the wrong thing and be rewarded. You can do the right thing and be punished. And so, so you have an experience and you go, Oh, I'm never doing that again.
37:59It's like, well, no, no, no, you might've actually done the right thing. Just, just been unlucky. Yeah. Yeah. I wrote, I lamented on this with members recently with, I don't want to give this stock away because it's too illiquid, but there's one of the top ranked stocks within our communities doubled recently. Oh, nice. Yeah, no, it's great, right? But we all sort of had these, I shouldn't include other people in this because other people are smarter and better than me, but I certainly had a valuation that's around the current price when it was lower, when it was half the price, right? Because it felt excessive to put a valuation.
38:35That is seriously true. So I curve-fitted. I know what I'm doing. I'm fully cognizant of what I'm doing. I'm going, thumb suck, thumb suck, thumb suck earnings. Come up with a valuation like$1.83. It's like, is it really 20-fold? Is it that much undervalued by the market? Like the market's dumb, right? It's not that dumb. So you can, well, so I peel back some assumptions. And anyone who's ever done any valuation modeling will know that it's very sensitive. So you can change a sort of a few different things and things will move around a lot. And I do it because I'm anchoring on the market price.
39:14So anyway, now the market price has doubled. It's hit my valuation. Now, again, just because it's at the valuation, by my definition, it's not overvalued, but it's fair valued. But I was making an allocation based on the fact that I thought it was worth at least twice as much as what it was. So what did I do? I went in there, I twiddled the knobs, and now I've got a valuation that's a little bit higher. Do you see what I'm doing? Totally do. And this is the other thing to be aware of where in order to – you will have these urges that pretty much are emotionally based. It's like I want more of this.
39:53I saw a great comment from Ian Castle on Twitter the other day. I just loved it, loved it, loved it. I'm going to totally steal it, which is when shares are going up, all you can think of is the upside. How I can it get? When things are going down, all you think of is the downside. How low is it going to go? Do you know what I mean? Correct. So now that this thing is going, I was like, huh, well, it could go there and this and that. And I've done this before where as the market price exceeded my value, I didn't want to sell, right? I wanted more. Find reasons to hang on. Yeah. And I found reasons and I convinced myself through some intellectual trickery, oh, if I just adjust this and that still seems reasonable and this and I even don't know that as I say this, I don't know that I've been wrong in doing this with this particular company because it feels like, well, actually since I penned that valuation, we've seen genuine progress in the business.
40:47It was always hyper conservative. And in fact, I haven't, I haven't really tweaked things too much to get a valuation that still suggests that this is good value. But I guess I just, I tell the story just to sort of acknowledge how diabolically difficult all of this kind of stuff is. But yeah, I'm getting up there, man. I'm looking at my share site at the moment just going, I really should do something about that. But again, it has been my biggest regret in investing with trying to take profit. You never go broke taking a profit. It's stupidest saying ever. And yeah, I still have super high conviction.
41:33I still think it's super undervalued. So I feel like I should probably hold, but yeah, it's up there. So I don't know. I don't have an easy answer other than to say, I see you. I hear you. I acknowledge you. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.
41:58It's a question from Scott for you. We've had an Andrew and now we've had a Scott. This is a bit of sus. Yes, exactly. Well, you'll know this one's not from me. Hey, Scott, I've got a question for the pod. In fact, the question is mainly for the straw man himself, but I hear he is exclusively on Twitter or X or whatever it is, and I just don't have the time to engage on that platform. I'm not sure if that's a good or a bad thing, he says. an apology, Scott, the question relates to Bitcoin. So you know I'm not coming from there. And then he says, sorry, I've just taken up half your podcast. Possibly.
42:30Anyway, I've listened intently to Andrew's thesis on Bitcoin the last few years and it caused me to do some research myself. Talk about a rabbit hole. After I could explain it to my wife in my own words, I finally took the plunge, she says in brackets, with her permission, on a small percentage in my portfolio earlier this year. So far, this seems to have been a good short-term investment, but I know it's likely to be a rocky ride ahead. So my question for Andrew is this. Does he have an ideal percentage of his portfolio that Bitcoin takes up? And should Bitcoin go to the moon, albeit possibly briefly, he says, would he rebalance the same way he would with a small cap stock that might do the same thing, where it takes up an excessive percentage of the portfolio?
