Mailbag: incl. The kids are alright: Part 2. December 31, 2023

0:10Welcome to Motley Fool Money, our very special Sunday morning mailbag edition. I'm Scott Phillips. He is Andrew Page Esquire. Mr. Page, how are you this morning? Very good. Very good. Last day of the year. It is the last day. You know what? I was going to say, mate, I was going to refuse to do any more podcasts this year. I figured. I've had enough. No more this year. I'm done. I'm done. Do you do those New Year's jokes or am I the only really lame one around here? Well, the classic, of course, is I will be doing plenty of see you next year to the kids and to the family. I won't stop until I get plenty of eye rolls.

0:46The morning afternoon, you're like, oh, I haven't eaten anything all year. Gee, I'm hungry. Or I haven't seen you all year. Not funny, Dave. Wasn't funny yesterday. Wasn't funny last year. Not funny today. It's funny to me. It's funny to me. I'm not going to stop no matter what. Mate, we've got a lot in the Motley Fool Money mailbag. So I thought we might get straight into it. We are pre-recording this episode. We're pre-recording a couple over this period. Right now, hopefully, I'm somewhere down the New South Wales South Coast. Hopefully, having decent weather. Hopefully, my own bloke has caught a fish because he is just, he's 10.

1:21He's mad keen on fishing right now. He's already booked me up to do morning fishing and night fishing and afternoon fishing. And, Dave, can we fish every single day? Yes, maybe we can fish every single day. So, I assume by now I'm probably well and truly overfishing. But hopefully, he's having a good time. And hopefully, we've had at least one dinner of maybe some South Coast flathead. We'll see how that pans out. What were your plans over the break? uh my plans are really to do as little as possible to be honest with you i just i'm um i'll catch up on some reading uh just just maybe i shouldn't admit this on a finance podcast but just not think about the share market for a little bit right like you kind of need to tune out and it's it's the the market actually trades most days over this period it does yeah so you know um One thing is always interesting to keep your eye on is it is a good time to release news that you're not thrilled to release, but legally are obliged to release.

2:19So that can sometimes keep it interesting. But yeah, other than like a bit of drama or whatever, I'll be trying to sort of minimize all of that. Nice, Matt. Beautiful. Hey, let's get to our first question, which comes from Guy. This is fascinating. My question to the podcast machine, he says, would be in relation to the new Sigma Chemist Warehouse ASX listing. i feel like this would be a business i would like to invest in you know my own experiences shopping there however with all the hype around this listing i'm worried i would be paying way too much so his question is this ram how do you separate hype from reality in a stock yeah gosh that's a good question um the good the thing about any this isn't the appropriate word but they say that behind every bubble there's a nugget of truth you kind of need you need something that's at the very least sort of plausible like for for the for that exuberance to sort of manifest and i don't want to suggest for a second that's why i said the word is wrong but the sentiment is still there in the sense that you're right there's a lot of hype around it and what does buffett say you usually pay up for it for a cheery consensus yes um having said that i haven't done the work and i think that's the answer to the question is do the work and have an independent view you will find that that there are actually you know lots of examples of where there is hype but it's not unreasonable hype you know like i remember gosh what's a good example i remember in the early part of the century, speaking of things that make you sound old, where there was a lot of hype with REA group and car sales.

4:06Facebook and Google. Oh, yeah. I remember being on Skybiz when Facebook listed. And it was a PE of 100 in the prospectives. And I went, that is the dumbest thing ever. And you know what? Actually, it listed and then the price came crashing down. Told you so. And I was like, actually turned out it was an incredible investment. Even though you'd suffered that initial dip. And the reason was is that they were able to float, in Facebook's case, at a high, what would be considered a high multiple traditionally, relative to averages, because there was so much latent growth in that business. And the business delivered on that end more in such that you could, I don't know what the P is now off the top of my head, but it's not that.

4:50so you've had this massive multiple compression and yet and yet you've still done well as as a investor so it is i guess what i'm saying here is it's easy to be cynical and go oh there's too much hype you know some sometimes sometimes the hype is there you and i were both i think right and wrong when it came to afterpay in the sense that the the it looks how do i put this it It was sort of like it looked dumb in a lot of different ways. And yet, objectively, it did win a huge amount of market share and their revenue did go to the moon. And it was sort of like, huh. And I think people, contrarian slash value investor type people, mindsets, are always scared of these kinds of opportunities because they just feel exuberant.

