Mailbag: incl. Someone I trust is selling. August 20, 2023

28:43So it's sort of part of the calculus that's there.

28:51If we're talking about just total returns here, and one is compounding internally in a business, and I can leave that untouched for 20 years, and there's no tax event until I finally sell, that is a massive advantage. It's just insanely good advantage. So you're absolutely right to consider that. Whereas if I'm getting my interest paid out on a regular basis, I'm not going to get that discount. You need to factor it in. Absolutely. But general statement is the higher interest rates go, the less attractive equities become. People often talk these days, in the context of property, is like, remember in the 80s when we were all paying whatever it was, interest rate?

29:25Imagine if you could put your money in the bank and get a 10, let's call it a 10 % yield on that. Now, things are probably, it's probably a pretty scary time, to be honest. Careful what you wish for. It's like, why am I getting that greater? Yeah. But anyway, I'm not going to take the risk of the share market if I'm looking at similar kind of returns on my estimates that are there. So I agree. And this is, I'm not going to segue too far off into my favorite topic, but it's just like the fact that people are out there getting like 1 % net yields on their investment properties at this point is like just pure madness as far as I'm concerned.

30:04And again, 4.5 % in a term deposit with no tenants or real estate agents to deal with, like, or maintenance costs or this or that. It seems like a no-brainer. And I think even if you factor in some tax things there too, it's still a bit of a lying call. So I don't know, mate. What do you think? Oh, lots of things to unpack. So, oh man, where to start. Cash is guaranteed by the Australian government. Now, if that guarantee is no good, then it's no good. It's not an absolute guarantee, but it's a government guarantee, which is usually as good as it gets. And it's a nominal guarantee in the sense that it's...

30:37Right, right. And, you know, I don't think anyone... I mean, look, we shouldn't rule out anything. We can't give absolute guarantees ever about anything other than death and taxes, but I'm not sure about death. but um the uh the you know so it's guarantees it's a it's a higher quality asset um in in that in the sense of the downside protection that doesn't mean it's high quality income or higher income or better returns but a high quality asset secondly uh similarly the uh term deposit interest payments are again as good as guarantees as you're going to get and so when you think about the returns from shares whether that's capital growth or dividends same thing right so you're getting a your your your um capital is guaranteed effectively and the um so the capital guaranteed the income is effectively close enough to guarantee that you're going to get again uh or relative but you know so those things are really really positive and they're really important if you're someone who wants to know your income won't vary you want to know your capital's there there's there's real value in doing that so there's that's why if you're going to you would do something like that and and follow that that path so that's absolutely true I will say too, halfway between the cash and the stocks answer, is on that same line of thinking, by the way, you're not wrong, but on the same line of thinking, a dividend is not dissimilar because you're paying tax on that dividend that gets paid out.

32:00So is that interrupting compounding? Well, I guess at one level, they could retain the money and do something with it without paying tax. So a dividend is not capital growth. It's not bank interest in terms of the treatment because you get franking. But reinvested dividends aren't miles away from reinvested interest in that same way because there's tax payable. Now, if it's a frank dividend, there's less tax, but a dollar of dividends in an untaxed, unfranked, sorry, dividends, a dollar of bank interest is going to have the same issue. So again, think about money paid out. Even if it's reinvested, dividends aren't that different to shares or to cash, albeit if you get franking credits, it's a much better way to do it.

32:38So 2 % bank interest and 2 % frank dividend, very different things because you get the franking credits. So there's that as well. It is why I think, and we have this conversation lots of times around income or growth, because I will say the other thing is a company that pays a dividend is likely to be a more stable company, likely to be less risky, likely to have less downside risk, likely to be a higher quality cash flow. Now, it doesn't mean it can't go broke. It doesn't mean others won't have more cash flow over time. It doesn't mean the capital growth won't overtake the returns from dividends.

33:14But a dividend-paying business is profitable, almost certainly, other than the ones we talked about on Friday, the transurbance, is stable, has the cash generation. You are taking, I think on average, it's fair to say less risk investing in those than those that don't pay dividends. Now, Berkshire doesn't pay dividends, so compare that. So I'll bet it does. And I own also beaten the market over the long term with dividends reinvested. So it's a more nuanced conversation than many people realize. But Jimmy, you are right to raise it, right to ask the question. I don't think you're miles away. A company that can reinvest its profits at market beating rates is going to outperform anything, anything, including shares, to pay out those dividends you have to pay tax on and then reinvest them or cash in the bank.

34:01We have to do the same. So your question is absolutely spot on. You're absolutely right about the returns. Whenever you do those numbers, just lower a margin of error, not margin of safety, margin of error in the higher growth assets because if those assumptions hold true, then the returns will be this. It's less of an assumption to believe that cash is safe or that the dividends will get, sorry, the interest will get paid. Less of a risk, I think, about the business's existence or even maybe eventually capital, you know, movement downwards if it's paying a dividend, but less upside in both those cases than a growth business that can effectively reinvest all that capital.

