Mailbag: incl. The next Warren Buffett? February 18, 2024

28:44If the reverse is true, then the business is going to get better. And you can afford to allow for that. I think, so do the work absolutely. And Ram's absolutely right about doing it bit by bit. I would just kind of, just before you go too deep in it, ask yourself, firstly, what's going to happen? The other thing is, by the way, whether you know or not what's going to happen. um there's a great i've sold i haven't used this example for ages ram um there's a great example and i think it might be from the little book of behavioral investing but i can't remember um they they gave people five data points and asked them to forecast or estimate a future or a result or an outcome can't remember what it was and people made their guesses and they were asked them to also rank or rate the confidence level i had in that guess so okay i think this is going to happen and i'm 55 confident or 50 or 20 whatever it was then they gave them another 15 data points and i'm making those numbers up but it's roughly directionally correct and they said right now what do you think the outcome is going to be and they gave a guesstimate and now what's your level of confidence and they did that what the what the researchers found is that the guesses were no more accurate with more information but the confidence level went through the roof and so you ask yourself hang on i felt more confident even though i wasn't more right why because more data points made me feel like i had more control more more ability to assess an outcome and i say that only because part of in my experience thus far i reserve the right to change my mind um part of my experience so far is that we need to be really careful not to over complicate things and in doing so convince ourselves things are true or right when we're just really responding to having more data points of stuff um so i hope that i hope that makes i hope that makes sense i like um the way you're doing it i think you're absolutely right to do it that way i just would be mindful of if you're not sure you potentially run into areas where you try and be more clever and then you convince yourself you're probably more right um keep it as keep it as wide as you can without doing it recklessly in other words if you if you do know they're different businesses if you do know their rates are going to be different then yes as ramp says analyze them as different businesses and work out what comes next you should absolutely do that just be mindful not to overweight your confidence level because you feel like you've dug deeper and therefore your answer must be better.

30:55Because statistically, at least with that piece of research, and I would argue it's almost certainly true in investing in general, more information doesn't necessarily add to accuracy, but it absolutely adds to, frankly, misplaced levels of confidence. Yeah. Well said. Any more on that, mate? No, no. I love that. I have nothing to add, as Charlie would say. Here's a question from Martin. Martin, please don't throw me under a rock, under a bus here. I'm always excited when you preface it by that because I know it's going to be something that you're going to hate and I'm going to love well I don't know about that but he says this got around I've been contemplating the fascinating dynamics between property and share investments in Australia it's my site prompted by the recent economic shifts and your insightful discussions on the what did he say around?

31:44on the pod machine pod machine well done thank you from my perspective it seems that these two investment avenues are gradually diverging, each unveiling distinct challenges and opportunities. So I like the way that Martin's addressing this one. On one side, the property market appears to be adopting a more exclusive stance, with prices escalating and accessibility diminishing for individuals like myself and the average worker. The barriers to entry create an impression that property ownership is reserved for those on the top economic bracket and those already well-established in the game. I'm thinking boomers and their kids poised for the property relay, he says.

32:21Better with the property ladder, I suppose. Shifting our focus to the shares scene, says Martin, it's evolving into the more approachable friend at the financial party. Smaller investments, quick liquidity, and the ease afforded by the information boom, tech advancements, and user-friendly brokerage platforms make diving into shares feel less like rocket science and more like a casual chat. It's the kind of financial gathering where even first-time investors can jump right in. considering this scenario says martin one might envision that over time the property market could transform into an exclusive club for a few while the doors of the share market swing wide open welcoming a broader spectrum of new investors and leading to a notable increase in volume have you ever envisaged a future scenario where the australian investment landscape significantly polarizes in this manner i'm keen to understand the potential outcomes both positive and negative, such as a significant portion of average income individuals entering retirement without property holdings and the possibility of economic bubbles emerging due to the large influx of new investors and capital into speculative and non-speculative shares.

33:28Thanks for your time and dedication to always making finance more digestible. Full on, Martin. Isn't that a great question? Gosh, there's so many different directions. I know. Exactly. Let's see how we go. Let's try it. So I do think the demographics are shifting. When you and I got into this game, mate, any financial service-oriented provider, their clients are 90 % male and they're 50 plus. That is just the demographic because I don't know why. It just is. And generally, well or truly above average wealth. Oh, yeah. Yeah. But I reckon it has changed over time for some of the reasons that were just raised.

34:11and largely being that a lot of people are just sort of locked out of property. So I was like, well, I think property is still the goal. And it's actually a very noble goal because I want to live somewhere. So I might go on that kind of ramp. But it's somewhere that I can – I'm not keeping my money in the bank where inflation is going to eat it away, you know, quite significantly. So I've got to invest. And it's easy to invest now. So I think we – I know with my company, we're seeing younger and younger people get more and more interest. And I think that's actually a real part of the reason. And I do think that it – and on the other side of it, once you've gotten to that stage where you've built enough up through your savings and you're investing, say, through shares, and you buy a house, it is such an incredible stretch to get into the housing market that that's it.