43:14Comes nice on the back of the question we just asked. Or does he consider this investment almost outside his portfolio and will just let it run? Keep up the good work, lads, from another Scotty P. There you go. And you're on a Scott P. You know this one's not from me, obviously. So no worries about Dorothy Dix is here. I am contractually obliged to mention Strawman. I'm not contractually obliged to ask Bitcoin questions and I will refuse to sign that contract. But, mate, it's a good question. We just talked about percentage allocation. So in the context of that, this is partly a Bitcoin question, partly a general investing question.
43:48But Scott's question at the end is probably the one that got my attention, which is, do you consider it the same way you consider other stocks? How do you think about it? How much would be too much? Not in absolute percentages, but have you got a view about if it got to this price or if it got to this weighting? Or, you know, how do you think about the exposure to Bitcoin in the context of your overall financial portfolio, not just stocks? Yeah, I might go against the consensus here. whether it's an equity, fixed interest investment,
44:20Bitcoin, an emu farm, a Picasso, I mean, they're all investment. Just quietly, you're the one who had bracketed Bitcoin, emu farms and Picasso is all I'm saying. I'm going to leave that there. I had to make mention. But, I mean, I've only got so much capital, right? And any time I make an investment, it precludes it from being elsewhere. So I just think, you know, I know the industry loves to sort of put these things in these artificial buckets, but each, every investment I make, regardless of whether it is of the same type or not, is about where is the best use for my limited capital? Yeah. You know, is it in Bitcoin or is it in a share or is it in my own home or is it in my hot rod in the garage because I just happen to be, not me, but, you know, maybe I'm a massive motorhead and I love that kind of stuff.
45:11So I don't distinguish at all is the first one. The percent allocation, I'm certainly not going to offer a number other than to say that that number will be reflective of your conviction. And I started off pretty small and it's not pretty small anymore. Partly it's 150 % gain this year or a little bit more. Yeah, but I'm not – look, I don't put that out there to go, because this is not my first rodeo. The moment I go, look how clever I am, is the moment it drops in half. So I am not doing that. But I'm not selling either. Oh, that's interesting. Okay. Yeah, no, not even close. If it doubled again, would you sell?
45:48No. If it tripled, would you sell? No. At that point, it's got to be a meaningful portion of your portfolio. I mean, just on pure weighting, assuming Bitcoin grows faster than shares. It's a pretty sizable chunk. Right, that's what I'm saying. Is there a percentage allocation which you would say prudently the upside doesn't? We talked about going to zero. We talked about being prudent or being humble. At what point do you kind of look at that and go, even if I thought it was still got legs here, the chance that I'm wrong and it does me serious, mortal financial damage is too big? Yeah, yeah. It's an excellent question.
46:19And it's something that is going to sound really reckless. but I would say that again, it is a function of your understanding. And we do not believe you, you don't need to take my word for it. We do not have time to get into it. But once you really start to wrap your head around it, it doesn't seem that crazy. You just said before, I've got 30 % of my money in a single stock. Now that statement said by itself is like, Scott, are you serious? And then you said, oh, it's Berkshire halfway. And you go, oh yeah, fair enough. Right? Because Berkshire Hathaway itself is incredibly diversified. It has an incredibly strong.
46:57So all of a sudden you've got two people, both who may have 30 % of their portfolio in a stock. One of it might be Mesoblast, which is a much more speculative company. The other one is one of the biggest conglomerate in the world and insanely profitable. So they're not the same thing. and so look, all I would say is you, the fund, I know this is going to grate a lot of people as well, but the fundamentals of Bitcoin have only strengthened, right? Very significantly so. And so why am I selling? Because the price has gone up a little bit. No, the investment thesis has gotten a lot stronger and this is going to break your brain, broke mine.
47:44In almost every investment you can make, the more the price goes up, the more the value goes down. Definitionally, right? This is what you might call a Veblen good in the sense that the higher the price goes, the more utility it has. So Bitcoin's worth a dollar a coin. The whole network is worth 21 million. Maybe it's good to buy some weed on Silk Road with, okay? I can do that. That's all I can do. Can I transfer, can I remit money internationally as a corporation? No, nothing that's going to be of worth. Now, just for the thought exercise, it's a million dollars a coin, right? So it's like now you've got it to a level where it can actually support the rails of international settlement, right?