34:43And I own Sop Hats that pays even. I own Berkshire that doesn't. More than happy if Uncle Warren keeps the cash for as long as he can get a return on it. That being said, it's got$200 billion worth of cash right now and they can't do anything with it. So there's also a very real question about, you know, is it interrupting compounding paying the dividend or is interrupting compounding not getting a return on$200 billion that's sitting in the bank account waiting for something to do with it. And again, I'm not going to second guess Uncle Warren, but in almost any other case, there's a point in time at which the cash is better paid out to me or repurchasing shares of something else rather than being kept and reinvested.

35:21Ram? Yeah, no, I agree with all of that. I mean, I wish there was more straightforward. I'm really mindful too. Whenever we get questions like this, it's on one hand this and on the other hand that and this. And it's just unfortunately the reality of all of this stuff. There's always compromise, there's always opportunity cost, and there's always an uncertain future. I mean, I'll tell you in 10 years what you should have done today, right? Exactly. In fact, go back to 2012 and put all your money in Bitcoin, right? Like that is the thing to do because you'd be a gazillionaire right now. So it's sort of, it's just, it's hard to know, but it is, they are the right questions.

36:02They are the right questions. And it doesn't even matter, mate, because once you start thinking that way, then you start to make some rough estimates and trade-offs. Yes. And you'll be roughly right. You'll never be precisely right. And you might be slightly wrong in a relative sense, but asking those right questions, going through the thought process, you'll get to a better place. Absolutely. And I like to – the way I like to do it increasingly so is to don't settle on one set of a – like just test a whole series of things. My best case scenario, worst case scenario, my best guess, you know. For some things like a term deposit, it's going to be a really narrow range of outcomes, like a hyper-narrow range.

36:46Yeah, totally. I mean, almost zero, right? It's a line. Yeah. Yeah. I mean, over time, I guess the use rate will change. So as you renew that term deposit, it'll be a higher, lower rate. So there's some volatility or variability in the interest percentage. But other than that, as you say, it's not going to be a huge difference. Go back to Bailador, right? There'll be companies in there that'll be zero. That's true. Or could be a billion dollars in the year 2040. Like that could easily happen.

37:17And which is the right answer? so I mean I like to try and I've always liked the Monash Pabrai saying of heads I win tails I don't lose too much like in the sense that there's always going to be an uncertain future but I want it where at least if things don't go my way and I'm realistic in knowing that four or five times out of ten it's probably not going to go my way I'm not going to I'm going to stand I'm going to survive, right? I'm going to stay at the table. I'm going to live to fight another day. That's it. But I want to, what I'm really trying to do with investing is I'm trying to put, I'm trying to find a target rich environment where I'm going to maximize my chance.

38:08They say you make your own luck, right? Like luck is luck. You know, you can't plan for it, but you can position yourself for it. And I think that's a very good way of thinking about it. And know that on one end of the spectrum, you're taking all your money and you're going and you're putting it on red or black at the casino. And the other, you're putting it all in, you know, buying a lump of gold and burying it in the backyard, you know, something like that. And you, oh, gosh, there's no right. What's right for me will be different for you, Scott. And we're very similar in a lot of ways, but I'm sure it'll be vastly different.

38:45I mean, our portfolios, I'm sure, are really different. And then there'll be other people out there that just – it spreads out so much. But you're asking the right questions. Be grounded. The natural tendency will always be to sort of favor the really exciting upside because that's what we do as humans. I don't know what I'm saying at this point. Just keep it real and you are and consider all the possibilities. Yep. Know that, mate. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

39:20Hey, let's get a question from Patrick, who was very nice. He says, hi, Andrew. Still loving the podcast. It helps me with my thought processes when making investment decisions. And listening to Andrew helps me think I'm not the only one who goes off the deep end on various social issues. Make of that what you will. I think he means it as a compliment. A thought and a question for the podcast. the thought is if you're interested in helping more women invest and a small contribution could be to get more female guests for the good oil great pod by the way says patrick um we were about 50 percent women i think we might have tipped over to slightly more blokes but um i have been trying not actively but pretty passively pretty kind of aware of of the gender mix um doing our level best uh good oil's kind of more a business podcast and an investing podcast so i probably could do more work there but thank you for the suggestion patrick i'll definitely keep that in mind.

40:07His question says, I liked your financials and valuation episode. It got me thinking about valuations for an entire index like the ASX. Is there any merit in ascertaining something like the PE for the ASX or another country's index as a way to see if the entire market is over or underpriced? I appreciate this would be a crude way of measuring value, but I thought it might point to further things to be invested in. Cheers, Patrick. What do you reckon, mate? Yeah, well, great minds think alike, Patrick. No less than Warren Buffett has thought along those lines. In fact, it's actually, if you Google the Buffett indicator, he'll tell you that a way that he sort of thought about it before is looking at the, what is it, the market cap of the entire US divided by the GDP.

41:00So it's kind of like a price to earnings, but like on a very big macro kind of scale. And it's incredibly crude. And that kind of gives you the value of the market against the total output of the economy and, you know, the valuation of the market being some proportion of economic output for the country. Yeah. And look, the market is not the economy. And, you know, in a world of interest rates at 0.1%, it's very different than in a world where interest rates are at 9%. but it's not unreasonable to say that the higher that gets, the more expensive things are all else being equal so it's handy, but he himself is going to tell you I never invest on the basis of that in fact, he shuns macro pretty heavily not because it's not important, just because you can't do it many people can, even the great man himself So, yeah, I think I like where you're coming from.