5:41They feel bubbly. They feel wrong. And we're just not comfortable in doing that. But if you assume that everything is going to be like that, you're just going to miss out on a lot of opportunity. Sorry, this is a long answer, so I'm going to finish it up by saying do the work. So forget about the share. Who cares what the share price is, right? Here's a combined entity. They've got a lot of material out there in terms of what the plan is. Our combined entity is strong because we think we can do this. I think I read something about plans to expand overseas and all the rest of it. so you you need to come up with a uh and if this sounds like hard work i'm sorry but it kind of is um but but you know it's what you have to do right and and you can do it in in more you don't have to be super sophisticated about it it's just like what what do you think the pro well they'll probably tell you in fact in a lot of their material what's what's the um pro forma they call it uh per share earnings like what is as a combined entity if this was a combined entity last year what was the per share earnings okay there's a good starting point how much do you think it can grow grow that by that amount by say three five years ten years if you want and apply the multiple work backwards right you'll you'll come up with a number and it's a very rough and ready number but you've come up with a number and you've tied that to as i often say that a business expectation in the per share earnings growth and the market expectation in the pe and um it'll give you something to sort of work with.

7:03If you can do that under a variety of scenarios and the current price looks reasonable in light of that, then buy it. Even if there is a lot of hype around there. On the other hand, if you think, wow, a lot of stuff has to go really right for this. Most Australian businesses do not succeed when they venture overseas. It turns up torching a lot of capital and the rest of it. You might think, not now. Interestingly, that is work that is never wasted. I used to always get annoyed when you do all that work and go, oh, it's not a buy. What a waste of time. Yeah. But it's brilliant actually because now I know or at least I've got a line in the sand somewhere.

7:45And I don't know what the market will do, but I know that if the market ever got to that line, well, now I'm interested. Maybe I'll go back and dust off the spreadsheet or re-examine some assumptions. But as with happened with Facebook and as with happens with a lot of things, yeah, you can sort of get this big sort of expectation there, but you'll often get a chance. And all you can be is opportunistic, but you have to be opportunistic relative to your independent assessment of what value looks like. So, yeah, I haven't done the work on it and I don't know. Yes, Chemist Warehouse is a great business.

8:23Sigma, I did do a bit of work on back in the day and I thought it was a pretty ordinary business because it's a wholesale ultra low margin.

8:36They delayed very necessary investment into warehouse logistics, CRMs, just a lot of back-end systems. My investment, and I'll talk about this. Sorry, man, this is the whole podcast. It's going to be me just monologuing. One of the best investments I ever made was API. Yes, it was. Back when I worked at the firm. Yeah, yeah. Yeah. Now, and the thesis, this is a really interesting setup here. And this is something to look out for. When you looked at the historical figures, it didn't look that different from Sigma in a lot of different ways. But they had recognized that they had underinvested for a long amount of time.

9:13And so they had made big, serious enterprise resource planning type system investment. Multi, tens of million dollar investment that took multi years to sort of do. They always go wrong. If anyone's ever been through this with an organization knows it. You know, the SAP system or the Oracle system was always, you know, just a nightmare. But they'd done the hard work. And obviously, as a business, when you're spending all this money, you're making the investment. You look at the cash flow. It's like, wow, all this money is going out the door. Nothing's coming back in. That's right. But you could see that it's just like, well, once this investment is made, they will be able to operate much more efficiently, much leaner.

9:51They'll be able to deliver better service to their customers, et cetera. That was at least the hope. And it did. And then Sigma sitting on its hands for ages that just got complete, they suffered a lot as a consequence of that. And I guess they have, I think they did eventually see the error of their ways and they have caught up on a lot of that stuff. But anyway, I'm just not a huge fan of that business. Although I do think Chemist Warehouse is a great business, but it's also, So it's also, this was a business that exploited a cozy oligopolistic, I can't say the word. Oligopolistic. Thank you.