34:58Your only asset is onto the property ladder. All of your economic energy is dedicated to sustaining that mortgage and will be for the next 30 years of your life. And so it's a great shame because there's capital that's tied up in that. And again, not that housing isn't a noble cause and a very basic and understandable desire for all of us to have a place of security and shelter to sort of call home. But I'm not starting a business. I can't afford to do that while I'm paying this mortgage off. I'm certainly not investing in the share market. I don't have any money to invest in the share market.

35:34Everything's on this thing. And we as a society and as an economy are far weaker as a result of it. And yeah, I do think that a lot, well, my personal view is that I don't know over what timeframe, but over some timeframe, the later you get into this sort of, I was going to say Ponzi, that's not the right word, this ladder, you know, we discussed this on Friday, right? But the very notion of this is that you need more people to come in at the bottom to lift up your price to give you more equity and then someone to make room above you. You need that sort of escalator, perhaps more than a ladder, for that whole thing to work.

36:09And it's just such a stretch. Unless you have equity, unless you're more than Gen X or above, it's just, as I said on Friday, it's so unworkable. So I'm saying two things here. On one hand, yeah, that's good for the interest in the share market because people are locked out of the property market. but then it flips on its head once you do manage if you do manage to get into the property market because you ain't doing anything else for the rest of your life you're a debt slave like like so many of us it's depressing it is it's um it's a real challenge this one mate i so i'll take i'll take a slightly different perspective martin i think

36:48i ramey may disagree with this i the rate of home ownership isn't declining that dramatically i don't i don't personally expect there to be a dramatic shift in the rates of home ownership over time i think it'll continue to decline um now that again the thing about this is no point making the predictions because when i say that i'm saying if nothing else changes in which case you know like the famous steve keen bet of you know property price will crash oh yeah they didn't because someone the government did something like yeah that's kind of the point right So, you know, will the government do something?

37:20I don't know. I think the rates of home ownership will continue to decline very moderately slowly in absolute total population terms for an extended period of time. Frankly, we'll end up with boomer in it or, you know, kids are boomers inheriting the homes anyway. So kind of there's a cycle there somewhere. And there's a natural, maybe there's an unequallybring, but I just don't think it's going to be rapid. so i think i don't i don't share your view that it becomes probably actually becomes the um uh the remit only of the exclusive moneyed few uh in any relative sense i think there'll be more renters fewer owners but i don't think the percentages move that dramatically i so that's that's not on property um i i argued long and hard for a removal of negative gearing for uh residential property which gets me flamed on twitter regularly i don't really care um i think I wonder if the people who flame you have a negatively geared structure underway.

38:18Well, the thing is I've always said your grandfather. So I still don't know who can plant people. It's not fair. Why do you care? Yeah, grandfather. Everyone's happy that way. But if you do, they still complain about it. No, we still shouldn't do that. Well, why not? Well, because it's not fair to property investors. Well, they don't have to buy it. Anyway, that's a whole different rant. So I would get rid of negative gearing. I think we're talking about population. I think we need to resolve the housing affordability question, right? So the other thing is I kind of am a little bit optimistic that either through responsible governments or scared governments, eventually they do.

38:51Frankly, you mentioned the boomers being mollycoddled before Ram because they own the properties. That's what might have been Friday. That's absolutely true, except at some point if the ownership numbers do continue to fall, then the renters become a bigger group and then we end up with so. There's almost a, you know, you've said before inflation, the cure for high prices, high prices. The cure for housing affordability is probably housing affordability. it's probably, you know, at some level, there may be a solution. So I don't think we should extrapolate to the point where 5 % of people own all the properties.

39:17Maybe I'm entirely wrong, by the way. Maybe my kids hate me for saying that and being too, like, adagical about it. But that's my thought. On shares, Martin, I think the pros you absolutely highlighted beautifully. The cons for me are almost in the way you've described it, depending on which approach or perspective you take, right? So we say, to quote you, mate, quote, platforms make diving into shares feel less like rocket science and more like a casual chat. It's the kind of financial gathering where even first-time investors can jump right in, end quote, which is great in terms of access. It's kind of bad in terms of, so hang on, you don't really know what you're doing.

39:53You're just doing it because everyone else is doing it because it's an app you can do it on. And so that kind of easy access is a real challenge. I've said lots of times, this is heresy a little bit. i'm not sure cheap brokerage is actually a benefit overall right if i if i can if i can buy us on u.s shares with zero brokerage which i can through charles schwab that i happen to use uh i don't there's no um commercial relationship at all uh am i gonna am i gonna think as carefully as i have to pay 100 bucks to do it probably not you know there is friction is seen as universally bad because we kind of particularly by the the iconocrats and the the idealists you know any friction is bad because it's friction.

40:29It's like, well, okay, the behavioral economists might say friction points can be useful or not. Think about nudge theory, the whole idea of nudge that Thaler won a Nobel Prize about. If a friction makes you stop and think or changes the course, that's actually really, really, really useful potentially. Now we can argue about how expensive it should be and all that kind of stuff. I would just say, Martin, I love that everyone can access the market. I don't love that some of the gamified apps make it feel like, as you say, a casual chat. I mean, investing shouldn't be a casual chat. It should be accessible and it doesn't need to be harder.