48:30Like it can do international transactions. It becomes incredibly useful. and you can be Berkshire Hathaway, put your entire treasury into it and that liquidity not even be enough to shift the price too much. So this is what I think a lot of people miss with this as a monetary good. It's very different. We see it actually all the time now. If I wanted to, if Australia, for whatever reason, the RBA said, actually, we've got a bunch of US and yen and euro, let's get a bunch of congolese currency whatever that is and let's do that i mean it is not enough there on the open market you would distort markets massively it can't be done right but but but if the cong for whatever reason the world started to increasingly transact on that thing it it it's exchange rate between particular currencies change but the utility goes up a lot so i ain't selling I'll put it this way as long as adoption continues to increase as long as the which is really the main one as long as the utility continues to increase I ain't doing a damn thing the moment that that starts to fall over or look shaky let's have a conversation but at this point it's never looked better 15 years on and you know Ponzi's Bernie Madoff is not starting his fund again right like once a Ponzi is discovered it's gone uh once no one's buying tulips anymore right um the this there's a wonderful website called is bitcoin dead yet or something like that and it just it just it just plots all the time that the media has done it this is anyway you've got me on my favorite topic and i'm going to shut up and just answer it by saying no i'm not selling and you should have as much exposure as you're comfortable to hold and that comfort will be a direct directly correlated to your understanding and conviction of what it is.
50:27And I think for most people, when you look at it and they go, oh, it's just some magic internet money, well, why would you – you shouldn't – and I'm not going to criticise that view, by the way. If that's your view, you shouldn't have anything in it, right? Like why would you? You're not going to have any conviction when the volatility sort of comes. But if you understand it a bit more than that, I've said to you before on the pods that we've done, I feel in the year almost 2024, if you don't have at least a 1 % allocation, you need to have a look in the mirror. I would humbly suggest. You are the person in 1998 saying the internet is just somewhere where nerds can discuss Picard versus Kirk and it has no utility.
51:05That's the person that you are at this point. And 1 % is that kind of allocation where it's sort of like, aha, it's all silly and it was never going to last. Well, it's a daily fluctuation on the market, right? It's nothing. If not, you might be glad you did. Very good. but obviously Picard. Yeah, I agree, actually. Massive tangent for the sheer fun of it. If anyone listening is a Star Trek fan at all, Patrick Stewart has just released his autobiography and I'll just do an audible, so the audio version, which is just because he obviously narrates it himself. Brilliant. So if you're even slightly into kind of, you know, Star Trek and just stuff, he seems like a nice enough guy and speaks nicely and great backstory, all that kind of stuff.
51:51So check out, I think it's called Making It So from memory. Check it out. Really, really, really cool one. I'm a tricky from way back, mate. There's some really great narration artists from the Star Trek school. Leonard Nimoy, just fantastic. What's the other one? There's a bunch. There's a bunch. They've often done it. I've gone blank. I can't believe I'm kicking myself now. It'll come to me in a moment. And, of course, I have to give a special shout-out to William Shatner's spoken form song lyrics. It's just very special. It's a, when you chat, that's an interesting bloke. Remember to David Hasselhoff.
52:28There's something about the kind of former celebrities I take that was quite seriously, as seriously as they might, and you can't ever quite tell how much is fair to go and how much is not. So leave that there and make of that what you will. Hey, let's move on from reminiscing about Star Trek, Captain's Past, Present and Future. Why don't we, by the way, they have a card series, also very good. Let's go to a question from Dan who says, Discord Andrew, loving the pod. I've asked a few questions over the years, but not since you have upgraded to the podcast machine. So I thought I would give it a whirl.
53:01Welcome back, Dan. I wonder if you're New Zealand listeners, he says. I have two questions. One, consider you were looking at buying your first home. To form a deposit, you could use your savings and a combination of either, one, selling shares from your portfolio of shares which you have picked, or two, using your KiwiSaver. which is similar to Australian Super, which is made up of ETFs, both having similar amounts available. What would you do and why? And he just adds, FYI, New Zealand, first home buyers can withdraw their KiwiSaver to go towards deposit for their first home. So two allocations of capital.