10:32You're welcome. Oligopolistic scenario amongst the pharmacy sector. I'm trying to choose my words extraordinarily carefully here. And they exploited that to great advantage. So now it's like, if you're going to choose between a chemist and there's like a couple that are close, but you probably go to the chemist's work. Cause it's going to be cheaper. Yeah. More range is going to be cheaper. Yep. Yep. And then they decided we're just going to take a lower margin than everyone else. Like everyone else went, Whoa, Hey guys, we've got a good thing going on here. It's like, yeah, I don't care. Whoa, whoa, whoa.

11:02There's an unwritten rule that we're all going to like do this. And like, yeah, but we're not good on them too, by the way. Cause that's, that's capitalism at work. so anyway what I'm saying is they shot their shot and it was a great shot to shoot but now what um you shot there's no more shots to shoot how do you shoot yeah unless it's a different shot to shoot does that make sense mate that's a long diatribe I think it's a really good summary um a few thoughts uh so I had someone on Twitter whinge about the chemistry out sigma merger is it was going to get rid of competition and there is some real value this is i'm a teachable moment let's call it a teachable moment because the person on twitter not not unreasonably right you see a few players in a few big players in industry they're going to merge therefore there's gonna be a reduction in competition now there may well be for what it's worth but your point about that is is really important right because you take out chemistry out you take out sigma and you say right when there was no when there was thousands of individual independent players in the pharmacy space literally thousands you know we the difference between structure and the actual reality of the of a sector itself so you would you should expect if you're if you read the economics textbooks you've got i don't know how i think it was 5 000 at one point independent uh individual chemists yeah it would have been something and the chemists can only be owned by i think you can only own a certain of two or three chemists per person anyway i used to work for blackmores by the way for this this is the background so i know a little a bit about this sector there's 5 000 chemists and there was zero price competition yeah and now there's fewer of them now at some point if chemistry house ends up with 95 share they'll probably stop competing on price so it's it's not it's not unreasonable to say hey should we let the merge i don't know i don't know the answer from it from a competition perspective but it's absolutely worth saying that chemistry house are not the big gouging profit profit maximizing entity here these are the guys who literally bought competition again not that a challenge they're the challenger it doesn't mean they deserve any favors it doesn't mean that we should let you know i'm not i'm not fighting their corner either i have no dog in the fight but when you kind of the the instinctive response of oh big guys doing this they're obviously it's like well you know not necessarily the competition was bought to the sector by them doing exactly that to your point mate it wasn't even i mean it was unwritten rule i suppose by virtue of the way it worked but the the suppliers would give a recommended retail price and the pharmacy would just sell recommended retail price because why would you not they it was originally designed as when you get a prescription i want to make some extra money so i'll buy the vitamins or the nappies or the talcum powder or the shampoo on the way out i'll make a few more dollars as a retail it's like cool okay that works and all of a sudden they did it more and more and more and made a squillion dollars and it was in no one's interest because the other thing about the the chemists this is why the structure of the industry is really important there were rules about how many you can have in a certain geographical area so these guys were supported by government policy the pharmacy guild by the way is the i was gonna say that's the word that we haven't used yet is the pharmacy they are the most powerful political force in the country in any in any cvo maybe the union movement writ large maybe the bca the business council of australia writ large in terms of like a you know a next level down size wise these guys wield incredible power and so yeah there were there were massively anti-competitive rules in place chemist warehouse effectively had to do what they did but given those rules and still try and make a way to find a way to win this one yeah and so far they're doing pretty and they really flow i mean as i understand me as i understand it they kind of tested the boundaries of those when he's yeah there's a there's a structure the the corporate structure for the the uh franchise is different from the structure of who owns the actual stores themselves yes not miles away from a harvey norman-esque type scenario by the way terry white and ken martin all the others are reasonably similar um they just managed to have a very specific business model i had people who owned chemist warehouse franchise who want to be part of the franchise group because they wanted to get these deals so it's largely it's it's more a franchise model than it is a a company-owned model, just the way it works.