41:03The financial types will make it seem so hard you couldn't possibly do it yourself. I don't want it to be that either, but I don't want it to be one of those, okay, I scroll through Facebook, then I swipe right on Tinder, and then I buy 15 shares in this company that someone mentioned at dinner last night. That's kind of not the casualness you want. A formal chat, This is why you've got to watch the GameStop movie. Oh, really? Dumb Money. Yeah, it's a great movie. I really enjoyed it. Okay. I watched it again. So, I like your game, Martin. So, I think there's... I'm glad investing is more accessible.

41:34I would love people to have made more of an effort to understand what they're doing before they choose to take advantage of that accessibility. Yes, that's a pipe drain. What impact does it have on the market, investment landscape? I don't think hugely, mate. Australia is so small as a share of the world's capital markets that I don't... People ask about, we've got a question about this somewhere else. We may address it some other point about the amount of super going in. You know, is it possibly distorting a little bit? Maybe. But if that money is not making massive, the peers in Australia aren't that different to the peers in the US.

42:04In fact, they're lower. That's why we've got compulsory super and they don't. I think we can reasonably suggest there is no direct, obvious, unavoidable implication or outcome. So I don't, I love the question, man. I love the thinking. I would be very surprised if the dynamics meaningfully change the investment opportunities for the thoughtful investor from this point forward. I do think it lends itself more to speculative bubbles because, I mean, again, exhibit A, Dumb Money, the movie. That is absolutely true. You see it all, even on the ASX. And again, not that the people are crazy to like these companies because there's always a nugget of truth to this.

42:46It's like, yeah, there's a decent buy thesis here and under a certain set of outcomes. And then, yeah, it absolutely makes sense to kind of buy. But they feed on themselves. These Reddit forums and Twitter, that was the phenomena that GameStop taught us, right, was that it is a lot of shrimp, I think it's referred to in the industry. It's such a pretentious term, something like that, where all the small quote-unquote retail players are there and they don't know what they're doing, but we're here with the big bucks. But in aggregate, connected via the internet and with zero barrier access, it's actually proven to be a bit of a phenomena.

43:23So to what degree, I don't know, we can argue that. But I think what it means for you as an investor who can enjoy all the great access that these things provide is to be wary of things that are running hot on a good story or plummeting because the groundhog saw its shadow and ducked back into its hole. You know, there are, I would, again, I'm always selfish when I see these things. I look at it through the lens of that. That equals opportunity for me. Yeah, that's right. And that makes me feel like, I want to be careful with that statement. It's not like I'm so smart that I can know what the real value is and no one else can.

44:02But I just think on balance, the more you see those distortions, if you can be the person who looks a little further into the future and can be a little bit more emotionally disciplined, not a lot, but just a bit more than the average, it can actually be a really good thing. But this is the world we live in. And soon the bots are going to be out there doing it to an even greater degree. So it's going to get wild. And come back to the basics. Know what you own and why you own it. And be careful with the tool that you have. You've been given a very powerful tool. But it can be a force for good if you allow it to be.

44:34Sounds like a lightsaber. Yes, exactly. Exactly. It's exactly what it is. It shows the light side of the force and the dark side of the force. I'm going to go up there. My Star Wars language doesn't go deep enough to add to that analogy, so I'll keep moving. Mate, we didn't actually, I just remember we didn't answer the previous question. Do you invest in anything outside shares, property, and Bitcoin? No. Beanie Babies or a massive wine cellar or a couple of Bentleys locked up in a garage somewhere? Look, I don't. I've actually been very critical in the past. It's like, why would you buy an antique car?

45:05It's just silly, nonproductive assets. My view has sort of evolved over the years, let us say, on that. Is there a particular reason? Is there an oppressive asset you own that you may have changed your views on? Well, the epiphany for me has been that value is subjective and in the eye of the beholder. I've said before, my mother-in-law collects antique dolls. They're the creepiest, weirdest things you've ever seen. I don't want them. I don't want to be in the same room as them. I wouldn't buy the whole collection for a dollar. I don't want them, right? I would pay you to take them away from me.

45:37But does that invalidate what she sees in that? or the fact that there is a community worldwide now connected via Facebook and everything else that love these things and trade these things at great value. And it's just like you can say, oh, that's dumb. You shouldn't like that. Well, they do. And some people like wine and some people like whiskey and some people like cars and some people like a painting by dudes that died, you know, 100 years ago. It's just canvas and paint. So I think it's okay to go in that. But only if I think mainly if you've really got a passion for – If it's collectibles, I think it makes less sense unless you yourself have a passion for it.

46:14So you're going to get some, at least you're going to personally get some intrinsic value sort of from it. But the broader question is, do I think this thing will continue to be rare and seen as valuable? You mentioned Star Wars. Here's a hot take. Star Wars has long been seen as the ultimate collectibles. The kids are our age, Scott. If I kept my Han Solo figurine. That's right. In a box, yeah. Man, I had the best millennial falcon. It was so cool. It was massive. Anyway, it'd be worth$1 ,000,$2 ,000 today. I suspect that in another 20 years' time, 30 years' time, they're not worth actually that much.