41:57I like the idea. I think there is some value in it in trying to get a sense of things. Actually, Howard Marks talks a bit about this as well, another investor I'm quite fond of. And he basically says not that you would try and sort of time things on that, but it might influence how aggressive you are. So you continue to stay invested. You continue to allocate. I mean, we talk about being no free kicks in investing, no free lunch. Well, there's two, actually. One's diversification and one is dollar cost averaging. And so just keep doing it, right, even when it's sort of difficult to do. That's the point, right?

42:35So I wouldn't say make big wholesale changes. But when things are at the lower end of that historic range, yeah, I think it probably pays to be more aggressive than you otherwise would be, knowing that the timing is still going to suck. I go, oh, it's really low at the moment. I'm going to go harder. And then it goes down another 20%. That will happen. It will absolutely happen. So take it with a grain of salt. I think it's an interesting thing to watch. I think, I haven't looked at it for a while, but I want to say that at this point in time, it's probably towards the upper quartile of its historic range in Australia.

43:12Do you have a sense of where we are? I don't actually know at all, I have to say. I don't spend much time in it either. i got a couple things to say i'm gonna google yeah you do that while i talk i might find it mate um so i where to start this one generally speaking my approach is if i disagree with warren buffett i assume i'm the one who's wrong uh buffett hasn't talked about the buffett indicator for a while i think this is far far less useful than it used to be for what it's worth um because the u.s once upon a time the u.s market was u.s companies and u.s gdp was u.s economic output and that was kind of reasonably able to be assessed or compared.

43:52These days, more than half of the S &P 500's revenue comes from outside the US. And yet you're comparing the value of those companies just to US output. And I actually, so I think this, the Buffett indicated to whatever extent it was accurate. I'm pretty sure it's broken down as a reliable indicator, or at least we should expect that it's changed meaningfully since it was originally talked about. So that's my take on that. It's the one area. I don't think Buffett itself even pushes it anymore, as you said. but those who do, based on something Buffett said 50 years ago, I think it is far, far, far less useful than it used to be.

44:24So I'll say that up front. Secondly, in terms of the PEs, Matt, the total market, I actually agree with you. It's a bit like my approach to currencies. When the currency is kind of there or thereabouts around the historic averages, I'm like, that is what it is. If you get to an extreme in either direction, if the average PE for the Australian stock market is 16 and it's at 8, you probably should be paying attention. If the average PE of the market is 16 and the PE is at 60, or 50 or 30, you're probably going to say, that feels like I should be careful right now. So it might give you an ability or a way to moderate your existing or current impulses in either direction based on where the market sits to either make you more interested than you otherwise are or to make you more cautious than you otherwise might be.

45:09So those things, I think, are true. That all being said, I wouldn't use it at all to make any investments ever. And the reason I would say that is because I've said this about ETF. So this is a version of the thematic ETF conversation we've had a few times before, Ram, which is if I'm going to buy a cybersecurity ETF, if I think cybersecurity is going to be a thing, that's fine as far as it goes as a starting point. But if I'm going to buy the cybersecurity ETF, even if I know the PE for the ETF, and I probably could find it, I've got to work out whether that is justified by the companies that are in the ETF, the future of the companies that are in the ETF, how sustainable or otherwise their profitability is, and all the questions I'd ask about a single company.

45:50If I'm buying an ETF for a theme, a cybersecurity theme, or a consumer staples, or gold, or whatever else it is, right? I've got to make sure that the companies in that ETF are actually worth investing at the current prices and form a view on that. Now, if I'm looking at the ASX 200, just pick an ETF. Now, sorry, quickly, this is different to passive investing in the ETF. I passively invest in ETFs happily, dollar cost average regularly, I'm not making judgments about valuations. Specifically. Because it's a low-cost index ETF, I've got a really long-term horizon. But if I'm looking at the ASX ETF and saying, is it time to buy it today?

46:23I've got to start by saying, right, BHP. What's the share price? What's the level of profitability? How sustainable is that profitability? How likely do I think the share price is a reasonable valuation? Okay, done that one. Now let's go to CBA and do the same thing. Now let's do Telstra and News Corp and CSL and Cochlear and ResMed and Rio and Fortescue and Woolworths and West Farmers and you get the idea. I just don't think because no PE is cheap or expensive. A company of a PE of seven could be about to go broke. A company of a PE of a thousand could be about to break into a new market and quadruple profit overnight.

47:01You can't just look at a PE and say it is that, it was that, or it used to be that, or the average is that, therefore anything in my view. So it's interesting, Patrick. It does give you a sense of, it's more of ability to look at what the market thinks rather than what you should do. The PE of the market is seven. Wow, the market is probably pretty pessimistic right now. That's probably fair. But if the PE is 13, it's normally 16. I don't know. The chance you can actually work out whether the market is worth investing in on that basis. Maybe we've just finished a boom. Maybe we've got to go into a recession.