14:55But these guys brought competition to the market, right? And you know what? Whenever there's competition, it's the consumer that wins. Right. And this is why it's important. That's the point to make, yeah. Yes. But don't assume that the number of players is competition. Yes. Understand the industry structure in terms of how, where's the value chain, where's the negotiating power, where's whatever. The Guild have fought for, governments are so scared of the Guild. The government, I think it's about the seventh, they do a five-year what they call community pharmacy agreement. Yeah. which is basically a uh i think i can say this about offending anyone or getting myself in trouble because i'm talking about individuals um the government basically signed away uh any need to face political pressure from the guild by giving what they want for every five years and so every five years they go okay you have for another five years guys and they go good we won't have to uh put leaflets in our in our front counter saying how terrible you are anymore in fact when the current government no last government current government tried to change the maximum dispensing for 30 days of supply to 60 days supply there were signs at the front of chemists by saying oh the albanese labor government are doing this are doing that it was a very very very clear example of the guild using its political power to try and get the government to back down on this stuff anyway i went i went i went to get some eardrops for the little one the other day and they still got those signs there yeah yeah yeah 100 so anyway long it's a long tangent other than to say so understand the structure of industry not just in terms of how many players but understand where the power is wielded and what's stopping and starting competition back to the question about chemist warehouse i think you're right mate about the the hype and and doing the work i think what i would say which is not dissimilar to yours at all but but in terms of doing it the hardest part for many people me included excuse me is um it's being careful about the prejudices or the preconceptions you bring to that analysis because if you if you like the business already you're going to want to like it you're going to want the numbers to stack up some of the hardest things in this one is to say what was their model wow if they did that and that and that and that this could be worth a lot of money and if you can't be objective about how likely those things are then you're telling yourself something and so the first thing guy i reckon is to understand that there is that lack of objectivity and so you should just you should just assess the assumptions harder than you would otherwise am i really sure what evidence do i have how how really likely is it right because many people said oh i am p is grabbers love i am p it's going to do really well i'm sure i'll be able to turn itself around because you know as soon as you think it might or it will or you'd like it to you're already on that train yeah and we've talked a lot about companies we like you like some ram i like some unless it's can fill in those those gaps they're not very hard to do this is just crossword um you know we are obliged to wouldn't blush we are inclined to see what we want to see you know we can we can write off every bit of bad news is oh it's temporary every good news is say i told you it's going to work and and that's hard so i reckon two things firstly really work hard on making your assumptions objective and then to the extent you feel like you've been able to do it or not do it really apply a margin of safety to the number you end up with so you know they're gonna list let's say that's five bucks a share and you work out okay i reckon they could be worth six dollars a share okay we'll discount that back and say well hang on how likely is that right yeah how aggressive i've been in the assumptions how likely are those outcomes to happen not because they can't happen just because if you're recognizing yourself that you're less likely to be objective adding some objectivity either in the assumptions themselves or in the so-called margin of safety i think is a really really important thing to do just to make sure um that you you know you're getting what you what you want the good thing about chemist warehouses sigma is going to be heaps of coverage of this thing it's a great retail story retail as in you know newspapers love it because individual we all use chemist warehouse so we're going to be interested in the story so you know they're going to write the articles we're going to read on so that that's kind of nice there'll be heaps out there about what it's worth um i you know the other thing by the way is because it's not a new listing it's not an ipo it's a merger and the sigma board should be in theory getting a reasonable price the chemist warehouse board in theory should be getting a reasonable price for their part of the deal because effectively chemist warehouse is going to earn i think 80 or so of the company when it's when it's done so both groups it's in their interest to get a reasonably fair price and that should as long as no one's being hoodwinked and it wouldn't be the first time the board did a bad job of any of any company not to these two by the way any board did a bad job.

19:07The value should be reasonably accurate. So it really is the future that you're betting on here. What is the market expecting the future to look like? My last point, mate, speaking of that is I'm a big fan of reverse discounted cash flows, reverse DCF. Yes. Yes. I love that. So you put a DCF together and say, right, I think growth is going to be this and this and this, and therefore the shares are worth this. You can do the same thing, but do it in reverse and say, okay, if the share price is currently this, what does that imply has to happen in the future? Yes. Okay, well, they've got to grow up 25 % for the next seven years and then 10 % every year after that.

