Mailbag: incl. Take care of your portfolio like your body. March 2, 2025

26:47Do you think by you trying to - By the way, but also a genuine positive as opposed, he wasn't trying to spit it. He was literally saying, we will fix this thing. We screwed up. We made it say, we will not stop till we fix it, and then got on and fixed it. 99 times out of 100, another leader would have gone, oh, but it wasn't me and we couldn't have known and la la la. And it just makes a problem even worse. We are all going to make mistakes. We're all going to make not accidental mistakes. We're all going to make deliberate mistakes. I mean, show me someone who has, that he without sin cast the first stone type thing.

27:22So that's fine. Cop it on the chin, admit it and move on. So that's my first broad point. I like it. My first one, mate, is auditors, which sounds incredibly, incredibly boring. But there are, auditors are supposed to be the people who are standing up for shareholders. They're supposed to be the independent third party to say, well, management said this, but is it right? And in a perfect way, you shouldn't need those people, but that's why there are auditors because it's the check and balance, right? It's the second check of, actually show me that invoice. Show me that customer contract. Show me the cash balance.

27:56Let me understand what's going on here. If you have auditors who, so if a company changes auditors too frequently, or if they're using auditors that are, now look, not every company can afford to hire one of the big four audit firms, right? And they're not big enough to need to them. That's reasonable. So I'm not saying every company should. By the way, the big four auditors. Arthur Anderson was a big four audit firm and then ordered Enron and said everything was okay. So again, nothing's perfect. But if you end up in a situation where they're changing auditors too frequently, all the orders they're using are lesser known and not...

28:32If your auditor is based in Geraldton with an office in the main street that's like as big as a Starbucks... There you go. And you're... Look, if you're a small little business, That's fine. Yeah, exactly. If you're a$200 billion ASX listed company, it's like, what? Now, again, not red flags, but yellow flags. Questions to ask. Why would... I'll use Fortisgade. I don't have it. I own shares. I'm going to, you know, cause myself pain, if anything. You know, why would they employ Page and Phillips auditors based, as you say, in the mainstream of Geraldton? Maybe they're great people. Maybe they're fine.

29:04Maybe they've always used them. Maybe there's some loyalty there. Again, this is why it's a yellow flag, right? Are there reasons why? Yes. Is it a reason to completely avoid it? at investment altogether? No. But it's something to have a think about. If they're changing orders regularly, are the auditors complaining or maybe the company's looking for a more compliant auditor? Or are those auditors not necessarily of the ilk you would expect for a company of that size? So auditors generally have a look at that. Again, it's not something most people look at, but it's a really nice way to kind of see what's going on.

29:31I will say there was a company that we looked at years ago. I won't mention it because I'm pretty sure I'm okay, but I ended up going, pretty sure I went broke. Certainly, certainly was delisted at some point. I actually Google street viewed the auditor's office and it was a house. It was a suburban house. And again, was that obviously a problem? No. Was it only a problem? No. Was it a red flag? No, I don't think so. Still, even though, I mean, well, it's pretty dark orange. But yes, yellow flag. Auditors make sure they're reputable. They keep them for a reasonable amount of time. And again, I'm not going to guarantee it.

30:05Arthur Anderson screwed up with Enron. But a good yellow flag to look out for. Wasn't there an offshore detention centre that was managed by a very small outfit in the middle of the desert somewhere? I think it was on an island, actually, but yes. Same thing. Nothing dodgy at all. Nothing dodgy at all. That's perfectly normal. For me, again, this isn't a red flag, but this is two things in combination to look out for. I think investors, we should pay more attention to remuneration reports and remuneration structures. People just too easily just get, see a big number and get outraged. And I get it.

30:44That's not the point though. You know, that, show me the incentive, I'll show you the outcome, right? If I'm a CEO and I am going to get a big fat wad of cash, if I can grow EBITDA or something like that, you know what I'm going to do? I'm going to make a bunch of acquisitions because I'm guaranteed to grow EBITDA. I don't care that we've leveraged up to the eyeballs or I've had to dilute shareholders with a capital raise. I'm just going to turn around. I'm going to buy a very big business. My EBITDA, by the way, is just a very fancy way of saying earnings before 100 things that you should include, but for whatever reason, we don't include.

31:26you know so and that now you got to be careful with that because it's just unfortunately it's kind of the standard but that with a management team that has a track record of poor allocation of capital in other words they've made a bunch of acquisitions that really just haven't done haven't moved the dial acquisitions can be wonderful for strategic reasons it's going to take us six years and 10 million dollars to build this product or we can just buy these guys and have it tomorrow and it's going to augment our existing offering or it's going to allow us to enter into this market that would have taken for you know there are very very sensible strategic smart savvy acquisitions that can be made but more often than not they're not and and it you know again if if if the reason is because i just don't really care if the company collapses in five years time because i'm gonna get my bonus i'm gonna sell out and it happens it happens again so so Look for that combination of factors.