53:37One, your own savings account. I see your own investment account, sorry. You pick shares or another account which just has ETFs. Which one do you sell and why? I'm going to assume that the one in the KiwiSaver maybe has some tax advantages too. I don't know the Kiwi law. If that's the case, it feels like, and you're in profit on your holdings, if you can minimize some tax, I think that probably feels about right to me. If you're more worried about the types of investment under each vehicle, I mean, you can always press a few buttons on your smartphone and reallocate, you know, maybe just proportionally sell down on the direct holdings and add some ETFs to your personal account.
54:29That's another possibility. But yeah, you might know a bit more than me about the situation across the Tasman there. Is there some other reason that you might favour one or the other? Mate, that's a very good question. I was going to avoid doing bad Kiwi accents but I will talk about investing across the Dutch just because it makes me happy to say Dutch so my apologies Dan and other Kiwi listeners who are now switching off in their droves by the way one of my favourite movies the world's fastest Indian Anthony Hopkins but playing a New Zealand speed record anyway coming back oh by the way John Clark also fantastic Kiwi yes so you're right actually those are exactly the two categories I would be talking about.
55:15So one is what sorts of investments, the other is the tax advantages. I also don't know KiwiSaver rules particularly well, but what I would suggest is, speaking of Charlie, we did do a bit on Charlie on Friday, but do you talk about never interrupting compounding unnecessarily? And that idea of, particularly in a tax advantage play, I think I would, again, so huge, huge, huge disclaimer here. Now, the Ram and I are tax accountants or particularly familiar with a Kiwi saver. So please, please, please consider everything here. I would raid my tax-advantaged account last because not only is the value of compounding huge, the value of compounding tax-advantagedly, which isn't actually a word, in a tax-advantaged way, also huge.
56:01And combine those together. I mean, look, think about super compound at 15 % for 40 years versus paying taxes at something higher than that for the same period of time. The extra returns you would need outside super to combat the difference, it's just huge. So not with saying I don't know enough about KiwiSaver specifically, I would absolutely go for the non-tax advantaged account first. So when you're paying off interest, right, you want to have tax deductible interest more than non-deductible. So if you're going to pay off debts more quickly, you pay off the debts that are non-deductible because you get the deduction on what's left, right?
56:37So it's kind of the same in reverse. I absolutely think that's the right approach to go about it. So again, I don't know KiwiSaver, I don't know what you should do, but if to the extent KiwiSaver is a tax-advantaged compounding machine, I would absolutely take that money out last. More than even the choice in investments, mate, because the chance you can outperform with stock selection at a rate which exceeds a tax advantage, it takes superannuation. I like to think I'm half good at picking stocks. I like to think you're half good at picking stocks. You and I can't beat the tax advantages with investment returns.
57:08You just can't do it. To be able to, firstly, in a guaranteed fashion, i.e. you know the tax advantage is there. You don't know how good your stock picking is going to be. So start there. I don't think I could pick stocks reliably year in, year out and have a return that was exceeding the return you get from the tax advantages of superannuation. So to the extent that's true for KiwiSaver, I would choose the same approach. Dan, second question. Just on that though, because that's the complete opposite of what I said. Because I said if you do it, if you sell in your super, you will have the tax advantage of not necessarily potentially, because again, we don't know.
57:48Yeah, yeah, yeah. Do you know what I mean? So just to tease that apart, because it's an important distinction there, because listeners may be going, wait a sec, you both said the opposite thing. Yeah, we all say different things. And it's not that I would even say, well, you're right and I'm wrong, or vice versa. It's just like what I was suggesting is it minimizes the tax burden now. you're suggesting minimising the tax burden later and you're also rightly saying with the benefit of a decade or two or three or four of compounding, that may be eventually a much bigger tax saving as well. That's my best guess.