19:38Oh, that sounds a bit much. Or the current share price implies they're going to grow up 10 % a year for three years, then 5 % every year after that. Okay, well, that sounds maybe a bit more reasonable. Yep. Big fan. Kind of work backwards that way. Yeah, so assume that the current price for the sake of the exercise is right. Yes. Okay. Then for it to be right, I'm going to need a certain amount of growth. And then, so now I'm asking, can it do that? Not what do I think it can grow. Or is that within the realm of possibilities? And I guess that's badly phrased. Is that likely? Yes, it's probably in the realm of possibilities.

20:14But it needs to be. Thank you. Thank you. I just said very quickly, be careful. And I know I'm sure Guy's not doing this, but just be distinguished between the appeal the business has from a consumer perspective as opposed to an investor perspective. Qantas is great to fly most of the time, but we'd invest in it, right? And there's a million examples like that. So it's sort of like the customer experience is great. And by the way, that's an important thing. You want something that people like to deal with, but it doesn't automatically say that a business that can offer a good experience to you, the customer, isn't necessarily a good business from an economic engine perspective.

20:59The other thing, the other thing is also true, by the way. I had a mate who wouldn't buy Fosters back in the day because he didn't like the B. And it's like, that's okay. But if you're not the customer, don't bring your lens to it, right? If you're not a woman, don't shoot because you wouldn't buy skincare products. Not that only women do those days, but therefore there's no market for it, right? Yes. Et cetera, et cetera, et cetera. If you don't like a spicy food, it doesn't mean the spice maker's not going to work. So just to use both those, really try and be genuinely... Well, here's the thing.

21:27No one's truly objective. There is no such thing. But the more objective you can be about its market, not about I bought this I had a great experience or I bought this I had a bad experience but rather actually if everyone else had a great experience mine sucked or vice versa maybe that's telling you something yep love that love that hey mate we had a question from Mr. M oh the teacher Katimatide Primary School now awesome I'm hoping to get them a little bit of a preview of this one because the kids are going on break in fact by now they're already on holiday so kids if you're listening to this in advance have a great holiday if we don't manage to do it I hope you did have a great holiday he's promised you'll play it to them when they get back because the kids have got an update for us mate so okay mr m says hi scott and rantbo thought you might like an update from katamitite primary school we do now miss b apparently has made her first investment it was the iShares asx 200 etf we've encouraged her to pay herself first by putting money away for investing and she's trying we think coffee might still be getting in the way our real issue oh no is that she now wants to invest in the beta shares global robotics and artificial intelligence etf we think she should keep putting her money into the asx 200 etf until she has a nice stable base and then maybe try out the robotics etf what do you think of our non-advice i love the kids know we can't give advice Kind regards and a Merry Christmas and Happy New Year from the seniors at KPS.

22:57Now, there is a PS here. PS, we know you don't like the ASX share market game, but humble boast time. We had two students in the top 100 for Victoria. And they aren't even grade sixes. Well done. Awesome. PPS, Mr. M's son bought a company called Stealth Global a few months back, which has since doubled and Mr. M didn't. The poor man can't win. Well done to Mr. M's son. Well done to Miss B for getting started. Now, the background of this is by the way, after I got that, I did, I replied, I love these questions. Thanks, mate. I'm starting to wonder if Miss B is real though. I thought it might be one of those.

23:38No, she's very real. She's our junior teacher. He even sent me a photo of Miss B to prove that she exists. So I can say for anyone who else was wondering out there, Mr. M is not just pretending there's a Miss B so he can get away from making his own mistakes. You know, when you say, oh, a friend of mine, you're really talking about yourself. Miss B does exist. So that's a positive. Kids, thank you for the second question, by the way. We hope you are having a good year and hope that the holidays are going to be great. Mate, what do you reckon? Should Miss B, we can't tell Miss B exactly what she should do, as the kids know.

24:06We can't give her financial advice. But should Miss B think about adding to her ASX 200 ETF or is it time to buy some robots? i mean i get it like i'm pretty bullish on ai and robotics like i really i'm actually just over the weekend i was reading some more stuff it's like wow like they're here right like this is it's no longer science fiction sort of uh anyway i could go on for ages so i don't i don't think it's a dumb thing to to like it was 1984 and you were doing you know an ai like this is no progress It's a bit of the AI winter and there's just nothing that's on the horizon, let alone about to be commercially viable.