46:53They'll have some residual value, but the reason they have value is that kids of the 80s grew up. Right. And they had money. Yeah, that's right. And it was very rare to get a Han Solo in the box or a Luke Skywalker in the box. Yeah. And so when you're with collectibles, beanie babies and pet rocks fads will will come and go picasso will like we go a thousand years in the future a picasso will always because it's historical and cultural significance will always have value so i don't poo poo collectibles as much as i used to just be careful that there's not a fattish element to oh how can i not mention nfts like oh yeah but what a fad and a disaster that that kind of thing was a lot of people with some monkey jpegs right now that don't look too clever.

47:38So by all means do it, but just be careful. Not for me though, for all of those things. Exactly. I can't add your points and I don't know anything or collect anything other than shares. So that's me. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

48:00Richard says, hi Scott and Ram. I'm a long time listener to the pod and a subscriber to both Motley Fool and Straw Man. Richard, you're a good man. Firstly, I just want to let you know your pod has been a great influence on how I approach my investing. You recently said that investment is repeatedly doing a few simple things right. You probably said it more eloquently than that though. I doubt it, Richard. Your pod is a weekly reminder to stay on track and it's been instrumental in helping me to do just that. If that means you say the same thing regularly, we are so much better for it. So I hope you keep doing it for many years.

48:34Thank you. Thanks, Richard. Very kind. To my question, I'm a 50 plus year old investor. I started investing at a young age, but I am a slow learner and only found the long-term quality thinking about investing over the last 15 to 20 years. Fair to say my results in that later period were light years better than my earlier investing. Quick pause to interrupt. Can I say that I think almost all investors go through that story arc? we all start off with the rubbish we all yeah well there are a few exceptions but i i think it's part of the journey and it's it's part of why you earn that longer term success is because you you made the early dumb mistakes but you learned from them you you re you um circled back you iterated and and in fact that never that process never stops so i just i just want to call that out because i think too often people think if you're not you're not you know bolting out of the gates then you're doing something wrong and it's not for you yeah good point i've said many times my first investing was a boss of mine telling me to swing trade mim baptized to mines back in the day because that was you just buy it you buy it when it's low you sell it when it's high and you keep doing that over and over again you make a fortune which was you know it would be sensible that's what it did but never did and that's the that's the challenge i was buying rubbish in the dot-com bubble yes oh yeah insane insane stuff sausage do you own sausage software shares i owned liberty one was the real dog that i owned yeah yeah oh no that wasn't good uh anyway All right, back to Richard.

49:56He says, My son recently turned 18 and I've been doing my best to get him to think about investing, money management and finances for some time. I bought the books, got in the Vanguard chart, even told him chicks dig stocks, but to no avail. He's just not interested. Other than continuing to hound him, do you have any tips, suggestions, torture techniques and or gaslighting you could suggest to get him onto saving and investing? With many thanks, Richard. Richard's clearly of the ends justify the means kind of school of thought which i can appreciate at least in this context yeah uh what do you recommend how do you how do you kind of get an 18 year old start paying attention i'd see i don't know if you can it's so hard like they're their own people almost at this point show me the boy i'll show you the man kind of thing like and i'm struggling with a 14 year old boy at the moment right who happens to know everything in the world apparently as an expert on every topic that you care to raise and and i just i i remember what i was like i mean some things you just have to learn and you just have to learn the hard way i was so slow in the penny dropping on so many of these things um and some people for you know it's not fair but some people are just wired differently some people are just really chill when it comes to volatility and and are really able to think long term and there are those of us that are just living the here and now you know and so there's no easy answer i would say the one thing you you try not to do is i i think there's something to be said for a bit of tough love if if the child the young man that young person never needs to learn the lesson they probably never will learn the lesson so if ever i win powerball what i'm not giving my kids a bunch of money right i think you will as you mature and grow up and and you know hopefully you as a parent lead by example will just realize that, huh, I shouldn't have perhaps bought that dumb thing.

