Mailbag: incl. The best way to set up for retirement? June 2, 2024

26:15That's what Boeing's doing because it's fighting against others who would otherwise take it to cut its lunch. and you say, well, I guess I'll take, where can I take out some costs? Well, engineering's pretty good and we don't really have that many engineers that don't reckon. And what if we could save some money and test it a different way? We used to do this testing this way. Now we're going to do things a little bit differently. And again, I don't want to talk about Boeing because I don't know the details anywhere near as much as you do, Ram. But think about that kind of ideas, that kind of concept and work it backwards.

26:42That's kind of where I think we find ourselves. And I think, you know, that's why I worry about businesses that are that profitable. The other thing, by the way, is when an innovator comes or a disruptor, the incumbent says, well, I'm used to making 40 % margins and I'm used to having this much sales and the new guy is offering it half the price because the new guy only wants 20 % margins, not 40 % because that's a very, very large amount of money. So what does the big guy do? Well, you've got a circle of wagons and say, Kodak like, as we mentioned on Friday again, I will try and protect my business or you say, well, I'm going to put myself out of business to do this or I'm going to have to drop my prices to try and compete and that means less money, less profit, but it's either less profit or no profit.

27:20What do I want? The problem is most companies say, choose me less profit, no profit. I'm going to pretend I can still make more profit. So they're going to keep their prices high and wish hope against hope that somehow they can be the undisruptible like Kodak with print film, right? Blockbuster against Netflix. There's a million examples. I've worked for food companies before that did that. When a new disruptor came in, they said, well, we like our margin. We're going to make less money. So let's just kind of keep doing what we're doing and we got undercut on price. We got undercut on marketing because they spent more on marketing because they could afford to.

27:51And we went, well, I guess we'll just spend less and hope that people don't walk away. Now, sometimes three, four, five times out of 10, that works because the little guy blows up or doesn't have cut through or whatever. But when they do get cut through and they do take over, I'll use a single example. Heinz I used to work for years ago and baby food used to be sold in jars or cans and Heinz had, God, I want to say 80 % market share. Might have even been higher, I think. And these new pouches came out and Heinz didn't have a pouch line. production line so they kept doing it in jars and cans and jars and cans and jars and cans and jars and cans until the market just slowly and well and then quickly to use one of your favorite phrases around move to these kind of you know the tear pouches that kind of thing and and Heinz had never you know I don't know what the market year is these days but I am reasonably sure it's much less than it used to be and they just got goes up because they tried to maintain their margins their production efficiencies we can't do a pouch line because we can't make any money doing it we make so much money in jars and cans let's keep doing that until you don't and so that's that's the risk so to your question to answer your question a long way of doing it what do I look for I look for business I am wary of businesses that are high margin low growth businesses right for disruption that is the real risk because that's when people start to make potentially bad decisions um so yeah I love big you know successful businesses uh but just be very careful about the way they're being run you you were you mentioned moat or Buffett's phrase moat after the last question.

29:12Buffett's instruction for his managers is widen the moat. Widen the moat. So if a company is not widening its moat, is Boeing more trusted this year than last year? Is it investing more in the things that made it great? Is it the brand of choice in a bigger way than it used to be? If the answer is not yes, and again, we're talking about Boeing, but it could be any company. Telstra is a great example, right? How's it widening its moat? Well, if it's smart, it's going to keep investing in regional coverage and make sure there are more towers for Telstra than anyone else. What's its moat? brand and coverage.

29:41That's kind of it. And so that's what it's got to keep doing. When it says, oh, I won't worry about investing in the new 5G spectrum or I won't build more towers or I won't do whatever, I won't invest in the brand, I won't make sure people love the brand. If you're a footy fan, you've seen that country footy out a gazillion times. It's what it's all about. And they're right to do that, by the way, because without it, it's even worse. So widening the moat is the job. So how do you find it? There is no perfect answer, I can't tell you. This won't cover anywhere near all of the examples, Gordon, but yeah, widening the moat and companies that are high margin, low growth businesses who are tempted to try and improve margins by cutting costs that maybe don't deserve to be cut, they're the ones you want to be careful of.

30:24I'd give you another tell. Please. A company that delivers almost exactly to guidance every year. Yeah. Anything? Oh, that can be guidance management, but yes. Yeah, well, I mean, but it's telling because, wait a second, let me back up here. It's like, Andrew, you're saying that a company at the start of the year says they're going to earn this much and they deliver it. That's bad. I mean, volatility is a dirty word in investing. Yep. And I don't know why. Well, I guess I do know why because it's scary. But welcome to the universe. I mean, this is the world we live in. It's not nice, straight, linear lines everywhere.

31:04There's just not, right? And business in particular. I don't care who you are. You can be Google or McDonald's or some of the best businesses, NVIDIA. You're just going to have bad quarters in that. So when you get a company that's continually delivering to the scent in what they expected, it shows you that they're either not making as much money as they can or they're bringing sales forward that they shouldn't. In other words, what it - Cutting costs they shouldn't or exactly. It reveals a focus on the near-term financial results and not a focus on, as you say, widening the moat and long-term value creation.

31:43And so it's bizarrely enough, it's the companies that, which are very rare, you say it all the time, like stop giving guidance, but they all feel as they're compelled to. But there are ones out there going, no, we don't know. I don't know. I'll tell you how business is. I'll tell you how we see the shape of things, but I don't know what we're going to earn. And that's the only sane answer. I mean, well, there might be some exceptions to, you know, businesses that have all subscription revenue with long-term lock-in contracts, et cetera, et cetera. But even then, new sales are going to make things difficult, right?