24:47Yeah, it's just all hope. Things are a lot closer now. But it is what you usually see when new industries emerge is you see there's some kind of technology enabler. It's like, well, we couldn't do it. Now we can do it. Oh, we can do it. And everyone rushes to do it. and usually speaking there's i mean as the as the the land grab as they call it is on some company manages to get a little bit of scale first maybe they have better funding and you generally see for every hundred companies that start you might get five or six that that are left standing and then maybe you know it depends really on the type of the industry but in a lot of industries, you're left with one or two kind of players.

25:32I don't know if that's going to be the case here, but it could be. And generally what happens is you can't pick it at this early stage, right? Like Google seems like the most obvious thing in the world when you look back in hindsight, but back in the Ask Jeeves days and the Yahoo days, it was anything but obvious. Yeah, if you explain that to the kids, mate. Oh, they were the very early browsers and search engines. So the reason when you use Google Kids, there was a time when there was a search on actually. And in fact, Google wasn't even one of the first ones out. No. There was Yahoo, there was Ask Jeeves, there was AltoVista, probably a couple of others too.

26:12Internet Explorer was, because it had the Microsoft backing, right? So that was the browser. Yeah, that was a browser for Chrome and Safari and other things, the age came out. Yep, yep. And, you know, and so, but, you know, now we know there's really this Chrome and then there's everything else. um so so i'm only i'm only say all of that because i get it i don't want to sort of go haha that's a really dumb thing you know it's not i get the intention and if miss b has been following the the progress there it's a very exciting area that that is on the on the cusp of commercialization i've said before i think it's really not that far away before we all have a robot in our house you know much as we would look at buying a family car it's like i would like something that will do the dishes and the laundry and the cleaning and then like and again And I know I feel if you haven't been keeping up with this, that sounds like Andrew, that's 50 years away and always has been.

26:58It's actually not. It's actually really close. Anyway, anyway. But these ETFs, as we've often said, are very cynically created because BlackRock in this instance goes, oh, everyone's super keen on this. Let's create a product that gives everyone exposure. The trouble is, is that because it's so early in this race, and the way that they're going to invest in this thing, it's almost guaranteed that you'll get the winner in that basket, but you'll also get all of the losers. Assuming they just win it, by the way. Unexpected things can absolutely happen. So I'm with KPS, the kids there. I would say focus more on the broad-based kind of stuff.

27:42Yeah, it's boring. And by the way, in a couple of years' time, when this other ETF goes to the moon, you'll be kicking yourself because there's every chance that could happen or not. I don't know. It's a coin flip almost at this kind of time. But just if you want to have a bit of fun, just recognize that it's much more speculatively based than investment based at this exact point in time. Yep. I had a really nice summary, kids. I reckon you're right too. You know, so I think you can build portfolios in a whole lot of different ways. I think if you're going to build a portfolio where you're picking, you're trying to pick stuff that's going to be market beating, right?

28:20Because if you're not going to, the market's going to grow in all likelihood over time and so that's your that's your starting point if you can do better than that you should if you can't do better than that then then get the average and do really really nicely so as you say miss miss b's already already chosen the uh the the asx200 etf which is great if miss b is then going to go and pick i don't know 7 10 15 individual investments to to add to that etf then that's completely fine some people never own an etf in their lives and they think they can pick stocks if they can and they do really well that's that's fantastic i really don't like as you guys might know i really don't like um these so-called thematic it here so on the pick a theme and ram's already kind of talked about that and talked about why um the if you're going to do that you have to play you know if you said i'm going to buy an australian company and i'm just going to you know which one would you buy well you'd say okay well i don't know how big is it is it going to grow how much money does it make all that kind of stuff and then when you say i'm going to buy a robotics etf the question is well how profitable are they how profitable are they going to be is the price at a good price or a bad price is you know is it attractive or is it not attractive uh if you said look i'm going to buy a pair of jeans because that's a good idea i'd say yeah great but then a 20 pair of jeans and 150 pair of jeans are very different things right uh you know i might say yeah if you get a good quality pair of jeans 20 bucks go and buy them absolutely look after you if it's 150 bucks all of a sudden i'm gonna be like you know what you're probably paying too much for that even though they're still jeans there's a very, very big difference the price you pay.