47:32Maybe we're not. Maybe we've come out of a recession. The market is all pessimistic. It can mean anything. I would never, I don't think, make an investment in any ETF, including index ETF, as an active investor based on a PE without doing the work on the companies that are in that ETF. Ram? Yeah. I mean, I guess there's one thing to say is that if it was that easy, we'd all do it. Goldman Sachs would have the whole division set up and then that would arbitrage the entire opportunity away. It's just we all, and I know the listener's not saying this. I'm not putting words in your mouth. But we all love to think that there is just a metric or a set of things out there, a set of rules that if I follow, I will do really well or better than average even.

48:20I don't know if there is such a thing, to be honest. And where there is such a thing, a process, it's probably one that is couched heavily in the qualitative and the subjective. You know, it's things like good companies at good prices, which is unarguably true. But, well, what do you mean by good company? What's a good – you know, you start going down the rabbit hole. So it's very tricky. You did get me thinking, though. Oh, so a couple of things. I said I'd do some Googling. I found a site called Guru Focus. they say that the Buffett indicator for Australia is fair valued at the moment. The 20-year maximum is 153 % of our market cap over GDP.

49:08The 20-year minimum is 74, and we're at 102 % right now. So fair value, according to them. Take from that what you will. I mean, we know that the miners are making squillions and may not be moving forward, and that will change. I mean, look, I'm... I know you're saying that my skin crawls when I hear it because I'm just like, we know maybe more about Australia than anywhere, actually, given how exposed we are to certain industries. Like, you know, bank profits are up a bit, but not much. Mining profits are probably going to be down. I'm not saying don't invest. I'm not saying returns are going to be terrible.

49:41But I am saying if you're using historical financials and the current share price to pick some of these things, oh, I don't know. I don't know. I don't know. Yeah. Yeah. No, I get it. I mean, hey, look, this is why I invest outside of the main areas. Actually, a friend rang me this morning. I go, what am I missing here? It's like, it's a reporting season. I don't want to mention any names. It's like, my gosh, these guys are just knocking it out of the park. I mean, revenue growth, earnings growth, strong balance sheet. They're trading on a P of 12, you know, and you've got other unquestionably good companies.

50:11And CSL's on like 40 or something. And, you know, just like, what am I missing here? And it's like, well, you're probably not missing anything. It's just the fact that the market will do these kinds of things and it will remain seemingly irrational for a long period of time. I don't know. I don't know what everyone's thinking. But I know what I would prefer to buy. And I'm happy to sort of sit on this for maybe potentially years. And it's always a gradually then suddenly thing. You know, you sit on this thing, no one sees it, and then everyone sees it, and then, you know. But it can't take a long time for anyone to start seeing it, right?

50:42Like it's not at all. Ages. Yeah. Ages. And you kind of, you really start to doubt your sanity. Anyway, so there is that. And that is why, again, I think markets are dangerous because unless you are buying an ETF or trying to trade around an ETF on this, it's kind of irrelevant because people often say when we talk about property, it's like, well, I hear what you're saying. But, you know, there are some locations where I'm actually getting very attractive net yields. Yep. Totally fair point. That is an excellent point, in fact. You know, and if you can secure a good asset paying a good yield, even in a market that might ostensibly on the average overall be hot, you're still doing an entirely sensible thing, right?

51:28So that's the benefit of being a stock picker. The other thing I wanted to say here, just, I'm just going to put it out there because it's interesting. You were talking about the dollar before. The dollar is, as we speak, at the lowest point. 64 and a half or so? Yeah. Yeah, 63 actually. Wow, there you go. So the only time it's been lower than this was in COVID at the trough there, which didn't last very long. Then you have to go back to the GFC to find another period where it was this low. Then you have to go back to the dot-com crash. Then you have to go back to the 1980s recession. So it's, look, again, I don't know what's the so what.

52:12I don't know. You decide what the so what is. It's just noteworthy. can't be great can't be great for inflation i'll put that out there no it's not good for inflation at all uh because obviously lower dollar the higher the cost of imports are and if we're buying the same amount of imports we're paying more for them have you seen the petrol price lately yeah well yeah only the past couple of days to jump back up massively uh which is not not pretty and this is why this segueing into dangerous territory here but this is why the rba is going to find it very difficult to go against other big central banks yeah totally right because it absolutely matters i don't know i don't you know what my view on it is but i mean if jerome keeps hiking and we don't there that is going to put more and more pressure on our dollar which is going to put more and more pressure on our prices which is going to put in turn eventually more and more pressure on them to to lift rates so So anyway, interesting.

53:11It is, it is. I'm not sure what we, well, I'm a big fan of investing in the US. I wouldn't be sending money across the US right now to invest, put it that way. Tell you what. Oh, sorry, mate. Sorry, I thought you were finished. I think we've got a bit of a delay. I've got a bunch of Aussie companies who earn a lot of money overseas. Right. So I'm pretty happy with this because when they send the money back home, I'm getting more of it so that's nice which goes both ways of course if you're holding for the long term so you've got to be careful about it and by the way speaking of booking backwards even when the dollar does change you're getting less of it, people will report lower earnings like well currencies go and do what currencies do it's why I desperately hate companies that hedge unless they absolutely need to for cost certainty for example because it's going to go both ways you're paying for insurance in both cases in which case the insurer is getting rich and you just get the average result you would have got otherwise just with a little bit less volatility.