32:12And they're going to be things that are difficult outside of the control of the company. It's just general economic backdrop that you contain yourself in. So I like management teams that are consistent in their messaging, are honest with their messaging, that shy away from that and just acknowledge the nature of reality. right so and usually you i mean look at bernie madoff he delivered what was it was almost 20 per year like almost exactly now yeah every single year yeah that's too good to be true and this is why i think a lot of people are rightly skeptical of china's gdp figures just to go in a completely different direction like what seven percent again 7.0 i mean like really like that's there's no way there is no way that it could be that specific and that dead-on accurate because it just in fact that's a lot of a lot of the time um when people get busted for financial fraud it's because the number the way that it's it's interesting because the the financial detectives they actually look for perfection because they know that perfection doesn't exist So if someone's submitting internal reports.

33:24It can't be that smooth or that good or that whatever. That's the tell. That's the tell. So, you know, by the way, you can avoid volatility all you like. You're just going to get really terrible returns and your wealth's going to erode very – or you can lean into it and do extraordinarily well. But that's the price you pay. And it extends right up to individual companies and their reporting and all of that kind of stuff. So anyway, I made the point. I would just quickly tell you this. one company I've looked at, I actually quite like it, but the earnings over the last 10 years, that earnings growth line is so straight.

33:59So straight. And I just, I can't help but be a little bit uncomfortable and I don't, I'm not a cynic by nature, but I look at that and just go, oh God, I hope there's nothing going on there. You know, whether it's, as you say, managing earnings or, you know, under delivering because they can or smoothing. I don't know. It's just, it's so, so straight. I'm not going to name the company, but I look at it and go, oh, I don't know, mate. I'm nervous to put it that way. The results are excellent so far. Yeah. But that line is just so smooth. It doesn't happen. Look at Buffett, right? His returns are all over the place, as they would be, right?

34:32If Berkshire was doing 20%, like 20 % is, I think, about the average over 50-odd years, 60 years. But if it was 20 % every year, like LR Bernie Madoff, I mean, Buffett's a fraud, right? Clearly. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

34:54Here's one from Brian. Hi, Ram and Scott. Question for the pod. How would you go about setting up your portfolio for retirement? I'm a growth investor, says Brian, 15 years away from retirement, and it got me thinking when I should consider changing to a more dividend-based portfolio. No individual advice, of course, but if for figure's sake someone wanted 50 grand a year in retirement they would need a million dollars invested in dividend producing shares assuming a five percent return if that person sold his million dollar portfolio there would be a large component of tax to be paid he said and then reinvested in dividend shares if they went 50 50 with dividend and growth they wouldn't get the guaranteed or close to it 50 grand they want from dividends and basically hope they get a return from the growth component each year.

35:45I'd like to hear your thoughts about structuring towards the end of your planned working days, taking into consideration the 20 plus years of retirement growth on offer and potentially missing out on that. Thanks to the ongoing education, Brian. That's a great question, mate. One we've kind of batted around a little bit in the past, but worth talking about again. Obviously, 15 years away, the way the Australian tax system We talked about franking on Friday. A dividend can be partly or fully franked. That's very, very, very, very tax advantageous, particularly for someone in retirement who doesn't have other income to potentially worry.

36:23If you're getting a million dollars in shares and 50 grand a year, you're probably paying a relatively modest amount of tax on that. You're getting, again, if you're owning fully franked shares, a very good whack of tax on top, so you're probably getting 50 grand plus, what, 10 grand in franking credit, something like that, compared to selling your million-dollar portfolio. Maybe it's doubled, so you're paying tax at 25-ish percent, maybe less, maybe more on some of that. It's an interesting quandary. You've said before you're kind of a growth-till-you-die guy. Is that view still where you start?

36:55It is, but, I mean, it does depend on the capital you're working with. I mean, stupid example. if I had$10 million, I'm not switching it to dividends. I mean, I could have a really bad drawdown and still be able to sell enough shares to go up my living expenses. Yeah, you'd be okay. It'd be fine, right? If I'm dealing with a much smaller amount than I don't, than any forced drawdown during a bear market or something is going to, well, there's less money to enjoy the recovery with as well. And we talked last week about how dividends tend to be far less volatile than share prices. So that's kind of a determining factor.

37:35I'd also, like 15 years, that's about what I'm looking at, honestly. Hopefully sooner because I will as soon as I can, frankly. And it is close. 15 years isn't that far away. But you could probably double your, quadruple your money in that time. So rule of 72 is take the average rate of, take 72 and divide it by the rate of growth, right? So it means you'll double your money in about seven years, 7.2 years. It's not exactly that, but roughly speaking. You get 10%. And it's about 10 % total return. Again, that's an average, et cetera, et cetera. But that means in 15 years I should have the chance to double it and then double it again.

38:16So I'm not doing nothing. I mean, especially if I'm dealing with a million dollars now and I could have$4 million again on average, et cetera, et cetera, sandbag, sandbag, you have to, right? But I think 15 years is way too far away to start transitioning, way too far away. Maybe three, five years you might want to start thinking about it and only then if the capital base is small enough that you just want to be in a position where you're never a forced seller, then you could do that. And don't forget too there's still got to think about the tax carefully here. So you say, oh, you're right. There's going to be a big whack of tax when you do that adjustment.

38:57Now, in retirement, when there's no other form of income, you're going to be paying your marginal rate of tax on whatever gain you realise there. And you'll probably get a 50 % discount on that anyway. So it's probably not going to be that onerous. And yeah, with dividends, assuming, let's not remember, not all dividends are franked and certainly not all fully franked. And a lot of the fully franked dividends are from the likes of AMP and Telstra and this kind of stuff. So like, yeah, be careful what you wish for here. The number of people who buy a company because fully franked dividends, It's just got to be the dumbest investment.