29:45So I reckon you are better to, if you're building out an ETF portfolio, use these really broad ETFs. The ASX 200 is a great one. There's some international ones, by the way. If you want to get some exposure to some great American companies, rather than robotics as an industry, I'd be looking at, for example, the US stock market. Think about some of the great companies that you guys will use every single day. We've already talked about Google this episode. uh google amazon facebook netflix um tesla uh what else am i missing around that the kids all know there's some some wonderful wonderful businesses there and so if you're looking to build out a portfolio um there's some great ways to to use etfs that are really broad that is they cover a heap of different companies a heap of different industries not just robotics and the costs are pretty low too which is which is pretty good generally speaking if you're buying those kind of cool, trendy ETFs, you're probably paying a decent fee and you really don't know what you're getting.

30:40You don't know what you're buying. You don't know what they're worth. So it can be a bit of hit and miss, a bit of a gamble, really. And some people want to do that and that's okay. Not our job to say they shouldn't do it. But if you're looking to build a long-term portfolio to really make some money for you so you can maybe not have to work for quite as long, maybe Miss B wants to retire a bit early or enjoy the good life or whatever else she wants to do. So the more you gamble, yes, the chance of winning is, if you win, you win a lot of money, which sounds great, except you're probably not going to win, or at least you run the risk of not winning at all, maybe even losing, in which case you're worse off than if you hadn't done anything at all.

31:14So, Miss B, you do what you want. Enjoy your coffees as always. But I would probably go with a broad-based, low-cost index fund. Again, I can't see what you should do, but a global ETF that has a lot of international companies or American companies, something like that, really broaden that exposure or add to that ASX 200 if you like that. Some great companies in Australia. No reason to avoid that one either. Yeah. I mean, it's a choice between going for something that's guaranteed to be average versus something that might be great. And when you pitch it that way, it's like, well, I don't want what guaranteed to be average.

31:57Well, hear me out. Hear me out. The average is pretty good. Yeah. The average beats after fees most quote unquote professionals. Yes. And it's very much the hare and the tortoise kind of thing. So it's not like I think any of us are under any illusions that this, you know, buy a broad-based ETF and, you know, there's a Lambo waiting for you at the end of next year. Like probably not. But. I think we said definitely not. Definitely not. Definitely. Right. Well, you know, who knows? Who knows? money taps get turned on and you know the power put helps markets go to all, who knows, I don't know but it is something where I want to mention this because you know this podcast will be out on the internet forever and there's every chance, there is every chance in five years time it turns out that it was the best ETF that you could have bought you know so I don't want to say oh this is definitely a bad investment it's not, it could be great it really really really could be great but but it also could be bad like or relatively bad you know awful so even if it ends up giving you five or six percent compound per annum but if you just like went with the boring vanilla broad-based etf got you eight nine percent it's kind of like that's a big opportunity cost so i feel as though it's sort of the funny thing with thematic etfs is if you're getting to that level where you've got that the skills the experience the insights to sort of have a firm view on industry dynamics and companies that are well positioned to benefit from us kind of like you might as well be a stock picker right like that's right exactly exactly you know so and and by the way we would encourage that we think it's an incredibly worthwhile endeavor for those that are prepared to put put the work in into it but it's kind of like you either have to say well am i there yet and maybe miss b is so i don't want to make any assumptions in which case fill your boots but but then why why bother with the etf go and go and look for the companies that you think have the really best chance of doing it.

33:54Maybe it's Tesla. The Optimus bot's pretty cool, actually. Yeah. Otherwise, just keep it easy. Nice. Hopefully that helps kids. And again, have a wonderful, wonderful break. Mate, we answered some of Devo's questions. In fact, we answered one of Devo's questions last week. And there were three more. I see we had four questions that we spent so long on the first one. Oh, yes. So, Devo, we didn't forget you. Well, it sounds like anyone might have forgotten you. I didn't forget you. Andrew doesn't have the questions in front of him. He's entitled not to remember these things. He outsources, and that means I've got to do the job.