51:53And if I did, I could have had this. We all say, oh, I wish I'd come to it earlier. Well, that's what our kids will be saying when they're older as well. There'll be a few people who are like, who was it, Ethan? At the start of the day, he was like, he's going to trump all of us because he was right there at the beginning. But I guess I'm struggling here because I would love to sort of say, ah, okay, so what you do is you tell them this, this, this, and this. and they're an 18 year old and they're not going to listen they're just not so i don't have a i don't have a good answer no i don't have a great answer mate uh the the point i would make i suppose which is what i would do is do the do the i don't know if you remember being a kid but as an adult now i i vividly and often remember things dad said to me at different times in my childhood experiences sayings you know lessons whatever else um one of the one of the great ones of six this is a tangent but kind of relevant one of the great things i remember is we were sitting at an intersection and you could go two ways to where we're going to go to and uh i think from memory mum used to go one way dad used to go the other anyway and i said i was probably whatever i was eight ten twelve thought i knew everything oh dad mom always goes this way because it's easier and dad said something like towards the effect of if i stop doing this because it gets hard that's what i'm going to give driving away and that wasn't that wasn't to tell me anything maybe it was for all i know and but what always stuck with me with that was you know not don't don't make things easy for yourself of course you but on the other hand it's one of those things of you know it's the perseverance and and the achievement and the and the and the kind of idea that um you know if you have to start cutting corners then there's something to kind of think about now that's just that's a personal example for me it's always stuck in my head the reason i'm raising that richard is i think what i would do to ram's point you can't tell them what you can do is show and you can plant the seeds you can't necessarily make the plants grow you can't you know i'll i'll stop torturing the garden garden analogy just leave the seeds around you know leave those little things that might germinate at the right time the right place when he's thinking about his money when he's lost some money when he needs a new car when or whatever oh that's right dad used to invest and then all of a sudden you'll hear coming back saying hey dad um you know what did you say about that thing or he just thinks to himself i remember dad saying i should invest in shares i might look at that now so i would i wouldn't i wouldn't focus on that i don't you you're ahead of us parenting wise both andrew and i have younger kids um so you know more about parenting than we do but my suggestion would be to plant those seeds and let them grow in their own time rather you're not going to be able to do anything other than that um so think about how do you talk around the house around the table what do you show what do you do um just just just kind of provide the backdrop that he can kind of grab you know grab from his memory uh when he needs those things either directly by asking you or indirectly by remembering what you said or what you did or why you did it uh that kind of stuff i think is useful um i've got a you know the poem if by roger kipling i still have never done yes i love it isn't it me too so i'm going to at some point put it in the house why yep because i want my son to have seen it often enough again another personal story we had a biscuit tin that we used for something else i can't remember what used to live on the top of the fridge and it was one that my grandmother had had at some point and there's a quote on the side and the quote was i have often heard defended little said is soonest mended and my dad never said hey don't mouth off don't don't whatever that thing just stuck in the back of my head and so i remember the quote now i'd never you know this is more years ago than i should acknowledge um the idea of don't shoot your mouth off you know and it wasn't they didn't sit down and say look scott here's what you need to know whenever you talk to people don't mouth off don't carry on just you know keep your keep your thoughts to yourself if it's not appropriate here's me doing a bloody podcast and gas bagging two hours a week uh but that idea of you know just Those things stick.

55:49So let it be the backdrop. Let it be the, just, yeah, put it out there. I'm badgering. I'm badgering. Put it out there. Go from there. You just reminded me. So a good friend of mine I've known since like we were little kids at school, his parents had the desiderata on, I'm sure I'm not pronouncing that properly, on the wall, which is another thing that like, so Google if by Kipling and also Google the Desiderata, D-E-S-I-D-E-R-A-T-A. It's the one that starts, go placidly amid the noise and haste and remember what peace there may be in silence. And it's this lovely poem and it's like all this like worldly wisdom encapsulated in it.

56:31And they had it framed in this beautiful sort of decorative wooden frame and it's just like it's always stuck with me because every time I was around playing at his house, it was just like you'd read it. I think it was above the top. Actually, it was. It was above the toilet. That's right. So you always saw it. Yeah, yeah, yeah. Yeah. So depending on whether you've got girls or boys, you need one on the back and then maybe one on the door. But just make sure you've got it in there somewhere. Correct, correct. All right. I hope that helps, Richard. Mate, this one's from Stephen. Hi, Scott and Ram.

57:01My question, what should we make of the boom in popular regional towns in recent years? I recently spent time in Barrel, Midagong, Bury, Kiamari, etc., in the Southern Highlands and Illawarra region of New South Wales. I was intrigued by the booms. He says over 100 % gains and the recent busts, greater than 25 % drop for four bedroom houses in these locations. The populations are only 5 ,000 to 10 ,000. Barry reaching a median of 2.6 million for a four bedroom house blew me away. Who can afford that, he says. He says, Scott, I recall hearing you say you live in Boweral. Congrats, if so. As an investor, what should I learn or make of this data?

57:44Do investing fundamentals apply to these locations? Do you know of investors on the lookout for the next Berry Barrel or Kiama? Do you expect these numbers to revert to the mean and continue to slide? They're gorgeous areas. It's no wonder they are popular. All the best and completely understand if this doesn't meet the threshold for a podcast. Thanks, Stephen. It does meet the threshold, Stephen, because Rand likes to rant about property. but also your question I think was great about investing fundamentals and taking you know taking the lessons and applying them to a different asset is hopefully what we are equipping some of our listeners to do so I love that you've taken that and looked at property and asked some of those some of those questions what do you make mate boom then a bust is there mean reversion is there something different about these areas I have thoughts what do we take you have thoughts I have I absolutely have some notes the first thing is fundamentals always matter right you know they can be forgotten about but they always matter It doesn't matter what you're investing in.

58:37They matter. So my narrative, and that's all it is, this is the narrative I'm going to wrap around the data, is that we had COVID colliding with the tree change, sea change phenomena of a retiring generation that was cashed up and who thought that, well, I can downsize from Sydney, Melbourne, Brisbane, wherever, and go live out in the beautiful countryside, have all the peace and quiet, buy a much nicer home and still have cash left over. and they did and accelerated by covet as as well and so then you get look these small country towns there's just not a lot of inventory so again you mentioned before there's not many fundamental truths in investing but supply and demand is one of them and so prices went up very high for anything that was sort of like you know nice um out in the out in the country it got snapped up i then think that there was a lot of people you see this if you watch a lot of uh property shows as my wife does like escape to the country or these kinds of things whereas the reality of city life and country life is very different and it's not for everyone right the pros and cons and i think a lot of people moved back uh in the end so i think you get there was a phenomena there i think the second wave issue though is you're now getting people sort of our generation and below who it's not like we're doing it because we want the ideally life style of the countries i just can't afford sydney anymore i can't afford melbourne anymore.