39:28Like, you know, is it a nice to have? Yeah. But it's like after like a long exhaustive checklist of other things, right? Like, yeah. So I get the sentiment. And the final thing I'll say too, because it's a totally vague, wishy-washy answer, but you know, it's what you get. Is it's, as I like to say, there's a middle path, you know? You don't have to be all dividends or growth. You could shift a little bit towards those that are more dividend-oriented. Which is exactly what Brian's saying. Maybe you should go 50-50 with dividend and growth and try and get that mixed. But you do miss out on the – he says guaranteed or close to it.

40:10You miss out on the cash flow, but you get the upside opportunity, right? Yeah. I mean, and if we are talking about a seven-figure sum, I wouldn't be doing anything. What's the first rule of compounding? get out of the way. Or don't get in the way, moreover. And that is really something to bear in mind here. There's lots here too, depending on where the money is. If it's in super, it's a very different thing because the superannuation taxation is very different. Particularly once you retire, you're in a zero tax, at least at the moment, for the first$1.7 million. In your super fund, that's zero tax.

40:45So in that context, the capital gains tax tends to go away. And you do get the frankincourt refunds, at least, unless they change the rules, which is part of the challenge of thinking out 15 years as well. I'm going to be less absolute than you, Ram, but not miles away.

41:06I would suspect that it depends on the difference in the return between the two scenarios. So if you're investing in something and only getting a 5 % return and it's all coming in dividends versus a 10 % growth, then the compounding of that, to Ram's point, makes a huge difference. If you could get 8.5 % with the dividend-paying shares and 9.5 % with growth, I'm going to say you're probably better with dividends in the context of the tax component once you're in retirement because you're not giving up that much compounding over that next 15 years to get the total value of the portfolio in 15 years' time.

41:41If it's not that different over that period, potentially is worth the tax savings you're going to make. But that's kind of the trade-off, Brian. If you get exactly the same return from both groups, I would say you should take the dividends every time because the tax advantage is the only difference and you're never ever going to have a better tax scenario. Well, I said never. Under the current rules, the tax treatment of dividends is always going to be better than the tax treatment of capital gains. And so if I could get the same return on either scenario, I would take the one that was more tax advantage.

42:10To Ram's point, don't buy fully frank shares because they're fully franked. But if I get the same return and one had fully franked dividends and the other one didn't, I'd take the fully franked dividends. So it does come down to your expectation of how create two imaginary portfolios, a growth portfolio or a dividend portfolio, line them up side by side and say in 15 years' time, what's the light network? We don't know the answer, right? So I'm talking hypothetically here, but as a thought experiment, what's the likely return of both of those portfolios separately? And then add the tax advantage to the dividends, take it off the growth one for capital gains and work out your after-tax result of each scenario.

42:45And if I'd done this in advance, if we've done some research and some pre-work, I mean, there is no single model because it depends on the inputs for both and they diverge because of the tax treatment and the compounding. So you can't just do it easily. Every time you change one number, everything else changes. But there would be a scenario where you say, hang on, I'm in one scenario getting potentially frank credit refunds. So not only am I paying zero tax, I'm probably paying negative tax on that portfolio. The other one, I'm paying 25 % or 12 % or some version of tax. So net-net, there might be a, I don't know, 15%, 17 % difference in the tax treatment alone.

43:22But if the growth portfolio is much bigger, then you've got to massively capture that and more. You've got to pay more tax, but you've got to earn more before tax to justify it. And that's kind of the maths. There is no easy answer, Brian. I'm going to be as wishy-washy as Ram and say, we don't know because I don't know. You don't know Ram doesn't know what returns you would get in those two separate portfolios. I will say I have been conscious of that exact issue, Brian. I've probably, I've got companies that, and here's, I'm going to take the third option. I own a, this chunk of my portfolio is a salt patch shares, right?

43:59It has managed to beat the market over every time period, one to 20 years. Last time they did the numbers, it moves around because share prices move, but roughly that kind of idea. In that context, I'm hoping never to sell my salt patch shares. because I'm hoping that it's a small dividend now, it's 2 point something percent. If they keep beating the market for the next 15, 20, and by the way, it's not just at retirement, it's after retirement. So think about, as you've already said, Brian, the 20 plus years of retirement growth on offer. I hope that my SolPath shares will grow to a size that in time for retirement, they're paying me probably still only 2 or 3 % dividend yield, but off a larger basis, it grows between now and then.

44:36And then they keep growing through retirement. So that income stream grows in dollar terms, as well as the yield on the starting price. So that's kind of my, I'm taking a midpoint solution or midpoint approach, which is not exactly 50-50 portfolio, but I have got companies that in large part, not entirely, in large part, I hope will be bigger, will have grown, grown profits, grown share price, and either have started paying dividends or pay larger dividends at that point. So it can be a bit of both. A great example is Apple or Domino's. Domino's less so because the share price has come back, so I'll go with Apple for now.

45:10It was this hyper-growth company 20 years ago, grew beautifully, then started paying a dividend. Now it's buying back shares and paying even more dividends. And so Apple's gone from the growth investment to a quasi-growth slash dividend investment. And the bigger it gets, the more it becomes a dividend stock. You kind of got the best of both worlds. So 15 years out, you could afford to do something similar. Now, you're not going to know for sure whether it's going to pay a dividend in 15 years, but you may find there are growth businesses that by the time they become more mature companies, do actually start paying larger amounts out, and you may well get, I don't want to make it sound like Pollyanna, but the best of both worlds or at least part of both worlds to solve some of that problem.