34:26I'm white gloves over this side of the mic. Exactly, exactly. Here's the second question from Davo, mate, from last week. If a company pays out most or some of its earnings as dividends, and then only reinvests some capital back into the business for growth, then isn't a DCF a highly inaccurate valuation method? Would we not need to adjust the DCF according to the forecasted proportion of capital reinvested? Oh, what a great question. It's a meaty one, but it's a good one, isn't it? Yeah.

34:59So what you're doing with, I mean, it's a highly idealized scenario that you're mapping out. There's the question of what the company can generate and how much it can grow. Yeah. And then there's the question of once that has been achieved or not, what do you do with the money you actually have? You know, so it's sort of like when a company reports their profit in this particular year, it doesn't say anything about what their capital management strategy is. We made a dollar per share in profit. Great. What do you do with that? Well, we could pay it all out. We can actually pay more than it all out if we've got enough in the bank.

35:32Or we may pay none of it out. It doesn't matter. We earned a dollar per share, right? So the question is more about what will a high payout ratio do in terms of the growth potential? And I think the listener is right. If you're paying out most of it, unless you're in a monopoly-type situation or very privileged situation, you will find that you are hamstrung a little bit on your growth. And by the way, that can be a good thing. too much money, so much money, goodness knows, probably trillions have been blown up through the arrogance and hubris of management that wanted to take on the world. But incredible success in a given niche and then thought they had the, you know, the power of God and then invested in all other kinds of dumb stuff that just blew up.

36:23So sometimes paying it all out is the smart thing to do. But I would put it aside. I would sort of say just focus on what the company, how it can grow. Now, whether that's just by continuing organic growth through what it's doing or investing in new areas or just investing enough to keep the existing capital base functioning, you know, keeping the machines well-oiled and the warehouse still standing, that kind of maintenance kind of capex, they call it. That's kind of cool. But it's really a question of how does that help you grow? And then, yeah, I'm kind of tying myself in knots here. Maybe you should help me.

37:02No, I think you're nailing it, mate. I think you're absolutely nailing it. I think it's a great question, Devo, because it asks the questions of what is the company doing with the money and therefore what's worth based on what's left. And I think the thing with the DCF is it implies, as Ram just said, that the cash it generates is part of the next lot of cash from the year after the year after the year after that. and so whatever growth rate you come up with says i took the cash and i use that cash and here's what's left now in a perfect world as ram says if it kept all the money it could grow faster because otherwise it shouldn't keep the money and if it pays out the money it can't grow that fast a because it's paid it out but b because it figures hasn't got the use for that money so in either case the future year's growth is allowed for and frankly even if it keeps money it doesn't use it builds up a cash balance it's kind of a slight drag because it's probably only got to get a few percent in the bank rather than maybe you know eight or ten percent that if it paid it out to you you could reinvest it at but it's kind of keeping that cash anyway so as long as it doesn't as long as it doesn't torch the money the company's still worth something you know if i if i'm if i'm a dollar a share i get paid nothing in dividends and the shares are still worth a buck or i can pay 50 cents in dividends in which case the shares are worth 50 cents the dividends worth 50 cents my total wealth is still worth a dollar so in theory and again i watched the yogi bearer um uh documentary on the plane actually on the way back from the u.s a couple of weeks ago which was fascinating oh is that oh what's it called i didn't oh i don't honestly know about i think it's called yogi i know it's called it ain't over is what's good it ain't i am so checking that out one of his first one of his first it's largely a baseball movie actually rather than a rather than a um a quotes movie but it's a combination of both right okay um one of his famous quotes is it ain't over till it's over yeah which funnily enough was a kind of a yogi bearer ism at the time it's actually moved past everyone's like yeah that makes sense uh where at the time it was kind of a bit funny anyway long story short i was gonna say this yeah i was gonna say i thought it was lenny kravitz song but i'm not gonna sing another one yeah i know i didn't think it was lenny kravitz there you go anyway back to back to finance um yes so so i was gonna say in theory there's no difference between theory and practice but in practice there is which is my favorite yogi bearism um you know what my one is very quickly it's like you don't i didn't realize how easy this game was until I got into the commentary booth.