54:09Paying insurance for that seems like a crazy, crazy thing to do if you're me. But everyone's different, mate. It's one of those wonderful things about life. But yeah, generally, if a company that I own is hedging, I'm pretty unhappy. Speaking of which, and I don't know about your companies, mate, but I think people should be mindful of these companies that choose to change their reporting measurements. Often when the currency is in your favor, is against you, If it's in your favour, they'll report normal earnings. When it's against you, they'll say, oh, but in constant currency terms, it was okay.

54:38Constant currency terms. Now, neither is wrong. They should report both. They should always report both. If a company chooses or starts to report one than the other in different circumstances, there's a general, by the way, in the middle of the learning season, so good timing. Anytime a company changes its reporting metrics, be very, very, very careful because they're trying to spin you. But this is just one of the more egregious examples of just happily changing your reporting basis because you just kind of feel like it. It seems like a clever way to try and fool a couple of investors. Yeah, it's pretty awful, I think.

55:10Yes, I agree. Well, I guess we'll see. Mate, let's go to the next question, which is from...

55:21Sam says, hi, Scott and Andrew. I'd be interested if Scott could discuss on the podcast his thesis for Amazon, including what would cause him to sell. Also, I'd be interested in your thoughts about a new ETF offering, personalized ETFs. The concept is that each investor could design their own ETF by choosing the companies and ETFs held in what percentage and could then invest regularly with one brokerage fee and a predetermined allocation. Thanks for the podcast. I really enjoy it. Cheers from Sam. I'll kick off with the Amazon stuff, mate. um i so first thing to say sam is my selling borders on to use a buffet phrase benign neglect uh i am far far less likely to sell than ram is as a style as an investor uh and that's generally because i tend to find businesses whose futures i think are pretty attractive um not that ram doesn't so i shouldn't i shouldn't make it a comparison but i just i just want to say that I'm just a slow seller and a rare seller.

56:22I probably sold twice in the last three years, maybe something like that. I'm an accumulator of shares. And I try to, I've said before, one of my favorite phrases, I've tried to be slow to buy and even slower to sell, which is to say that I'm looking for great businesses who have really great long-term futures. And if I found them, I'm kind of bunking down with them. I'm kind of saying, well, let's see where you guys can take this. Not in a hyper growth, you know, shoot the moon type stuff. But in a, this should be good for a very long term. I'm just going to, I'm going to bunk down and see if you can get there.

56:58And so I set that up, Sam, in advance because I haven't thought about selling Amazon, I think, ever since I owned the shares. And doesn't mean I won't. I spend very, very little time thinking about when I would sell Amazon. So I love the question, mate, because it makes me kind of go back to that and confront the question. But I think Amazon's got plenty of headroom to go. I like the company. I like the culture. sure I like the way they're growing the business. I don't love some of their employment relation practices, by the way. So I'm not an unbiased cheerleader. There are some things I wish they'd do differently.

57:33But I think Amazon's business model is a virtuous circle. Scale begets lower prices, begets more marketing opportunity, begets more international expansion. The distribution model itself, the more you sell, the more warehouses you can open, the more warehouses you open, the greater the chance you're close to a customer. That's why their Amazon Prime program went from two-day delivery to one-day delivery and eventually it'll be a couple of hour delivery in Metro. Why? Because they'll have warehouses everywhere. They're already doing that in some US cities, I heard the other day. Isn't that amazing?

58:06And why can they do it? Because their warehouses are close, because they can afford to have lots of them, because they've got so much volume, so much demand, they can put it everywhere. Wait till the drones start delivering and the warehouses are free humanoid robots. Right. Which, by the way, ain't that far away. No, exactly. I interrupt you. And who's most likely to benefit from that? The guys who are biggest and best and growing fastest and have the, you know, and frankly, by the way, one of the benefits we don't talk about a lot, but Berkshire has it, Amazon has it, others, Tesla has it. Very, very, very, very, very committed shareholders who believe strongly in what you're doing, which means you don't have to whipsaw yourself every time something changes.

58:41You know, if you go to an investor knocking at all saying, oh, I think you should change strategy now, your results weren't great last quarter most companies have to say well okay maybe uh amazon berkshire uh tesla's probably some others say yeah no thanks we're good uh we'll keep doing what we think it's the right thing to do that's a that's a superpower as a company so sorry sam i'm answering your question what i'd sell by saying when i wouldn't sell um it would it wouldn't to my mind it wouldn't be valuation unless valuation got extreme uh i would be looking to reconsider my Amazon thesis, if and when sequential, moderate length term, so not super long term, not short term, medium term, maybe call it, sales growth continued to peter off.

59:24Amazon has shows no signs yet of hitting maturity on its revenue line. It will at some point. And at that point, you want to be very, very careful how much you're paying for these shares. It's been growing its top and bottom lines consistently, top line more consistently, actually, to be fair, for 25 years. Now, COVID, through all retails, were a bit of a bump, so you've got to look at that and kind of look through those numbers. Had some great sales whenever I was at home. Sales went backwards whenever I went back to the shops because they went back to the shops. You shouldn't be surprised by that or worried about that.