45:45Nice. That's for anything else for you, Ryan? No, I concur. Here's a very big question from Bill, but I love the comments. Let's have a go at this one. It might have a Bitcoin thing, so let's just see how we go. Hi, Scott and Andrew. Long-time listener, first-time emailer. Like many of your email correspondents, I want to thank you for the constant information provided and commentary. It's been very helpful over the many years I have been investing. I'm keen to share some thoughts with you both, particularly around the subject of Bitcoin. Bill, Bill, Bill. Having listened to the Gold Coast session over the past 48 hours, I was disappointed at the approach taken in regards to discussing some of the merits of Bitcoin in light of so much discussion around inflation, interest rates, and the economy.

46:33Disclosure. I do own Bitcoin, says Brian. Brian, no, Bill. having watched the rise of Bitcoin over the past 15 years, it's an asset class that must be taken seriously and is worth discussing. Its adoption keeps growing and its use is emerging. Just this weekend, this is a couple of weeks ago, reading the Adelaide Oval in the gather round for the AFL is allowing payments to occur through Bitcoin, which was refreshing and a real positive. Scott, your comment in regards to that there has never been something better presented in terms of a system to oversee the economy in the past or exist today is interesting.

47:10Considering your acknowledgement on how difficult and broken our current system actually is, I'll come back to that, I'll challenge you to have an open mind to exploring how Bitcoin could provide and be such a solution. Having been an equity investor for over 25 years, much of the attributes Bitcoin presents do align with what I look for in equity investing. To name a couple, scarcity in respect to the 21 million coins, which is a parallel with companies not diluting shareholders as well as scalability or operating across global markets. Bitcoin in its short life has been able to reach populations who don't have the privilege to access a bank and seek to improve the standard of living for their family and community.

47:49Further to this, the progress of Bitcoin in solving environmental and energy access and usage is something worth discussing. It's about two areas coming to mind. I'm not going to read the whole thing, Bill. Incentivising energy companies in development and secondly, from an environmental perspective, the capture of methane. which is infinitely more harmful to the environment and the CO2 via the Bitcoin mining process. I hope this email is received positively and look forward to your response and allocating a session to discuss how Bitcoin has and is evolving. I feel fortunate to be living through this period and feel we're on the cusp of something humanity has never been able to emulate and provides a playing ground that is significantly more fair to us all across the globe.

48:26I hope this gets to the mailbag and I'd love to hear your thoughts and responses, Bill. All right, I'm going to let you have it at round, but I'm going to just quickly touch on Bill's question or comment directly to me that there's never been something better presented in terms of a system to oversee the economy in the past or exist today. I stand by that, Bill, but it's also broken. I think that's, you know, we live in an imperfect world, mate. So is it, I've never said, well, I've always said it's the least worst, right? It's the old Churchill quote about democracy. I've stolen and bastardized to be democratic capitalism, but it's the worst system except for every other system that's been tried.

49:01I think it remains true. and worst is the point, right? It's far from perfect and yet it has delivered an incredible result for humanity and particularly for those countries that have embraced democratic capitalism as a core offer. I use democratic capitalism to refer to both the democracy that we have but also a nod to regulation that needs to be in place to make sure capitalism serves its purposes and our society. So I absolutely stand by that even though it's broken I think that's kind of, you know, I won't say it's the exception that proves the rule but the fact that it's broken or could be fixed, could be better, doesn't devalue or disqualify.

49:38I think my comment about it being the least worst system, except for everything else. Ram, I don't know where to take this one in particular. Bill's a fan. He makes some key points. I'm not sure they're new points necessarily. I understand he's a fan of Bitcoin, which is great. Do you have any initial thoughts, What's mainly that kind of comes up from Bill's comments that need expounding on or talking about? There is nothing more dangerous than asking an open-ended question to a Bitcoiner about Bitcoin. There is that. I could just talk for four hours, right? Is there anything new or any highlights from that?

50:22Because you've made your case. I'm not trying to shut it down either, by the way. I'm genuinely happy. It's like someone writing and saying, so I really like shares. I think they're worthwhile. What do you guys think? Well, we could do that too. And again, Bill, I'm not trying to – I know you wanted a full comment on it. I kind of feel like we've done it. So I don't really want to shut it down at all. I'm trying to work out how to add to the conversation for our listeners in a way that is advancing the conversation or broadening the conversation that kind of helps make some sense. Again, Rem, feel free to do your four-hour chat if you want.

50:52I know what you're saying. I mean, it is tough, right? So I'll try my best. John Oliver said that Bitcoin is everything you don't understand about computers combined with everything you don't understand about money. And it is brilliant, right? That was worth the question a lot, Bill. It is just like the best quote about Bitcoin. That's fantastic. I know for me it's been a teacher. I just – I never questioned so many fundamental things. and it just, regardless of what conclusion that you come to, and everyone can come to their own conclusion, but it just asks, it just forces you to ask questions that you just always took for granted.

51:32And I thought that was really a valuable process. You know, it's like, I've used the analogy before about, you know, fish discussing water. It's like, what? It's just all around you. Just how do you, I mean, money is the second language you ever learn, you know, and it's always been this thing. And then someone goes, oh, it doesn't have to be. You're like, what? Yeah. And it just, it breaks your brain a little bit. I guess I would say when you first encounter Bitcoin, if your first reaction isn't to scoff, there's something wrong with you. Like, like it's crazy. It's, it's, it's the wildest thing in the world.