32:21Just to summarize, poor capital allocation decisions in which I have been rewarded for, even though shareholders have not. I like that, mate. I think incentives, right? As we say regularly. You should be thinking about the power of incentives. That's kind of 101.

32:43I'm going to say, I'm trying to find things that are not necessarily common because they're easy to say, oh, falling sales or falling profits or lots of debt. I mean, we should probably throw those in anyway. I was going to say debt, so don't throw it too much. You come back to that. You're a day of thru, so you can have that one. I'm going to go with directors. I'm going to go with directors in the context of understanding a director's or the board's background, who's in charge, what are the boards they are on, what are the boards they've been on, what level of expertise they bring to a board.

33:14It's not always easy to do. And again, I don't think it's a red flag because you don't necessarily need, you don't necessarily want, if you're investing in a technology company, you don't need a board full of technologists. In fact, you don't want that, right? You want a technologist, you want a lawyer, you want an accountant, you want a, you know, you want a range of people and experiences, preferably someone who actually deals with customers. So you can kind of, you know, the board's job is to both advise and approve what management are up to. But you want a board that is representative. You want a board that is appropriate for the company, has the right mix and range of skills.

33:48Again, you don't want three lawyers. You want a range of people. Also look at what the directors have done in the past. Have they been involved with bad businesses? Now, again, really clearly, if you've been on a board when the business failed, is it the director's fault? Almost certainly not most of the time, almost all the time, right? Because just if I was appointed to the board of Enron before it went broke, would I be responsible for it going broke? No. HIH, you mentioned on Friday, Ram. Am I responsible for that going broke? Well, if I've been there 15 years and I'm the head of audit, maybe I am responsible or I'm head of capital management or something.

34:18Maybe I'm responsible. But broadly, you're far likely to be directly responsible. But it's just a reason, hey, that guy was involved in that business that went broke. I might have another look. Just to understand who else is on the board, what their role might have been. And it's not a smoke and fire thing. It's just where there's smoke, there's smoke. And that's okay. So you say, okay, yeah, that's why it's the yellow flag, not a red flag. Where there's smoke, there's fire is ridiculously pessimistic because where there's smoke, sometimes there's just smoke. But keep an eye on, I mean, literally you have to have a fire to have smoke.

34:49That's a whole different conversation. I'm talking about the metaphor here. Yeah, just to have a think about, you know, why, what is that director's background? The board. Is the board appropriately composed? What are their backgrounds? Are they appropriate? Have they any black marks or, you know, crosses in their corporate or directorship past? Good ways of just making sure that you are maximising your chance. By the way, on the flip side, I know we're talking about yellow flags, but a board of directors with people with great track records is also really attractive. So they go both ways, but look at board composition.

35:21Just one thing, again, like with the order, is not many people do it, but you really should at least consider it to understand if you are taking more risk than you think you are otherwise. Yep. I won't spend long on this one because I think it's pretty self-explanatory. Debt is a four-letter word. In a lot of ways. Yeah. You've got to be a little bit flexible with it, though, in your interpretation. It is very different for a company like, I don't know, Transurban to have a bunch of debt than a labor hire company. Yes. One is hypercyclical, work could dry up tomorrow, and you're left holding this big obligation that you can't serve us.

35:59I mean, things that have to get really bad for Transurban not to make good on its debts. and even then they've got some very real tangible assets that they can flog to cover them. So in fact, you would argue that companies like that probably should have a little bit of debt because it's the only way you're going to get a reasonable return. And you can do it. I've heard the term smart leverage been thrown around a bit lately, which may be a little bit hyperbole there, hyperbole, I mean. But there's some truth to it, right? There is, again, a young couple taking on a 80 % mortgage when both of them have good incomes.

36:39I don't think anyone in Australia, certainly no one in Australia, is going to go there. That's madness, right? But someone who borrows like 10 times their income to launch a startup that's trying to compete with Facebook, it's a little different. So look at it in that context. And it's not just the amount of debt either. Look at the nature of the debt. When is it due? What is the interest rate? Who is the counterparty? What are the terms? You know, it's all, again, yes, I'm sorry, you have to do a little bit of digging here, but it's not that hard. And it will, I said it on Friday, when you look at, if you want to go through history and find the 100 biggest corporate blowups of all time, I'm going to make this up.

37:28But I would guess at least 70 % blew up because of, not because of the debt, but that's what meant that they never came back. It's going to be more than 90%. That's probably. I was trying to be conservative. I mean, well, I guess you have no debt, just simply just make losses forever until you eventually go broke. So maybe you actually are close up. But Buffett quote, headlines, flashing lights. Leverage is the only way a smart guy can go broke, says Buffett. I mean, if you're a horse and buggy company, Without debt, you'd probably still go broke. So again, it's not everything. But yeah, it's just exceedingly, exceedingly more likely.