58:20I mean, again, I picked two tax rates in Australia, right? If you paid 30 % tax on your own name and 15 % tax in super on just picking those two tax rates every single year and you do that for decades when in theory you're going to compound your money, not just compound it, but we've said a million times there was a 13-fold return over the last 30 years in Australian shares. So the gain on that is the 12-fold increase. You're taxing another 15 % or 30%. The chance you can invest better in your own name outside that, that the investment choice beats the tax savings, is really small. So I would happily say if your only choice is ETFs at KiwiSaver, but you get a meaningfully lower tax rate compound for 40 years, you're right, we are saying different things because I would absolutely take that.
59:03I'd pay a little bit of tax now and let the super compound at a tax advantage rate for decades. Future Dan I think will end up realising there's more money to be made by doing that, paying a little bit more tax today and keeping that money inside KiwiSaver for decades, assuming it is tax advantaged, and it may not be, but if it is, certainly if the same was true for super and those options were available to me, I would sell my own portfolio, pay whatever tax I owed, kind of kick the can and, you know, annoyed and yell at the government and shake my face to the sky, but then let's super compound in that tax-advantaged way given the choice of one or the other.
59:37Interesting, yeah. You still disagree? No. I mean, there's no right – I mean, it's like a lot of these things. There's no right answer. Well, there's the answer that's right for you, right? Yep. I think as long as you go into these things eyes wide open, there's trade-offs in life and in everything. And there's trade-offs here. And I think if you're making a decision aware of those trade-offs and that you happen to prefer this thing over that, then that's the right answer for you, even if it's something that's completely at odds as to what I personally would do or you personally would do. It's a personal thing.
1:00:14Beautifully put. And there's two options. Here's your second question, mate. With the US dollar very low compared to the average, would you consider selling more stable, sorry, larger, more stable shares in businesses or successful winners to take advantage of the dollar and then look to buy back in when the dollar normalises. Obviously, this is market timing against our motto, but if you've thought about it, my example would be that I own Apple shares, which are up over 150 % over the last three years. Hashtag humble brag, Dan. Seems potentially like a good time to sell and take advantage of the dollar.
1:00:47Keep up all the good work, Dan. What do you reckon, mate? I tend to not do things like that because, again, the universe has demonstrated to me many, many, many, many times that it is going to make me regret. It's like, oh, bless his little cotton socks. He thinks he can do that. Let's give him a lesson. What do they say? Man makes plans so that gods can laugh or something like that, right? I can't fault the intent. I can't fault the thinking. You know, you can look at the US tech stocks at the moment and say, yeah, they're certainly on the media side of valuations. Yeah, the Aussie dollar is relatively low compared to the greenback.
1:01:32You know, like it makes sense. It makes 100 % sense. But, you know, one, there's still tax consequences with that. So when you do put money back in, you'll be putting less money back in because the government's going to take a big chunk out of that. And it may be that despite things feeling as though one was expensive, that Apple doubles from here and the Aussie dollar drops to 40 cents next week. You're going, oh, serious? So the other thing I've often thought, when it comes to currency, look, who knows what's going to happen in the future, but using the past as a guide, you're a bold individual to expect the Aussie dollar to go too much below 50 or too much above a dollar.
1:02:22And even there, I'm probably capturing two or three standard deviations in that range. Oh, possibly more, but yeah, yeah. You know what I mean? So there's definitely gains to be made by the accurate timing of it. But when you look at a business like an Apple or something, which can compound for decades more, you think, well, am I making a move for you creating a tax event, creating a timing challenge? Not just, and by the way, not just the timing of when you sell, but the timing of when you've got to get back in. You've got to, you've got to pull that rabbit out of the hat twice in a row, right?
1:02:57Which is, which is, which is really hard. But, but you know, even if the currency really is in your favor, how much of an extra kick do you get as opposed to letting that damn thing just compound and compound and compound? Now I don't, I don't want to make it too much about that particular FX pair or that particular stock. And it will depend on those kinds of things. But I, as a very long-term investor, tend to just sort of roll with the punches when it comes to the currency and focus more on the business. As you've said before, I am definitely more likely to be aggressive with my overseas investments when the Aussie dollar is strong and less aggressive when it's weak.