52:06And, and I did. And I don't think, in fact, you could look at Michael, um, Saylor, the head of micro strategy and the biggest corporate investor and one of the biggest advocates in the world, famously called it a Ponzi and a scam back in the day. Everyone does. Everyone does. And again, it's, so it's, it's the natural reaction to it. So all, I guess I don't want to go on too long. All I would say is that do yourself a favor. And, and I love the Charlie Munger quote of take a wild idea and take it seriously. And, and the reason that I arrived at the conclusions that I did was because it just didn't go you and I were laughing at it in 2017 remember that bubble and and then it kind of popped and we felt really smart and then it came back and like huh and then it came back and then it popped and it came and like tulips don't do that right Bernie Madoff doesn't come he doesn't so that was interesting and so I just thought okay I'm just my my initial goal was to don't just shoot from the hip here actually if you're going to criticize something in good faith, you've got to at least understand it.

53:19And again, Charlie Munger, you've got to put the bear case forward. You've got to understand it better than the bears, right? Like you need to do, otherwise you don't, you're not entitled to criticize it. So you don't like Bitcoin, that's totally cool, right? You've spent some time thinking about it. The person who goes, no, I don't like it, la, la, la, just because I just think you're an idiot. And I would say that whether it was about anything, right? Like I don't like quantum computing. Oh, what don't you like about it? Nothing, it just seems stupid to me. I'm like, well, you're an idiot, right?

53:45Now, if you need to, if you need, so all I'm saying is that it's okay to think it's ridiculous because it is ridiculous, you know, when you think about it. But push forward and, well, I did anyway. I just couldn't, I couldn't kill the thesis. And that's really my approach with investing full stop, regardless of what it is. It's like, here's what I think. Now let's try and, I mean, I built a business around it. It's called Strawman because the idea is for people, me to put my dumb ideas out there and people to, you know, put cold water over them. And it's not because I'm a sucker for punishment.

54:19It's because I want to know if I'm wrong. And if I'm wrong, I'll lose money. So I don't want to lose money. So tell me if I'm wrong. And I went on that journey with Bitcoin and in the process, I became a massive advocate. And to this day, I put it out there to anyone. It's like, tell me what I've got wrong. And beyond a few scoffs and sniggers and giggles, no one's been able to put forward a good case. And then outside of that, as Bill rightly points out, you've got this thing that kind of bootstrapped up from zero without a CEO or a marketing department that's now a$1 trillion US asset, which is supported by the SEC, who Larry Fink at BlackRock is now the biggest advocate for.

55:05You've just had this ETF launch, was the most successful ETF launch in history, bigger than SPY, right? Bigger than the S &P 500. It's done more flows in the first three months than the gold ETF had ever. I think it took 10 years for the gold. Again, that doesn't say, oh, you must do it. It just means, and you've got nation states adopting it. It's sort of like something is going on, clearly something is going on, right? And you need to – you don't need to do anything about it. But if you're going to be critical about it, at least have an informed reason as to why you're going to be critical. If not, you don't deserve to enter the debate.

55:47And that's true about religion. That's true about politics. We spent all Friday talking about the Minister for Industry talking about the corporate tax rate. And it wasn't too flattering towards – because you just make these statements without any backing. The burden of proof, I would say, is if you're going to be negative on it – And be negative on it if you must. But just do it in an intelligent fashion. And, you know, I think the other thing that trips up, what's interesting I find about it is it's the people in my finance circle that are most against it. And I think it makes a lot of sense because we are used to dealing with things that have cash flow.

56:28It doesn't have cash flow. And so people think it's a hot take and a dunk. You know, I was like, oh, it doesn't have cash flow. Like, yeah, it's not that. Yeah. That's kind of the point, right? Why would money have cash flow? Like, it doesn't make sense. You know, it's got to, there are very, very new things in the world. There's the old saying from the Bible, you know, there's nothing new under the sun. Every now and again, there is. And this is one of those things like the internet before it, like electricity discovery before that, like steam, like every so often something new comes along. And when something new comes along, it just doesn't, our language, our mental models, our metaphors, they don't work because there's never been anything like it.

57:12And so we sort of, we fumble with digital gold and programmable money and, you know, and then to make it all worse, you've got all these affinity scams and grifts. Well, I've got the new Bitcoin and mine does this and I've got shorter block time. It's just like, it's as dumb as someone saying, I've got electricity 2.0 or fire 2.0. It's a thing. it's happened it's a one-time invention right and and and you've got people buying drugs and supporting terrorists and doing all the and it's just like it it sort of it fogs everything up and yet at the core of it there's something that is there and i'll let people explore that and i'll shut up at this point my only response to that question is and to anyone listening is don't do it.

57:56It's a free world, right? Don't do it if you don't want to, but don't sit there and, and, and, and, and tell me it's terrible without having spent one hour objectively, uncritically looking at it because you don't get, just as I don't get to have an opinion on, um, small modular reactors, right? I don't know enough about them. I don't know enough about them, you know, and, and I can shoot from the hip and I can make all kinds of ill-informed comments, but I'm just going to embarrass myself. And that's what you're doing if you're a naysayer without having properly looked at it. So look at it and then reject it.

58:36But don't just reject it out of head. I think that's fair. With one exception, which is it's okay to be agnostic as well. Oh yeah, sure. You don't have a view on it. You're not there for going to spend six weeks investigating it so you can have an informed view. You're like, I just don't know. I'm not going to be in the debate. I'm going to let someone else make the decision. You're not saying, saying, I haven't seen proof, therefore I'm against it. You're just like, I don't know. Someone else could buy that. I saw a thread recently of someone saying, 23 things I wish I knew at 23. It's a big clickbaity.