38:03You have fewer options. You don't have the time. We talked about Microsoft before. They spent 15 years eventually stumbling from... They had a great job with Windows and Office and then had this 15-year kind of winter where they kind of couldn't work out what they were and they worked out the cloud was the future and they were away again. How did they get their 15 years? Well, first, they had a cash cow business, which helped. They had no debt or less no meaningful debt. They had a balance sheet that bought them time. Yep. All right. I reckon, hopefully, Was it three each? Five, yeah. No, I had to do five.

38:33Oh, all together. Okay, good. Oh, we did five each. That would have been tough. No, we'll do five in total. Hopefully, that helps, Sam. It's a really, really good question, mate. Generally speaking, yellow flags are the opposite of green flags, the opposite side of the same coin, right? So as a matter of course, you want a business that's profitable rather than less profitable. You want a business with growth rather than not growing. Again, neither is a solid green or a solid yellow flag, but largely there are very few, again, we've already talked almost with each of these, you know, debt, can it be used well?

39:05Yes. Okay, is no debt good? Yes. So that's the green flag versus the red flag and yellow flag. Order is the same, good order, bad order. Well incentivized, not well incentivized. They tend to be kind of two sides of the same coin. So generally speaking, if you've been able to define what success looks like, you can probably reasonably say the absence of those things. I really can't think of anything where it's like a – there's no positive to it. Life's kind of like that, right? I've got one. I just occurred to me then. It's in my world a little bit because I spend a bit of time cold calling essentially CEOs to come on the straw man so we can interview them.

39:41And there are some companies, try as I might, I cannot get them to come. And it's not just me. They just don't do that kind of stuff. And then on the other side, you could probably read that as, who the hell are you? We've got the shareholders here. You're the custodian of their capital. You need to front up. Don't you know who I am? Don't you know who I am? I haven't yet brought that one out. Actually yesterday there was a no-show. We had a meeting schedule I won't mention and they just didn't show up. That's always a negative. I was like, well, I bet it was a meeting with the PM that the EA found the time to send a courtesy email anyway i'm just being a little bit um no fair enough too that's awful but but the opposite of that is i have had a more than a few times when it's like they're beating down the door to come talk to us like well look look i'm all about i need content right so i was like i'm great for that but it's like i think i think you are a little too keen yeah and then you get every now and again you get one of these like and this is i've literally just met the dude right and i say dude deliberately because it's a dude every time and and they'll go look i shouldn't say this but oh red flag yeah red flag because you know after those words it's going to be something massively bullish and and it's like well you don't know me from adam and if you've told me this how many other people have you told by the way what you're doing is illegal and you know it's You either know it's illegal and what the hell or you don't and what the hell.

41:17Yeah. And it's happened enough. And I'm not saying it's happened hundreds of times, but it's happened a handful of times. Years later, it's like the company's never gone well because the only thing you've really got is hype. There's no substance to the business, the product, the service. All you've got is hype. and you're going out of your way to pump up the share price, which surprisingly works reasonably well for the shorts and never works in the long term. So if you get a hyper-promotional CEO, that's definitely a red flag. Nice. I like that. That's great. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

42:03Question from Frankie. Hi gents, thanks again for your considered responses and guide through these bonkers times You accompany me on long walks on the weekend It's a very romantic office and leave me thinking about stuff long after the podcast is done What the hell are those guys talking about? That's not lovely Hopefully in a positive way, Frankie Now a question for the pod machine Good work I'm a bit of a FIRE nerd where FIRE is financially independent, retire early It's a whole movement Frankie's not really planning on doing the early retirement bit but want to aim for maximum options as time goes on.

42:37I love that idea. I have a growing holding in the Vanguard high growth ETF. I know you've mentioned before that you don't like it because it's a fund of funds, but I wonder if I can ask a couple of cheeky questions. I've been learning about the efficient frontier and thinking about the idea that a simple large index fund will do okay, but a combination of indices and exposure is better. I know much of this research comes out of the US, but I'm keen to know what you think. Does it hold up in Australia? Are these Vanguard products a simple way of getting across it with US international small cap and emerging markets and a small bond allocation?

43:13Am I missing something really obvious? But, says Frankie, I think one of the main concerns you have expressed around these funds has been about the bond allocation and the cost of this to returns over time. In this vein, does the different products from Betashare overcome this in some way? They have no bond allocation and are simply four ETFs packaged together rather than an ETF made up of tracking managed fund indices. What do you think? Is this a reasonable option to buy the ETF and go fishing model? Thanks for the pod, Frankie. What do you reckon, Ram? I mean, I'll unpack a little bit here.

43:52Thank you. The efficient frontier is an idea that comes from, what's it called? Modern portfolio theory. makes it sound very sophisticated. Doesn't it? It's modern. It plots risk versus expected return. Yes. And what you look, the frontier is that part of the curve where you get the best return relative to the risk you are taking. In other words, you don't, if you've invested in the most speculative, tiny, maybe company, and you've gotten a 10 % return over the subsequent five years, that's not very efficient because you could have done that without taking many risk at all. Right. So you're looking for that combination.