59:59I'm going to the country, stuff it. And, and I think part of the, what put the brakes on that in previously was, it was just, there wasn't a lot of job opportunities out there as well. So that limited it. But now with the internet, a lot of people working online, a lot of people working remotely, I absolutely think that's another phenomena. So how that all translates out in price and the rest, I mean, that's just a huge discussion. I don't know. But at the end of the day, if I was looking at buying a property in, out the back of whoop, whoop, or right in the middle of a CBD, I would, well, if it was for an investment, I would want to know what's a reliable yield that I can get on that.

1:00:38It has to be your North Star, I think, as a property investor. We've lost sight of that because we're all sort of playing the greater fool theory at this point. Like, what can I, I got to buy it and I'm going to flick it, you know, I might put an Ikea kitchen in and lick a paint and boom, and I'm going to create money out of nothing. And good luck to you if that's what you're doing. But if I know that I've got a bunch of money in something that's going to yield me something that i consider attractive well even if the market calls to some degree i've got something that's there and it's it's and it's real and i would be i would be trying to everything i would be doing to analyze the merit of this investment would be around my views on on that me personally yeah so uh man i think okay, fundamentals are funny things.

1:01:25I kind of agree with you, Ram, to a large extent. The problem is, we'd like a question about two different business units before. There are two different buyers with two very, very different approaches. If I'm an investor, I'm absolutely thinking about rental yield and capital gain. If I'm an owner-occupier, I'm thinking, what can I afford? Yeah. And that means that depending on the different component parts of that in different areas, different property types, location, that kind of stuff. You've got this real collision of two different ideas. And then you've got the investor who, even if the yield is low, thinks, but I'll make it up with capital growth.

1:02:01And so what's a property actually worth? At one level, it's only worth what someone else will pay you for it at some level. But if you're a buyer, you'll be really clear about what you're looking for and why you're looking for it. If you can justify paying$2.6 million to live in Bury because you've got the money and you like the area then who might have said you're buying you're paying too much for that yeah um and there's the intrinsic there's the value that comes in the lifestyle and that it leaves it it doesn't fit on the spreadsheet but yeah why not and you don't even you don't even necessarily even try put it the spreadsheet somewhere you just go like i can afford it and i like it so i'm going to do it yep now you could you could pay half of that and go live somewhere else you pay double that live somewhere else why that one most owner-occupier purchases are relatively irrational i don't mean bad i just mean there's not a lot of sitting down working out the numbers or you know we bought the house built before this one Ruth my wife used to joke we spent I spent more time looking for jeans than than you know we spent time looking around this house and it's true right you kind of go man we just spent how much on a place we just kind of looked at twice and went yeah that's cool by that um so presuming rationality is is a mistake I don't even mean that pejoratively I just mean there are other things other than pure financial rationality going to deciding where you want to live you like the area you like the house you can see a family growing up in it or you can yourself retiring in or you see yourself fishing off the porch or whatever you want to do those things are i said fishing by the way dude i'm going through that right now as you know we're trying to buy a house and it's just like i'm no way i would touch this thing if it was an investment i can tell you that much like i don't think the rent i'm going to get is going to rationalize but i just need a place to live so i'm exactly proof positive of exactly what you're saying and so so that so that said and you know that then i'd go back exactly into your points which is people want to live there because they're nice places they can afford to they want to they like it they can afford to work from home that sort of stuff i think the we're back casting a little bit why is the rural boom because people could move out of the cities uh either get a bigger place or save some money and so the either of those is attractive particularly if you're downsizing or or simply you know not even downsizing in size just downsizing in terms of financial exposure you can get a million dollars out of a house you're selling sydney you buy in kiama you know on the south coast in south wales for those who don't know the area um down and now is it 45 minutes past woolen going roughly um you can do that and and make some money so that's worth it you are someone who says well hang on i can i can afford a unit in sydney or i can afford a house in berry okay well i want the house so i'll do it or i can work anywhere because i'm you know work from home or whatever i can go wherever that's how we moved to barrel we do live in barrel um the reason was i've worked for the motley fool from home for my entire time i've been at the Fool, just approaching 12 years, but not full-time, 13 years, including my time as a freelancer before that, I've always worked from home for The Motley Fool.

1:04:41So at one point, my wife and I went, well, hang on. She's a consultant, works in education. She can be anywhere in the city or the state. She drives to, you know, there's no single workplace. So we literally went, well, hang on. If we could do that, why would we stay where we are? No, we hated it. We liked it. I was like, well, actually, if we had the choice, what would we do? And we actually moved to Barrel. We ended up spending about the same amount of money. We got a place with a bigger yard. That was the trade-off. I was like, cool, we want to do that. So we did. The ups and downs, I will say, so here's a couple of stats just for fun.

1:05:14According to the realestate.com.au property estimate, I don't know how accurate that is, it doesn't really matter. They reckon I've made 80 % gain in about eight years, which is fine, but not spectacular. Now, the dollars are bigger because we're talking about dollars and it was leveraged and all that kind of stuff with mortgages, But, you know, it's, you know, again, large amount of dollars increase. But percentage-wise, I could have put the money in the stock market and probably done, you know, as well or better. So, you know, it was a good, yeah. It was a lot higher, by the way. It's come down, again, based on their estimates.