59:06But there was some really good stuff in there. And one of them was, you don't have to have an opinion on everything. And I was much older than - I'd rather be coming from this podcast. Yeah, right. But like, I mean, it's okay to say, I don't know, right? And I say it all the time. And there's so many stocks that come up if we're doing, you know, Ausbiz or some media work and someone says, what do you think about this? And I used to feel, well, I still got massive imposter syndrome, but I felt as though I had to say something. And as an older person now, I feel as though I'm perfectly content to go, I don't know.

59:42So good. I don't know. I wrote an article this morning about hubris and exactly that idea of just not having to be the master of the university and everything. You know, this is a slight tangent about me, but I've said before, you know i'm really the smartest bloke in the room and that happens when i'm alone as well um you know the the if i have any if i have any skill or ability or or i've been able to kind of codify anything it's taking the best of other people's work and and trying to apply that relatively diligently where i can find an opportunity and i don't there are people that have to i can't just do the buffet thing because i'm not buffers i'm gonna have to try and define my own way so well you can and buff is not the only way to do it by the way but it's like But you've got Buffett and he's there.

1:00:20And if you wanted something like that, then there's the template. Don't reinvent the wheel, dude, because it'll take you years. You won't do it well enough. Someone will eventually. As you said, Bitcoin is a new thing, but it's the first new thing in, I don't know, how many decades, right? Like it's incredibly, incredibly rare. And so just kind of going either I don't know or here's an approach I like. I will simply say for me, and this is not new either for our listeners, for me, Bitcoin is, I'm a straight agnostic. I think it's really super cool. I think the tech is amazing. Am I convinced that it will continue to be an accepted and used thing?

1:00:55No. Do I know how much it will be used? No. Can I put a price on it? No. Do I know what's going on? And I know you've got answers to all these things, Ram, and I don't want to for a second suggest that, therefore, our listeners shouldn't do it either. Ram's got very, very strong views on it, and they're not opposite to mine because mine aren't – it's not negative. It's just – it's not a bet I want to take because I don't feel like I can frame it. Why would you take a bet on something that – Right. I mean, that's the craziest thing you can do. I mean, forget Bitcoin, right? Like, oh, this company, I don't really understand it.

1:01:24Too hot? Yeah, exactly. Don't invest in it. Yeah. People like property. I should pay any price for property. No, you probably work out whether you think there's a good rental year, whether you think there's, and again, I know it's a cash flow, whether there's capital appreciation, whether you think more people are going to want it. You know, does it have a use? Does it have a purpose? You know, and that doesn't mean, you know, if I buy my house for a dollar, is it a good deal? Yeah. If I buy it for a squillion dollars, it's a bad deal? Yeah. Is it worth something in between? Yeah. I don't have a conviction on Bitcoin, so I just literally decided to see it from the sidelines.

1:01:54And I'm very aware that maybe it goes up 10x from here or maybe it falls by a tenth from here, and I don't know. And that's okay. There are a million stocks out there that will do the same thing. I didn't own any Nvidia stock. Right. I wish I did. Or, by the way, Lendless, which is on 80 % over 20 years, right? And it could have done well. Sure. Did I have a view? No. Do I have a view now still? No. Nvidia might go up 10X from here or mine might have from here. Do I know? No. I'm just literally giving it a miss and I'm going to miss that. But that's the difference though. You're not saying – double down on your point because you're not saying Nvidia is bad, it's a sell.

1:02:29Correct. That is different. Or even the stock is bad. I just don't have a view. I don't know. I don't know. And that's my point. That's the only thing that I want to say here because, again, I will go on about it forever. It's endlessly fascinating. But just look at it objectively. and then you'll either reach a conclusion or you won't. And if you don't, that's cool. That's cool. That's totally cool. Beautifully put. And I think that's kind of – for me, it's actually an even better example because, like, is the company cool? Yeah. Is it doing some really cool stuff? Yeah. Is AI going to be a big thing?

1:03:04Yeah. Is it going to be a video chips? I don't know. They're doing well right now. Is it worth this price? I don't know. I don't know. Would you short it? You're not shorting it, right? Exactly. That's exactly it because I'm not saying, I can't value it, therefore it's terrible, therefore it must die, therefore it's worth zero. I'm like, I just don't know. And again, I know that is endlessly frustrating for you, mate, because you can see it so clearly and you're like, how can you people not see what I can see? And I get that, right? And that's incredibly frustrating for you and I appreciate you not wanting to talk about every single podcast.

1:03:34I do, I do. I just bite my tongue. Choosing not to, choosing not to, better way to put it. But yeah, and that's the option. So Bill, look, I don't, this is the thing. Bill lays out the technical case, as well as anybody, in terms of why Bitcoin could be a thing and how it could be used and what it could mean and the benefits that it's bought. And I think those things are all absolutely true. So, Bill, like I'm saying with Andrew, I can't disagree with any of your points. It doesn't get me any closer to, therefore I have a strong probabilistic view on what I should pay for it based on what the future might look like.

1:04:10I am someone who will, I missed NVIDIA because I saw it going up and I'm like, I don't know how much higher it goes. I don't know how long this continues. I don't know how long it remains the only player effectively in AI chips. Intel, once upon a time, was the thing. NVIDIA, by the way, has had a rise. Speaking of Bitcoin, the first surge it had, what, five years ago, Ram, was on the back of its graphics processing chips that were being used for Bitcoin. That was for mining. Application-specific integrated circuits, yeah. Bitcoin chips, yeah. And then, of course, then it crashed when the price fell and people stopped doing as much mining.