44:36And as a theoretical construct, brilliant. It's just saying that, you know, you want the highest return with the least amount of risk. That's all it's saying. Unfortunately, then you get the finance wonks, and this is where economists need to be grilled over the coals, and we do it regularly on this pod, is that they go, you'll say, okay, great. How do I plot that? How do you plot risk? Now. Easy. A finance major goes, well, you just look at the standard deviation of the volatility and da-da-da-da-da-da. And you go, okay, is that really risk there or is volatility risk? I don't think it is, but okay.

45:10It's a risk I might make money. It's a risk I might make money, right? So it's sort of like, that's not risk. Can I stop you there actually? Because I need to check very quickly. When they mention volatility, they don't just mean the down volatility. They also mean the up volatility. In other words, if your shares are really, really volatile, but they go up a lot, and another thing is less volatile and goes up less, the second one is considered less risky. Just think about that for a second. Sorry, I'll keep going. No, that is such an excellent point. But the old joke is volatility is what brokers use instead of down.

45:41Yeah. I do like that line. I've mangled that a little bit. But no one talks about upward volatility. Upward volatility, yeah, exactly. So the other axis, you've got expected return. Like, oh, so you know what you're going to get? Like, no, you don't know. it's a guess on a guess on a it's an abstraction against a guess and it's just it's all kind of meaningless and that's where that's where you just need to throw it out the window I think so I just I'll make that point and by the way the efficient market hypothesis says no one can beat the market which Warren Buffett would like a word with those people yeah and not just him by the way like plenty of people plenty of people people you've never heard of you know like and anyway

46:26is a fund of funds, Vanguard high growth fund, the best way to achieve that? I don't know. I've said it many times on the pod. I'm not going to, I'm not going to get into a big debate when we're at, when we're at this end of the spectrum where you've got someone who's doing something really sensible and they might be able to be a bit more sensible or, you know, it's kind of splitting hairs at this point. So if you do nothing other than keep doing what you're doing, you're going to be fine. Now, am I doing that? No, I'm doing it a little bit differently, but am I right? I don't know. We'll see.

47:01It's just sort of, if you had rung up and written in and said that, hey, I'm doing this and it's all, I read about the efficient frontier. So I've just put all my money into this local artist and an emu farm. You know, okay. You might have missed the point there. Now, you know, there's a discussion to be had there. But yeah, I'll hand it over to you, mate. What do you think?

47:25So we have been critical of the Vanguard diversified high growth, not even so much as a product, but calling itself high growth, when you've got 3 % Australian fixed interest and 7 % international fixed interest. They've also got 16 % international shares hedged, as well as 26 % unhedged. So the hedging also - Hedged protects you from the upside too, by the way. Right. And you're paying the insurance premium either way, right? So it's diversified, absolutely. Is it high growth? It depends on what you're measuring against. and I'm not going to necessarily bag them massively. I think it's misnamed, honestly.

47:56And I think, again, here's the problem, right? I've said a million times, I'll keep saying the only good advice is the advice that's taken. If people buy this ETF, they'll do really, really well and be really, really happy as long as they dollar cost average and hold it for a long time. I'm convinced of that, right? So is it a bad product? No. Is it bad they own it or offer it? No. Is it misnamed? Probably. Am I going to tell people to sell it? No. You know, if it's great, right? It's going to do very well. I don't think it'll do as well as equities, which is kind of where we've been critical of it in the past.

48:27So I'll throw that out there as a starting point, Frankie, just to kind of say, you know, and you know that, right? You've heard us talk about it before. Is it really a big deal? No. Do I think the efficient markets hypothesis or the efficient frontier or any of those things are useful in the real world? No. They're interesting ideas, by the way. Here's the thing. If you take it as, as the academics would say, like we said on Friday, ceteris paribus, all that's being equal, is it a nice idea? Yes. Supply and demand works, all else being equal. I mean, even that, you know, if there's government intervention, does supply and demand work perfectly?

48:56No. If there's a monopoly, does it work perfectly? No. Well, the curve is a different shape, I suppose, is what you'd say. But, you know, all else being equal only works when all else is equal. And as an idea, it's great. The thing is, it doesn't work in reality. Is it useful? No, I don't think it is. So you say, well, what do you do about it? It depends on how diversified you want to be. I just looked up the beta shares. There's a thing called Diversified All Growth ETF. Now, what I like about it is it's Australian equities plus international equities. That's it, as you rightly say, Frankie. So that is likely to give you a better result over time.