59:56Absolutely not. But if sales fell and continued to, sorry, sales growth fell and continued to fall and was kind of getting towards maturity, then the math starts to go from exponential to all of a sudden a much lower range of outcomes at which case valuation becomes much more important so that would be the most likely starting point for me to say how sure am i this is a good company to own at the right part of the current price the other one would be if there's a change in corporate strategy if i saw a sense that amazon went from what i've already talked about this this kind of monster scale machine to somehow try and placate investors or cutting growth investments because they're trying to be clever and please the markets or something else, that would be the time I'd get out.

1:00:41I'm a big fan of company and management cultures. I'm a big fan of businesses that know what they're trying to do and when they're trying to do them. And if I think that begets a great quality economic engine, like I think it does with Amazon, again, I could be entirely wrong. As Ram said before at Baylor, that's what I would choose to sell. What do you think I've got right and wrong in that answer, mate? Nothing. I think it's spot on. I own Amazon too. Oh, do you? Yeah. Well, no, I own the beta shares NDQ ETF. Oh, okay. Right, okay. Which 5%. 5.5 % of which is Amazon. Yeah. Getting bigger too.

1:01:15So I do. I genuinely own it. Yep. Here's, we're talking, this is going to dovetail nicely into what we were saying before. So you dial it up, you look at Yahoo Finance or whatever your chosen portal is. You go, P, you're 321. for a$1.38 trillion company. It seems up there. Okay, wait a sec. And then let's look at price to sales, like 2.7 times. Like, hmm, that's up there for a trillion dollar company. And I think that's a real first level take on it. These guys could cut out huge amounts of costs if they wanted to and be, I would suspect they, I mean, the retail, not so much, but AWS in particular, I'm sure they could operate at at least 10 % or 15 % net margins if they wanted to.

1:02:05They don't. And they don't because the exact reason that you said. And Bezos has just been, I mean, he's studied in business schools for exactly this kind of thing, right? It's just like we take our money and we reinvest and we reinvest. We try and be self-funding, okay? So we don't want to rely on the good nature of capital markets. But we are keeping our money and we are adding costs. And we're not really adding costs. We're actually really investing for the future. And so this is a company that started selling books online. Right? And now they're like, it's not what you think of when you think of Amazon.

1:02:40I mean, AWS is just the jewel in the crown as far as I'm concerned. This is like the best business ever. Yeah, great. But the retail thing is just huge as well. And it is just getting going. And so I think when you look at the – You mentioned before that sales went backwards in COVID. I don't think they did. I actually think they went massively up. So here we go. $280 billion in 2019 in total revenue, $386 billion in 2020, $470 billion in 2021. Thanks, COVID. But even next year, in 2022, it was 513. So it was only a 10%. This is, again, a trillion-dollar company. literally half a trillion dollars in in sales and and they are growing at 10 you know it's sort of if there is a regret that i i don't want to talk about it again because i'm sick of the self-flagellation but there's there's a there's a company that i sold early and i think that's your superpower honestly mate like i think you definitely by by being very slow to sell you you suffer a lot of unnecessary falls, quote unquote, but you also get a lot of gains that the quote unquote smarter people don't get because we worry too much about valuation and other things.

1:04:02When you've got a company of this competitively advantaged and with such a long runway and with so much optionality, just don't get cute with it. I mean, that's not to say it couldn't fall a hell of a lot. Like it could easily fall a lot, right? If there was any nasty shock on US markets, I would not be surprised at all to see this thing drop 30. In fact, let's have a look. It was at what? 180 in the end of 2021. And it got to 80. Like it dropped more in high. Like that is huge. That is such a massive drop. Now it's 135, still below that high point that's there. So the market's going to move all over the place.

1:04:50But again, I can go back in my little chart to 2000 and say, oh, you could have bought it at$4. And, you know, a few years later, it was at$1. Oh, you know, what an idiot for not selling. And it's like, well, you know, I could have gone to 2007. It was$4.50. And then it crashed down to$3. Oh, you idiot. Sorry,$2.20. You're an idiot for not selling. And, you know, in 2014, it was$20. and then it crashed, you know, 38%. And then again, and again, and again, I can just keep repeating that kind of stuff. So it depends on who you are, but knowing you and knowing you're a very long-term focused person, you're not going to overthink a company like that.

1:05:29I'm just repeating what you're saying at this point. So it's sort of, yeah, I don't begrudge you and your holding. Again, can I just repeat my statements from forward, but please, please, because we're speaking positively about this, don't run out and buy it. And I think that's the, just quickly to kind of touch on that point you made before mate the again one of my when i've got to write this down at some point but growth covers a multitude of valuation sins oh yeah and to your point all those all the historical examples you gave where it looked overvalued it fell see it was overvalued except it went then back to higher levels and higher levels and higher levels again and will i eventually have a 25 40 fall before i sell a share probably yeah you know when this game is over because i'm slow slow to sell it will get to price X and eventually it'll fall to something like, you know, 25 or 30 % less than X and I'll sell.