1:04:44And again, rightly or wrongly, that journey was harder to assess. We're talking about a video. This time around, maybe it's got a 10-year head start. Maybe in 25 years, our kids are talking about a video when it's the biggest company in the world by a million, squillion percent. Or maybe in five years' time, Arm or Intel or someone else or some other brand-new chip maker has invented a new AI chip that's even better. Do I know? No. So I'm just out. And that's okay. Some people will say, I'm happy to go NVIDIA because it's winning and I think it might keep winning. If it does, I'll do really well.

1:05:17So I'm just going to back it because it's doing well business-wise, not share price-wise. I mean, it is, but don't do it for that reason. Winners keep on winning is a perfectly reasonable strategy. I would have held ProMedicus and NVIDIA and done really, really well. But then sometimes winners stop winning and start losing. And so there is no perfect solution for that. It's a non-zero chance it goes to zero. Right, exactly. I'm looking for a future that I can reasonably, probabilistically assess. And I want cash flows. There's a reason I don't own gold, for the same reason I don't own Bitcoin, which is not that they're the same or that they're bad at all.

1:05:52It's just like, I don't know. What's gold going to be worth in five years' time? I don't know. No idea. So I choose not to play the game. It doesn't mean gold can't go up. It doesn't mean it won't go up. But if I studied it and studied it and studied it, I would have no increased conviction because it's not a question of does it have utility. It's how much will that utility be valued at. I've given the example a million times of Betamax and VHS. I'm not saying beta is the same as Bitcoin, because I'm not suggesting it's going to die, but just because it was better wasn't enough. And so it's like, I don't know.

1:06:22I don't have a view. And even if I did have a view, would I want to put some of my scarce resources behind a view that I don't have enough conviction in? No. Ram's exactly the opposite. He's got a view. He's happy to put 105 % of his money behind Bitcoin. And that's okay. And that's great, because he's got that view. So, Bill, I don't disagree with you, mate, and I hope I haven't given you short shrift. I hope we've kind of given enough time and air to have that conversation. I don't know that we have... If there's stuff that you think we need to discuss about Bitcoin, by all means throw it us.

1:06:53We've done a couple of episodes on it. We've answered a couple of questions in relatively recent memory. Not much is changing in terms of the investment case. That's kind of the beauty of it, man. I don't have to research the latest earnings report or whatever. Exactly. Will it be around in 10 years? Yes. It's kind of like, all right. There'll be 20 million coins then, and maybe people use them, maybe they won't, but they'll be there. You know, you can look at Woolies and say, well, the price is up or the price is down relative to earnings or relative to earnings going up or down. You know, the stuff we talk about is exactly all that stuff.

1:07:27That's where the value is. And, again, I don't want to – I don't mean – again, I'm not trying to make excuses for not covering it. I think intellectually it's fantastically interesting. and Ram is very well informed. So if there's stuff anyone wants to know or wants to talk about, so if you don't feel like we've covered it in enough detail, I think that's worthwhile. The challenge for me is I don't think – I think Ram's done a fantastic job of outlining why it's a high conviction investment for him. And, Bill, you've done a great job of summarising some of the things Ram's already said, and maybe a couple of things, maybe he hasn't, I don't know.

1:07:56But it's hard to keep reinventing the same, we'll talk about the same stuff again, as much as Ram would be happy to. We do a Bitcoin episode every week. You can just do it from a different angle and go for it. There is nothing. The newly converted, no one preaches harder than the newly converted, I'll tell you that much. In anything. In anything. Especially in Bitcoin. A couple quick points just to make here. Not about Bitcoin per se, but about the mindset of approaching it. If you're buying this, if you're exchanging Australian dollars for Bitcoin to make more Australian dollars, you're doing it wrong.

1:08:36Like, oh, I'm back there for me. Well, you're speculating on an exchange rate. And anyone who said, I trade the US yen pair. Well, good luck. Cause even the pros make a dog's breakfast of that all the time. And it's the same thing, by the way, it's the same thing. It's currency trading. So think of it that way. Why would I want yen or euro or the South African rand? I'd tell you why. Because I want to go there and spend money there. And that's the currency that they accept there. If I'm buying the yen with zero intent on going to Japan, I'm speculating it. So if you're buying Bitcoin, because I think it will go up, and then when it goes up, I will sell it, and then I will have more money.

1:09:25And this is why I say it breaks your brain. It breaks the models. It's like, no, no, no, no. I'm buying it. I don't think the price will go up per se. I think my purchasing power will increase. I will never sell my Bitcoin. I'll spend it. And even if spending it requires an intermediate step of converting it to fiat and then spending it, much in the same way that if I wanted to spend my euros, I'd have to convert it to Aussie dollars to spend it here. But do you see what I'm saying? It's a subtle point, but I think it's an important one. And I think if that's your intent, then just be aware that you're purely speculating.

1:09:59That's fine. I'll be able to buy more cans of Coke with Bitcoin in 10 years' time than I can now. Look, when was it? Close to 10 years ago, it cost 10 ,000 Bitcoin for a pizza. Now one pizza will buy you 10 ,000 Bitcoin. Now, that doesn't guarantee anything for the future, but that's the way to think about it. I'm converting from one. There's 160 national currencies on planet Earth. Yeah, right. You can choose any one. Australian dollars is only used by, what is it? 0.1 % of the global population. You take a$50 Australian note to any other country on earth, maybe Bali is an exception or a few other places where there's a huge Australian tourism president.