49:33Now, a couple of things. Firstly, the allocations are different between the ETFs. So the proportion you have in each different asset class really, really, really matters. Okay, so for example, in the Diversified High Growth, the Vanguard product, it's 36 % Australian shares, okay? And 3 % Australian fixed interest. So effectively, I call it 40 % Australian and 60 % international. In the beta shares product, 37 % Australian equities, 63 % international shares. So the allocations are different. The returns will be different. I'm not saying it's good or bad. I'm just saying they'll be different. So be mindful of that.

50:07The other thing, by the way, beta shares charges you 0.19%, which is not big, but it's not as small as some of the others. You can buy, invest directly in a Vanguard ASX ETF, I'm just showing up because I'm making sure I'm on the right product, for 0.07%. You can get a US for 0.03%. You can get the rest of the world ex-US for 0.18 % with Vanguard, which is pretty close to the other one. But again, when you add in the US bit or the Australian bit, that brings the average down a really long way. The Vanguard, the diversified high growth ETF, again, I'm throwing a lot of numbers of people here, 0.27 which is pretty bloody expensive compared to the the beta shares product quite honestly i love vanguard but i'm not paying more for that necessarily compared to the other one so have a think about what you're looking for and what you want the fund to contain i will tell you just quickly this is against going to be a lot of stuff to roll out here it's 43 u.s 38 australia so already you're there at what's that 82 and you got uh 3.4 japan 1.8 china 1.6 canada britain India, Taiwan, Germany, 7.2 % other.

51:16And again, you've got to work out whether you think that's a reasonable allocation, right? Or not. And again, this is the idea because when you start saying which passive product should I choose actively, you are starting to blur the lines. And you have to because anytime you choose a passive, you have to start it with some view of the market. So do I hate the Vanguard diversified high growth? No. Do I think the beta shares one is better? Probably because it removes bonds and it's cheaper. So those are two reasons why I think you're probably going to do better over time with that than the diversified higher growth.

51:48Over the long term, some years, by the way, the Vanguard product will win because bonds keep, help on a down market year. The bonds will help keep the numbers higher. So it'll look better that year. Other years when the market is high, the beta shares product outperform. Over the really long term, I think shares beat bonds. So I think the beta shares product is probably better, all things considered. Me? I would split the difference and I only want one product I would invest in multiple ETFs that I chose myself passively and just dollar cross average into them you can get three or four you could buy for example an Australian a US and a rest of world and then you're doing it yourself and you're keeping the fees lower percentages matter so how much do you put in each that's the$60 question just remember and this I'll stop but just remember if you're saying I don't want to choose those other cashiers myself I'll choose someone else who's doing it for me they are choosing the allocations for you and they're choosing them so there's a choice either way right if you go the beta shares you're implicitly saying i'm happy with the allocation they've given it so if you say i don't want to choose the etfs myself i don't know what allocation to give them that's okay just know that someone else has made that call on your behalf and you are choosing that by choosing to not choose if that makes any sense nice um a long question from someone who's chosen to be anonymous which is interesting although they still say Hi Scott and Ram Time for a mandatory kiss of the ring In order to get my email read Thank you so much for your weekly podcast I'll allow it Go on I'll allow it Proceed Just stay on your knees Thanks so much for your weekly podcast I find them endlessly helpful in my early investing journey I'm 31 by the way Scott I hope you let the rage flow through you Now does that actually mean they want me to kind of channel the rage away Or they invited me to rage and share the rage I would take that as an invitation to like - In that case, I hate you, dear anonymous listener.

53:42I wish I was 31 and I hate that you are and I'm not. I just wanted to share why I find your podcast so useful. We always like positive feedback. Thank you. In my early 20s, I enjoyed having an income post uni and I spent most of my free time and money traveling to find the best surf I could within Australia and internationally. There's worse ways to spend your 20s. In my late 20s, my prefrontal cortex was finally fully developed and I started to think I should sort out my financial life. Like a lot of people, I started with the Barefoot Investor, which led me into J.L. Collins, Morgan Housel and Mike Kemp's writing.

54:14And finally, to your podcast. It's not a bad time. You've seen the light. I mean, yeah, Scott Pape's okay. He's sold a couple of books, but he's no Andrew Page or Scott Phillips, let's be honest. Let's be real. Yeah, of course. G'day to Scott if you're listening. He's not listening. He's not listening. As a physiotherapist, says our questioner, the themes you two repeatedly come back to resonated strongly with me. It really helped me get from a superficial understanding of basic personal finance concepts to a deeper understanding that has served me well through the relatively brief post-COVID downturn.

54:46In my intellectual arrogance, I feel they resonate because they are consistent universal truths about the behavioural tendencies of us hairless apes. Here are some of the parallels between personal finance and health that I have observed. Not that Ram needs any advice after his 1 ,000 push-ups this morning. 15 ,000 kilometer swim I will thank you and your pushups and the pushups that's commitment one small consistent efforts outperform boom bust efforts by a huge margin also that margin gets exponentially larger with time for example someone who goes for a steady jog two or three times a week is a lot fitter than someone who runs themselves ragged once a fortnight this seems consistent with the idea of dollar cost averaging Two, try not to get distracted by shiny things.