1:06:15And I'll, will I regret the fall from the peak? Well, it'll suck because I could have sold that at the peak for most money. But first, I couldn't know when that peak was going to be. Secondly, in doing so, I will have held through, hopefully, half a dozen or a dozen peaks on the way at much lower levels. So one goes to 60, goes to five, goes back to three, goes to 10, goes back to six, goes to 15, goes back to 10, and so on and so forth all the way up, right? I'm going to miss that last one. I'm not going to sell at the peak because I'm never going to and eventually someone's going to say, I told you you should have sold earlier and the answer will be yeah.

1:06:48Mathematically, look at the price. It's inevitably true. Had I sold earlier, I would have made more money but avoiding selling on the way through is going to make me so much more than that last one I miss and so that's kind of why, that's the maths. If you've got a business that is a really high quality company that's going to grow hopefully for many, many, many years then that's exactly, I mean I've helped Amazon for quite a long time on and off. I've added to it regularly, but not recently with the dollar, where it is, by the way, speaking of our last question. But on the way through, I've had significant falls, right?

1:07:20And it's happened. And could I have sold it at a high price and bought back at a cheap price? Yeah, in theory. But just sitting there going, you know what? I believe the business is going to do what it's going to do. I'm going to stay with it. Over time, I think it'll be better and more valuable. That's been super worthwhile. And I think, don't do it for crap businesses. You know, Buffett says, Buffett quote, time is the friend of the wonderful business it's the enemy of the mediocre if you're an ordinary business the longer you're around the worse things going to get if you're a great business the longer you're around the more those attributes that make you great will combine and frankly multiply each other to give you a much better result and so the things i like about amazon remain true i've remained true for probably years i think amazon is you know not exactly still getting going but but it's only 25 years old.

1:08:06Buy Walmart 25 years after it started, you still made a lot of money, right? There's upside left. I think this is going to be a dominant business for a long time. That's why I own it, which again, Sam, it feels like a sneaky way to not answer your question. But seriously, I haven't thought about selling Amazon since I owned it. I have never, I don't think, I haven't thought about it now recently. I see no reason to believe the story is over. That's good enough for me. but a slowing in growth or a change in corporate culture would make me reconsider. Yeah. Matt, the second part of Sam's question was the personal ETF idea about being able to kind of design your own ETF with grabbing companies and ETFs in a certain proportion and then just investing regularly.

1:08:48What do you reckon? Is that a worthwhile product? Should we have it? Should we use it? Should we buy them? What do you think? Isn't that just a portfolio? I don't understand. So I thought so too when I first read it But the last bit was, quote, and could then invest regularly with one brokerage fee and a predetermined allocation. So I think it's kind of a dollar cost average with a single trade into a proportional, which I get, right? We've talked about people saying, well, I want to buy these, but I've only got so much money a month. How do I kind of work out which ones to buy? In theory, if you said, well, I'm going to DCA into these four ETFs and these 10 companies, just buy more every month of all of them together.

1:09:24That kind of personal ETF idea is, I think, what Sam's getting at. Well, okay. Yeah. All right. Um, yeah, I'm not opposed to it. Someone will, or probably already has come up with a product. So the question would be, so there's two parts to it. What, what do I like the idea? Um, yeah, I don't hate the idea. Would I pay someone 200 basis points? No, I wouldn't. Just tell us what a basis point is, mate. So, uh, 1 % is, is a hundred basis points. Okay. I don't know why they use that terminology. Anyway, but yeah, so 2 % and a lot of financial products sort of around that kind of mark. And so there's nothing wrong with some, I mean, I don't begrudge anyone making a margin when they provide a good or a service that is valuable to me.

1:10:19I mean, in fact, that is the crux of civilization, really. So we all do things. I mean, none of us are doing anything without, you know, getting value for our time and effort and capital. So that's what we do. Fine. But at a point, it becomes a bit too egregious. It's like, I might as well just do this myself, right? So that's the thing I would say. And it's really not that hard to do yourself. So you have to be extraordinarily, especially if you have to come up with the stocks to begin with. and then really all you're doing is avoiding having the individual allocation decisions each month whenever you want to allocate you know how much value is that maybe so if someone if you're telling me that there's a product out there and it does it for very very very low cost like yeah okay knock you fill your boots but it would have to be pretty cheap for me again there's no right or wrong here it's a personal decision but for me personally it'd have to be really really cheap for me to consider it because I actually like the flexibility of as money comes into my sweaty little palms, I can say, I don't actually want to, I don't want to equally distribute that across my entire portfolio.

1:11:29Because when I look at my portfolio today, there are some companies in there that I just like better on a risk reward basis, not just on the quality of the company, but how cheap it might happen. There are some stocks I'm holding at the moment, I just think a much better value than another one. So at this point in time, if you gave me some extra money, I'm going to buy in XYZ. In two months time, it might, the market may have moved around and it may be that there's another company in my portfolio that I want to allocate to. So it actually gives me the ability to sort of reweight things without being too cute on selling and rebuying and all of that kind of stuff.