1:05:44I don't know if they're right or wrong. It doesn't really matter. It's come down about, quickly, 20%. We haven't got a valuation for a valuer. We're not going to sell. We're not going anywhere. It's not an investment. It's a house to live in. But, yeah, so that went down. 20 % down from when? I don't remember exactly when. Like a year ago or something? Yeah, probably. Yeah, okay. 18 months ago, whatever it was. You know, they give you, they get a bloody email every now and again saying, you're probably, we think it's worth this much now. And it was a decent amount higher 12, 18 months ago. I don't really know.

1:06:14Down 20 % since, probably based on local sales. You know, if it was an investment, could I have sold at a higher price? Sure. Do I care if it's gone up and down? No. It's a place to live. Why would you? You're living there. And you will for the next, yeah. Right, hopefully. i came out in a pine box if i'm lucky enough so so that's you know now that's me and my experience you ask out the the what's going on i suspect that we saw a one-off boom because of covid uh i suspect there is a greater tailwind in regional areas because of the reasons ram said people downsizing slash tree changing and those who are saying i can't afford to live in the capital so i'll live in the regions uh i expect that will continue to push regional prices up um will i go up faster than city prices i don't know because people get pushed out of those city regions because the price go up in those regions so it's kind of there's a bit of a um you kind of you gotta follow the cause and effect here uh that's why i said focus on yield right because yes yeah if if you were a true investor right then there is value held in just the owning of the asset if the only value is in the flip then it's a different game that you're playing but just know what game you're playing yeah nicely put man nicely put um so yeah like i think you know um i would suspect that parts of the inner here's here's my here's my general take on property everyone's gonna live in a house it's either rented or it's owned uh the the most in-demand properties will increase at a faster rate because people with higher incomes can afford to use more of their incomes on those properties.

1:07:50In other words, 30 % of 45 grand a year and 40 % of a million dollars a year, you can afford to spend more of your income as a proportion because once you've got a certain amount of income, you've paid your food, you've paid your everything else. You can afford, you've got more disposable income, you can throw more of it at a mortgage should you choose. So if there's an ongoing auction for the best place in the corner at Point Piper or, I don't know, New Farm in Queensland or Turak in Melbourne or insert your own area of Perth or Madelaine or Darwin that well. You know, there's a limited number of properties in the most desirable areas.

1:08:25And there's a lot of pent up latent purchasing power for those who want to outbid each other for those places. Outside that, I think it's, you know, housing is always a trade-off. How much do I pay? How far away am I? What are my costs? It's always a trade-off. I could have a smaller place closer in, a larger place further out. I could pay, you know less on for a house but spend more time on travel that's the trade-offs everyone makes all the time when you think about where do you want to live so i i suspect that that we are having the hangover of the of the sea change when a lot of people wanted to uh and so the price got bit up i suspect that continues to ebb away but i expect that as long as population keeps growing faster than supply um that underpins a decent amount of house price increase until the whole breaks if it does um just because you've got a limited number of houses and more people who want one uh again supply and demand again for the third time in the last two days that's kind of what sees us get to the place we are yep yep but this is like you say with owner occupy it doesn't really matter what happens right because you weren't looking to sell anyway and you've got the utility of of the uh house so i just make that underlying that point that's why yield is so important i think it's i think most historically that's what property investors are very much focus on.

1:09:42We've sort of detached, decoupled from that, if you will, in recent times. But I say it's similar because if the capital value of your place, according to some website, has gone up and then gone down and all these things, do you really care if there's a reliable, good tenant in there that's just been paying the rent year after year after year and without problem and increasing more or less in line with inflation? It's like, yeah, I don't care. I'm probably worth more in the future. So that way, if you do see an unfortunate pullback in prices, you've got that underlying underpinning. And that's why I'm always so just nervous of negative gearing, not just from the tax debate and how that might distort prices, but it just means that the person doing that strategy is 100 % dependent on relatively near-term price changes.

1:10:32You're overtly speculating on price. And good luck to you. And it's worked well because prices has been going to the moon but but those that have a good good um insensible yield basis underpinning everything they're going to be able to weather the storm just fine just fine nice mate let's finish off with a quick question from christian which i think it's worth asking we don't talk a lot about this stuff sometimes he says hi gents thank you as always putting the time aside to answer your listeners questions and thank you most of all for answering questions without any judgment as i've heard you both say even if you think it's a silly question you're probably not the only one thinking it.

1:11:07That's absolutely true. My question is regarding management and the board of directors and their roles. We all know how important good management is to a business. I'd like to know roughly what each position does day to day, such as the CEO, CFO, and the ones I am most curious about, the chairman, the executive directors, and the non-executive directors. What is the difference and how are they appointed? I did notice there can be quite large differences in remuneration. So let's start with the C-suite. CEO and CFO, what do they do? CEO runs the business. They make all the day-to-day big decisions.