55:37When you're in physical or financial pain, you are vulnerable, an easy prey for charlatans. The way out often requires patience, consistency, and some support. However, people will try to sell you quick fixes with a poor likelihood of a long-term outcome. So true. You will want to believe them, but you really need to resist. Three, try not to compare yourself to others. We're all coming from a different starting line. Some of us are blessed with incredible genetics and some of us are blessed with inherited generational wealth. Often the fortunate in either respect fail to acknowledge the role luck plays in where you sit on the starting grid.

56:13It doesn't mean you can't improve your situation. However, I think this is good to keep in mind. Preach. I'm loving this. Keep it going. I will say too, just quickly, not only is it about the role luck plays, when you say coming from a different starting line, also avoid being envious and try to catch up because that also hurt you in the same way. There's always going to be someone richer, faster, better, smarter. With better returns. Don't chase better returns and take more risks. Number four says our questioner or correspondent, more complex is usually no better for the average person. You guys often rant about uber complex algorithmic trading strategies or paying for expensive active management that are unlikely to outperform a low cost index fund.

56:54An analogy for this is the person who hurts their back and wants to focus on expensive low value treatments and this person says cupping supplements saunas needling reiki reiki etc and ignoring the simple but not easy advice like load management general exercise weight management and understanding healing times yeah thanks again for the weekly rants i hope you know how helpful they have been to people like me regards anonymous oh put your name to that that is i couldn't have said it better i i i strongly agree on every single one of those points i've made the comparison to health before You have.

57:29It's so true. It's so like, you know, the gym junkies, okay, you know, good on you. I'm not having a go at you whatsoever. But like - Don't do that, mate. They're bigger and fit. That's true. I just got to be careful what you're saying. Don't call out the gym junkies, mate. I'm just saying like you get to a point where you can get to sort of like 90 % very quickly and you will spend the rest of your life trying to get to that last 10 % improvement. and that's great if you want to do it, but it's very hard to do. It's like, oh, you can learn how to play chopsticks on the piano very quickly, you know, but by playing Mozart's third symphony or whatever, it's going to take you a lifetime to kind of master and it's the same with investing.

58:12It's like if you can just get 80 % of the way there, right, like you're done, right? That's the way of investing, mate. People think it's a race. Yeah. As much as one former Scott actually said it wasn't a race. In this case, it really isn't a race. You don't have to finish first. You shouldn't try and finish first. The risk you need to take to finish first, you just need to finish a good time. Finish the city to surf. Don't have to win the marathon at the Olympics. Who cares? Right? Like, it's just, yeah. I mean, we said it so well, I don't really know where to go other than yes. Yes, that is so true.

58:48So I mean, my boy's getting a little bit older now and him and his mates are going to the gym and he's coming back and he's telling me, oh, have you got to do this? And this is the best way to do it. And I just sort of said to him the other day, it's like, buddy, anything you do is good. Like there is no, like we can debate. Like if you're an elite athlete and you want to debate what is like slightly better, then we can have that conversation. but if the choice is between lying on your bed and staring at your phone and doing anything at the gym, like it's a win, right? Like, oh, free weights are so much better than machines.

59:27Like, yeah, but lifting heavy things is good, you know? So it's just really to the point that an eye made there. Yeah. Nice. Hey, last one from Deacon. Hi, Scott and Rampage. I've been listening to you guys for a couple of months now and the pod machine has become a regular routine for me. So please keep the rants and discussions up. You couldn't stop this, Deacon. You spoke about how you need to be contrarian to make outsized returns on a recent pod. Do any of you hold positions currently that are contrarian bets? Oh, yes. What are your most confident ones? And how do you go about finding these without being contrarian for the sake of being contrarian?

1:00:07Kind regards, Deacon. Then, see, Deacon starts really well, right? Then he finishes with a PS. Is this a Bitcoin? no no no property no no more more in more in the context of uh of of our anonymous questioner who says p.s i find it amazing you had to read ross gittins in school scott because i was told the same in economics last year yeah deacon deacon deacon i'm always not going to answer your question because you are so young but i will because i'm a nice guy and you've said nice things about us that's good um i will i'll start by i thought you around but i will start by saying deacon your last point is really important i don't think we've ever said you need to be contrarian i think we've said you need to be an independent thinker and why that's important is because as you say at the end how do you go how do you be contrary that being contrary for its own sake and that's exactly right the people who are opposite of everything by the way the market goes up over time if you're entirely contrarian you're going to be short the market all the time you're going to lose money so you're absolutely right i know you know this mate but i just want to make the point for everybody listening i don't know if we've ever said we need to be contrarian maybe we haven't i think i think well i remember it actually i think what we said oh i it's it's not that you have to be contrarian it's just that if you want a really good opportunity you kind of have to be against the consensus so yeah i guess you are it's not so there's being contrarian doesn't guarantee being right yes but but to get a screaming bargain you almost definitionally need to be contrarian because if everyone recognized the true value of it it wouldn't be cheap and This sort of circular logic sort of thing happens.