1:12:02It's a nice, it's a nice sort of balancing thing. Again, that's just me. But yeah, sometime, I mean, this whole ETF thing, what I'm such a fan of the general low-cost ETF, but the product providers are getting a little bit too cute. I don't know. What do you think? Oh, I'm torn, mate.

1:12:27I think I agree. I conceptually like the idea.

1:12:33I don't know. There's many... We talked about value and quality when it came to Amazon and the order of those things. There is a portfolio I could imagine that if you said to me, I could buy a couple of ETFs and these five companies every month at the prevailing share price, do I think I do really well? Yes. If the fees were very, very, very, very, very modest, as you say. If it was always, if I bought more Berkshire, more Amazon, more Soap, that's probably companies I own, right? Who cares? It just is what is a Bishina. and a Vanguard ASX ETF and a Vanguard Global ETF. And I bought those five and I bought them every month at the prevailing price.

1:13:17Do I think I'd do well? Yeah. Would it be nice to be able to do it? Dollar cost averaging all of them on the ongoing basis? Yeah. That being said, I do tend to treat my ETFs and my stocks differently. And I don't, a dollar cost averaging to my portfolio by saving money every payday. But I don't think I've got, i don't know 15 16 companies in the asx something like that i wouldn't buy each of them at the current price and i definitely prefer some over the other so sometimes it's a phrase i've used a lot you know the only good advice is the advice that's taken i think this is a suboptimal solution is the honest answer but i also think that it's a spectacularly great solution for many many many people maybe most people because it removes that idea of what should i do right now how am i feeling Am I fearful?

1:14:08Am I greedy? Am I bored? Am I worried? Am I excited? Just do it. Like the pre-commitment device, as the behavioral psychologists call it, of just putting the money aside and buying the shares is super, super, super. That's why we like dollar-cost averaging your ETFs. So would I discourage anyone from doing this? No, not in a month of Sundays. If you're saying to me, Scott, I'm doing this because I think this is going to be great. And it's going to really help me build my wealth. Like, cool. If you've decided it's right for you and you've decided you want to do it, knock yourself out. Go for it.

1:14:36But keep going. Because you've decided it's the right thing for you and your personality, your investing style. And that's great. If you're saying to me, is it the optimal approach? I don't think so. Because I think ETFs, dollar cost average for sure. Because you're not going to value them separately every individual month. But, you know, I own Saltpats, Amazon and Berkshire. Would I buy an even amount of each every month from today? No, I would probably look at them and go, one of them is probably better value. Or there's a fourth or fifth or sixth of them is better value. I might I might dollar cost into the into the different company every month but I bought what about now because it's cheap enough on a value basis to do it do I want to keep increasing my share of that well no because it was a small company and I liked it now but I don't want more than two percent of my portfolio in it so I'll go back to something else next time all that kind of stuff so uh yeah do I like the idea yeah I do I think it's great for people who want it as long as the providers aren't screwing you on fees as as RAM has already perfectly said.

1:15:31Otherwise, I think, yeah, it's perfectly fine. I would happily dollar cost average in the ETFs themselves. I wouldn't do it into the same shares with a very few exceptions based on absolute quality and confidence and faith in their super long-term potential. Because once you've got a massive chunk of it, you kind of, the opportunity cost you talked about earlier, RAM is working against you if you get it wrong. So that's probably what I'd do. But yeah, if you like it and you think it works for you and it makes your life easier and make sure you can definitely keep investing. You should do, I shouldn't put it in those terms, Sam.

1:16:04For any investor, if they're saying, look, you know what? I want to make it easy. I want to make it simple. I like these companies. This is how I scratch the itch. It gets me invested. I do it every single month, every time I get paid. I'm going to do it for the rest of my life. Like, you know what? That's a wonderful, you'll end up with a wonderful outcome in all probability. The only thing I would say, last one quickly, is if it's a couple of ETFs and a few companies, It's not very diversified, right? So just think about what proportion you might end up with, you know, three, four or five companies that are each, I don't know, if it's five companies and two ETFs and you're in equal amounts, you're going to end up with 15 % of your portfolio in each of five different companies, which might be great if you choose the right ones.

1:16:43If you choose a couple of the wrong ones, you really could blow yourself up. So also be a little bit careful. If I was doing it that way, I would want a lot of companies in there or the ETFs to be a much higher proportion, either or, just to avoid that sort of single company risk. Any more argument? No, nailed it. Just as well, mate, because we've gone along again. Thank you for joining us, listeners. Thank you for spending some time with us on this Sunday morning after the Matilda's fantastic performance last night, which was what again, Ray? It was just a great outcome. Everyone played really well.

1:17:15Soccer was the winner on the night? That's exactly right. If you want to hit us up, do that. Andrew is on Twitter. I'm not going to call it the other thing. I'm going to call it Twitter because that's what it is. he is at sage underscore simian or at straw man invest uh you hit me up on twitter or insta or threads at tmf scott p or the motley fool at the motley fool au hit me up on facebook at facebook.com forward slash scott phillips money or email us info info at fool.com.au if you want your questions answered you want to give us some feedback you want to make a comment that is the best they are the best places to do exactly that until next week until friday fool on cheers The Motley Fool and people appearing in this program may have positions in the companies mentioned.

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