1:03:37But I'm probably not doing big reallocations just because of what FX is doing. Yep. By the way, let the record show that Andrew used the phrase FX pair on this podcast just for future reference. I call myself too. FX pair, fair dick. Obviously getting close to Christmas, mate. It's been a long year. No, mate, you're absolutely right. I 100 % agree. Here's the thing. Let's say dollars doesn't appreciate very quickly, by the way, generally speaking. So look at mine. So anything could happen. And to your point, mate, whatever I say now, the opposite will happen and I'll look at you because the universe hates me as much as it hates you.
1:04:15But you know, so here's the thing. Let's say you sell because you go, you know what the dollar's like? I'll sell my Apple shares. So you do that and then over the next year the dollar, you're right about the dollar. The dollar goes up from 66 to 69 cents. You're, oh, I'm a genius. Let's go 70 cents. Let's be really aggressive. That's a 7 % gain. Let's say Apple shares go up 8%. Well, you're already behind the eight ball plus you paid capital gains tax and then you've got to work out as you said, when you get back in at some point and the dollar goes to 75 and you go, oh, okay, well, or it goes 66 and you go, oh, I should have done it with that.
1:04:45And the whole thing continues apace, right? Particularly if you're a long-term investor and you should be because a long-term investor should be an oxymoron, sorry, tautology. The idea of letting time do the thing. I mean, we mentioned Berkshire Hathaway, right? Like I've been really lucky, mate. That's gone up fourfold during the time I've owned those shares. I could have tried to play silly buggers, but now I've got four times my original investment. I own Amazon shares which have up threefold since I bought them. You know, these are not, I mentioned not interrupting compounding necessarily.
1:05:19The chances, and here's the thing, currency markets tend to be zero some games. Now they're not entirely, it's possible to win on both sides. You win on the way up, win on the way down. But you're not buying something that goes up in value. You're buying a relative, you're punting on a relative relationship. Okay, shares go up and up and up. I guess if you want to be penitent about it, that's a relative relationship to the value of a dollar and we get into that sort of stuff. But realistically, Amazon will probably, hopefully, if I'm right, continue to create value over time, not relative to anything else, just in absolute terms, i.e.
1:05:49sells more stuff to more people. It's more valuable because of that. And if that's right, then I'll be worth more as a result. I'm not saying, well, maybe for a short period of time, the exchange rates and the interest rates and the currencies and the economies might go this and that. I got a couple of points here. If I sell here and buy here, I might be able to make some money. That's a stupidly tough way to try and make a living. it's just awfully awfully awfully difficult so uh but to your point and then to your question as ram said i absolutely agree i i haven't invested i haven't sent any australian dollars to the u.s in quite a while actually um i really want to i look at this business like i'd love to own that i can't make myself do it at 63 64 66 cents 75 cents i'm probably sending some over 80 cents i'm definitely sending some over a dollar i'll fill my boots um but to take advantage of those take advantage of the opportunity to make a long-term investment at attractive rates as opposed to try and play the market and get a couple of get too clever get a couple of percentage points here and there i think it's really really hard to do um but i really wouldn't particularly if you've got a capital gain you have because you've told us that um but to ran his point if you've got a capital gain you gotta pay tax on that so you've got less to start with after you paid the tax man for the privilege by the way apple's probably going to have higher dividends over time they're buying back shares so the share value is probably because just by the buybacks alone which cost you nothing in tax because it's a buyback.
1:07:06I don't know. I don't own Apple shares, by the way. I own Berkshire with Jones Apple, so indirectly I do. But it's just, I don't know. I think if you own a great business, back to Charlie, right? Don't interrupt compounding necessarily. Try to play silly buggers on the currency to try and get a little bit extra relative to just owning great businesses for a very long time. Sometimes it's just like keep it simple. Just do the simple things well. I just don't think we need to make it any harder than that. Yep. Yep, I 100 % agree. On that rare and auspicious note, I think we're probably done for this particular podcast.
1:07:42Ram, I'm going to, well, you are exclusively on Twitter, but you are also a regular on the pod machine. I can assume, can I, that I can count on your attendance next Friday? You know you can. You couldn't stop me if you tried. In that case, until next Friday, have a wonderful rest of your weekend and full on. Cheers. The Motley Fool and people appearing in this program may have positions in the companies mentioned. General advice only. Please speak to your financial professional to understand how it may pertain to your situation. Subscribe to the free newsletter at fool.com.au forward slash listener.
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