1:01:39I think it describes the outcome, though, rather than the input. Yes, yes. We're not saying, I want to be contrarian. What can I disagree with? Yes. We're saying, oh, my God, I see this thing. The market doesn't seem to see it. If I'm right, there's massive upside here. As you say, that makes you contrarian by result, but probably not by intent. Is that fair to say? Yep, yep. All right. Go for it, Ram. How do you – do you hold them? What are your most confident ones, and how do you go about doing it without being doing it for its own sake? Well, we off-air had a bit of a chat about this this morning.

1:02:06I'll be quick. And let me just preface this by saying, please, for the love of God, do not buy this thing because I'm talking about it. Right. But I've got shares in a company called Ava Risk Group. AVA is the code. A lot of people on Strongman hate it. The market hates it. Good to know. I like it. Right. I like it. And so far, everyone else is right. And I'm down 30 percent and it's not been a great investment. Right. So I definitely know that feeling. I was also very contrarian with self and catapult and other ones that have worked out really well nice but I was also contrarian on pointera and envirosuite and other things that I've like been positive on in the past that I've since exited because that didn't work out so you know I have to say all of this kind of stuff because it's just and the reality is just to trot out my favorite saying here is you can borrow an idea but you can't borrow the conviction there's nothing worse than hearing a podcast or seeing something go, oh, that sounds good.

1:03:05I'm going to buy that. Next week, it drops 30%. You don't know, is that good or is that bad? Should I worry? Should I average down? You're like, well, you don't know because your investment thesis was some rando said it and it sounded good at the time. So with all of that out of the way, I like it. I like the stock to borrow the GameStop saying. It is a business. They just had their results. Top line's going pretty well, costs are really fixed, past break even, got some big contracts there, got a big pipeline of work. Everyone hates them. And others will sort of say, yeah, but they've kind of had this kind of tech for a while and they really haven't made much use of it.

1:03:43They bought some other acquisitions that, you know, I don't know, a little bit outside of their wheelhouse. Is that really, you know, going to do them any kind of favors? They've talked up some big contract wins in the past or some big potential partnerships, which really yet haven't materialize so there's there's a whole bunch of stuff to be negative on but hey this thing's something like five times uh uh cash flow it's like to achieve and i love an asymmetric bet so i love i love something is like maybe i'm wrong and maybe it'll drop 50 percent so i feel it's like in like in three or four years time this thing's like you know a dollar or it's five cents and it's 10 cents now you know i was like i'll take those odds you know i'm gonna jump on that because I reckon my contrarian bets are normally those ones exactly where I say out loud, often in this podcast or on TV or certainly to the team, the stock is almost certainly not worth the current price.

1:04:35It's either worth a lot more or a lot less. Yes. Cogan, Drink, I haven't done that for a while, two episodes in a row. Cogan's that. Cogan's absolutely that, right? Why? Because if it can't get to a reasonable scale and size, the shares are overvalued because they just – if this is maturity or close to it, then we're paying too much for the shares. So they're worth meaningfully less. If they can get to a reasonable size and stay at that reasonable size for an extended period of time and hopefully get bigger from there. But if they're in that growth phase, when they get to, if you come to the math, you say, okay, let's assume X dollars in revenue and X margin gives you X dollars profit.

1:05:12And that's a single digit multiple of that future number. Now, again, I'm not going to bang the drum hard for it. Everyone knows, we've talked about a lot, not because I'm trying to get people to buy it or even trying to convince anybody just because I think that's worth thinking about. But I think it's worth the current price. I think it's worth either meaningfully less or meaningfully more. Now, I could be wrong. I could be worth exactly the current price, but I doubt it because the contrarianness of that bet requires, again, why is there an opportunity? Because the market disagrees with you.

1:05:41Speaking of retail, the other one for me, as I mentioned, Kogan, in retail land, you ask a high conviction, Deacon, I'm not going to bang that drum as Ram is not because it's just not cool for this podcast. Not because we don't want to give people good ideas, just because, again, as Ram says, do your own research. Make sure you know what you're doing. Be diversified. Don't just buy the one we mentioned. Yeah, things will change. I've had people on Twitter say, what about that? You like that? I was like, no, I sold out of that a year ago. And it feels like you're making an excuse. It's like, yeah, but I didn't think to email everyone who's ever heard me talk about what I've – and I feel like the only rational standpoint an intelligent person can have when the facts change or your reasoning or understanding of the facts change is to change one's mind, right?