1:10:45It is laughter. They will send you marchings. Why it gets me and people, oh, my merchant doesn't accept it, so therefore it's ridiculous. Well, go and spend some pesos there. So you're telling me that all of the G20 national currencies are worthless because you can't buy a coffee with it at the Starbucks on George Street? So again, I mention all of this because it's, to my mind, there is, for the first time ever, a truly agnostic natural commodity money that's digital. And that's how you've got to think about it. It's a money. Do I want to save in this form of money or that form? And you can save in US dollars.

1:11:28I've got friends who've got US dollars in their PayPal account, right? Because they feel as though the Aussie dollar will go down and rah-rah. That's cool. But just be aware of what you're doing there. And hopefully I've just, I don't know, frame shifted some thinking there. It's a buy to hold and it's going to be super volatile and hopefully your purchasing power will increase over time. Why would it increase over time? Because adoption grows. and like any network effect, the more people that are using it, the more value it has, the more value it has, the more purchasing power. It's kind of that kind of feedback loop and I'll shut up now.

1:12:02Yep. No, it's good, mate. Really, really good, really useful. So Bill, thank you for the question. As I said, if anyone wants any more content or detail that we haven't discussed before, very, very, very happy to do it. We're just trying to kind of keep it interesting and new and different. Mind you, we repeat ourselves on other topics anyway. So maybe the occasional repetition on Bitcoin is not the world's worst problem. It's just hard to, as you say, Ram, hard to kind of have a new conversation on something that, you know, the ETF listing was important and new. That's kind of a big deal in terms of its adoption.

1:12:29Other than that, we're kind of then stuck with talking about milestones of adoption or not, as the case might be. But the case is the case is the case. Like I say, so I'm making a case for the US dollar. You guys don't talk about the US dollar anymore. It's like, well, it's a thing and it's there. And what else do you want to say about it? And if you want to do, like we talk a lot about stocks, right? Like if all you're doing is looking at the chart and the price, you're doing it wrong. If all you're doing is looking at the Bitcoin chart, you're doing it wrong. Look at adoption. Look at user growth.

1:12:58Look at wallet growth. Look at hash. There's a whole bunch of metrics out there that will tell you if it is being used more or not. If it is being used more, it will grow in value. That's my thesis in a nutshell, right? So that's, don't at me because it's down 10%. By the way, I only get messages from friends when it goes down. There's crickets when it goes up. You know what I mean? But either way, it's dumb, right? Like that's measure the very good stock pickers are very good stock pickers because they evaluate the business and then they make a view on the stock price as to whether that's fair or not.

1:13:29Do the same with Bitcoin. Oh, and the final thing is Bitcoin, not crypto. I know it makes you sound like a purist ideologue, but again, do your research, you'll reach the same conclusion. If someone is trying to sell you internet 2.0 and you laugh and slap them in the face, that's the same reaction when someone says, oh, I've got the new Bitcoin because you can guarantee someone's scamming you 100%. Important. And just again, we'll wrap this up just context-wise. You had in a past life added other cryptocurrencies to your Bitcoin holding. Oh, I held some Ethereum. That's right. Could you believe it?

1:14:04And you've changed your mind on that based on what you've done, which again is that kind of idea of the assets specifically. So it's like the analogy, it's both a nice analogy, are not very useful. Shares, just because you like shares, I mean, every company with listed shares is worth buying. And the fact that one company goes broke doesn't mean that shares generally are terrible. The same is absolutely true of crypto, except that, Ram would make the argument, I'm putting words in your mouth, there really is only one reasonable token. It happens to be a cryptocurrency, but that doesn't mean all cryptocurrencies.

1:14:34You know, it's like a square is a rectangle, but a rectangle is not a square. Same kind of idea, right? Yes, it's a cryptocurrency, but just because it is doesn't mean all cryptocurrencies are therefore worth your time and effort. If your crypto has a CEO, it's a scam. If it has a marketing department, if it has VC backing, it's a scam, right? There's no CEO of gold. There's no institution for oil. You know, like their commodities, a commodity by definition is an asset without an issuer. And that's what Bitcoin is. It's the only one that is that. So it's kind of, you know, anyway. everyone gets everyone gets the price they deserve I will say mate if Bitcoin's bought us nothing else it has bought us a million memes oh the best memes yeah it's so good alright that's excellent thank you Bill for the question that's it for this episode I mentioned at the beginning but I'll mention again at the end if you've got any questions for us to answer throw them our way particularly in the next couple of weeks info at fool.com.au is the best way to do it I mentioned I get out of track out of sync with my questions I do I try and keep them reasonably sequential.

1:15:42They get sent to me by our member services team. So occasionally I screw it up. But if I did today, then, well, it was a nice comment. It was a compliment. So we got that twice, rather than criticism twice. But yeah, that's why. Info at fool.com.au was the easiest way to get to us. We did get them on Insta and Twitter and Facebook sometimes. And I try and integrate them well, but that's where I start to fall over. So yeah, help me help you. If you email, that's probably the easiest way. I know it's very old school and the cool kids doing different things these days, but I'm a simple man. I can't keep track.

1:16:09So until next Friday, which I'm sure Ram will come back. There's always the chance. Now that you've invited Bitcoin questions, I am so mad. Exactly. I may not be. We'll see how we go, but if I am, we will see you on Friday. Until then, full on. Cheers. The Motley Fool and people appearing in this program may have positions in the companies mentioned. General advice only. Please speak to your financial professional to understand how it may pertain to your situation. Subscribe to the free newsletter at fool.com.au forward slash listener. The Motley Fool operates under Financial Services Licence 400691.