1:06:20And sort of like, you know, but you said you liked it. Yeah, I changed my mind. And people get really upset by that. And it's like, well, sorry, I reserved that right. Yeah, exactly, exactly. And by the way, how much did you pay me for this advice? Do I get a share of the upside or do I just get all the crap when it goes bad? Like it's just, it's - You know the answer to that. I get quite worked up about it because it just feels unfair to me and it's all about me. But I actually really like to bang that drum because it puts you in a very dangerous mindset yourself because you've started off with a bad decision on a bad rationale and that will just compound over time.

1:07:04And then when you need a bit of self-reflection, if there is ever an endeavor in a game that you need some quiet self-reflection from time to time, this is it. And if you're just going to hand away, oh, no, because of this idiot. And I was like, no, you're the idiot. And by the way, I'm an idiot too, but you're the idiot that followed me, right? And it's sort of like, I really mean this. I really, really mean this. And just, you know, I'm just trying to – I'm waiting for the email in two years' time when Ava's gone bankrupt. Yeah, exactly. You said that it was – Sorry. Sorry. Sorry. Yeah, I do.

1:07:34I stole your thunder. The other way I tend to be – I am a little bit thematically contrarian or psychologically contrarian in one particular way. And it's the way I hope is a useful one as a starting point, as a heuristic. Everyone knows listening to this podcast, I'm a born optimist, right? I am Pollyanna for sure. But when I love - You'll be in to my cynical yang. Well, exactly. Someone's got it. That's why I crossed it there. But what I love, so if that's true, and I think, as I said, over time, markets go up. And you're not cynical about investing, funnily enough, mate. There's other things you are.

1:08:10Maybe you look at the downside. but you're as optimistic as me about the future of investing. I love being the only optimist in the room of pessimists. That's what I love being contrarian the most, right? Which is not contrarian for the sake of it. I'm always optimistic. Just when they are pessimistic, you know, when they're moved, I'm like, oh, that's cool. So I will take half a victory of that, mate, not even intentionally, but just to make the point because it's the first thing that came to mind. 18 months, two years ago, and leading up to only six or so months ago, retail was really, really cheap.

1:08:40And it was really cheap because people said, But in the short term, there might be troubles. And my response is, I don't care. And I genuinely don't care. Why do I care? Because I'm a long-term investor. I just don't care what happens in the short term. And so I ask myself, and I've said this before on the pod, I look at a company and say, I don't care about the next six months. If in five years' time, will this company be still around, which is your first condition, which is always the most I want to ask, then will it be meaningfully larger profit-wise than it is today? Yes. Or I think so. Not yes, but I think so.

1:09:07And at that point, if that's true, will it back on today's price, It's like your point about every crisis in hindsight is an opportunity. Will I look back on today and go, really? I got offered shares in – I'll say JB Huff. I don't own them. I got offered shares in JB Huff at that price, and it wasn't always going to be around. Because the economy was a bit soft for that little period. For six months, 12 months. For the next three years. I don't care because if in three years it's terrible, but in five years it's bigger and better than it is today, and I got to buy it at today's price and take advantage of that, plus get some dividends on the way.

1:09:40like time time is the biggest opportunity given to the individual investor I mentioned on Friday the fund managers have three month lead times right three month not lead times three month performance periods right I've got years so I get to look back so yeah my question for myself is if I look back in five years time and say do I think this exists is it better more profitable more prosperous has a better future yes okay well what you know and today's price is reasonable or good in fact they were retail trading on high single digit PEs or very low double digit PEs. I'm like, but not much. Like nothing has to, you know, they can even be just this big in five years and it'd be goodbye.

1:10:16Let alone if they grow from here. So yeah, that's the other time when I love being the optimist and rumour pessimist. And it doesn't happen very often. And I'm not perfect at it because I didn't buy enough during COVID. And I didn't buy enough during the GFC. But I'm always really happy to go shopping for stocks when, when everyone else is miserable because of short term things that are almost certain to go away in time. Yep. I know we've got to go, but for me, the big one is always when, not if, when something bad goes wrong. Is it structural? Is it cyclical? That's the big one. Something bad is going to happen.

1:10:46If it's just like, oh, something happened in the Taiwan Strait and it kind of sucks and it hits sentiment, it's like, yeah, but that means nothing. Or the CFO is just taken off to Jamaica with all the money. Yeah, right. You're right. And that's what I meant about is it going to be bigger and better in five years' time? Is it still going to be here? Is it going to be bigger and better? Again, you can't know for sure. Is it likely? Yes. Is it likely? Yes. Is today's price good relative to that likely future? Yes. That's enough. I don't care what the rest of the market thinks. That's enough. Hey, great questions, Ram.

1:11:15Thank you for spending some time with me. Loved it. Good luck at your swim home from the Caymans. Might do Butterfly on the way back. Might as well. Yeah. Might as well. You've got a week. That's more than enough time. Yeah, exactly. All right. I will see you, assuming you're back in time, on Friday afternoon. Until then, enjoy the rest of your weekend and your week ahead and full on. Thanks, everyone. 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.

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