1:11:43They're the head honcho in terms of running the operations of the business and of executing the strategy of the board. So we'll come back to that later. The CFO is sort of the accounts person. They look after all the numbers, make sure all the finances are correct. So they're really the top two players in the organization in terms of how the business runs itself, runs operations. So that's the C-suite. I'm going to add to that only briefly, mate, to say a CEO's job is mostly internal but also partly external, particularly for a listed company. I've heard CEOs say they spend sometimes like 40 % of their time dealing with external stakeholders.

1:12:26And by that, I'm really talking about fund managers and shareholders. Such a shame. That's true. Yeah, it is. Think about them as the conductor of the orchestra. In a management meeting, you'll have the CEO, the CFO, Chief Financial Officer. CEO is Chief Executive Officer, by the way, people are wondering. CFO, Chief Financial Officer. These days, you'll normally have someone in charge of sales and or marketing. There might be a different sales head, a different marketing head. Chief Marketing Officer, CMO. Chief Operating Officer, sometimes. Exactly. Chief Technology Officer, Chief Information Officer, usually in that room.

1:12:58So head of HR, chief people officer, HR manager, again, general manager of HR. There are all these different titles. You'll have someone there. And then depending on what sort of organization, you'll normally have some, when we say operations officer, again, it depends on the company. You know, sales and marketing organization, you know, that group. If it's a manufacturing or distribution business, you'll have someone in charge of the physical operations. So again, the titles vary. but if you're in charge of manufacturing or production or logistics, those sort of people continue at those meetings as well.

1:13:31So that's kind of the orchestra. The CEO is the conductor. Making the big calls about the strategy of the business and what needs to be done from there. Holding those people accountable, giving them support, helping deal with often a very tense relationship between sales and marketing or marketing operations or something else. dealing with that putting out fires all that kind of stuff um yeah the cfo is the person who's responsible for making sure the numbers add up and helping people understand where the business is at where it's going and whether it can get there yep now the board yes go the board is i took me longer than it should have to realize this but the board are the they're the power brokers right they're they're in control the board came about like way back in the day when you needed like it's almost like a union to represent the shareholders so this you know and and um the head of the board so it's a collection of people can be two people could be 20 people whatever size you like um usually around a dozen or so depending on the size of the company um and you you have a chairman who's kind of well the boss of the board kind of thing but they all have to vote on the big issues they set they basically hire and fire the ceo yep so they're the ceo's boss and they're not And if you're an investor in the company, they're your representative.

1:14:48So they're there to represent shareholder interest. That's what they do. You have executive directors, which just means that not only are you on the board, but you also work within the company itself in the day-to-day. You're employed by the business beyond your capacity as a board member. And a non-executive director is just like, I'm just on the board. My commitment is to meet for our monthly meetings and have strategy discussions and the rest of it. But I don't twiddle the dials and pull the levers inside the business. you want to have a good board is all I'll say, because if you've got a bad CEO, I mean, that's not, you don't want that either, but ultimately it's, it's the board's responsibility to hire the right person and make sure that they're incentivized properly and that they continue to, and that you, you know, you give them the appropriate strategy to pursue and you hire well and that you, they boards don't get nearly enough scrutiny in my view.

1:15:40I think the CEO cops a lot and, and look, that's, that's the job. I don't have any sympathy for them. But the board is the big boss, so to speak. Yeah, it's nicely done, mate. Oh, sorry, one quick thing. The reason why you'll see a lot of difference in pay is that the CEO is coming in there nine to five, or hopefully more than nine to five if they're a CEO and on weekends and the rest of it. If you're a non-executive director, you're only doing, you know, I think you're contractually obliged to 12 meetings a year and that kind of thing. So you don't work hours-wise nearly as long as the executives.

1:16:15It's also why when you see an executive director getting paid more than another director, it's because of that dual role. Yes. Often the CEO is an executive director. No, I say often. If you see executive directors, they tend to be CEOs. Because you see executive chairman as well, in which case CEO is also the chair. And so the executive is, I'm an executive in the business and a director and the chairman. And that's why the executive director should get paid for their everyday job. Exactly right. Yeah. A lot of people poo-poo that. they say it needs to be more independent more diversified all the rest of it i get that but i i think if you've got someone who founded the business owns a lot of shares in the business you know has run it for decades incredibly well it's like you are more than welcome to be the chairman of the board and the ceo right like i'm it's a it's got they call it a sidecar investment really like i'm just i'm with you man like you you you run the you run the you're running this thing i get it uh whatever the title or whatever hat you happen to have on in a given day and i'm I trust in you to deliver.

1:17:14Yeah. Jerry Harvey is a great example, right? Polarizing. But if you buy Harvey Norman shares, in theory you buy them, you think Jerry's doing a good job. Do you really want power to take away from Jerry? I mean, you know, some people might say, well, it'd be better without him. Good luck with that, but it's possible, I suppose. So I'm a Harvey Norman shareholder, by the way. I'm happy to say, you know what? I don't always agree with what Jerry does, but I figure on balance, I'd rather have him running the business than not. So that's cool with me. Quick ones on the board. what can I add the so I am a non-executive director of City Recital Hall which is a music venue in the city of Sydney wonderful look it up online go and see a performance we have some fantastic performers and it's a really cool venue which is not meant as a plug it's just more to structure it hey that's your duty as a duty as a non-executive director to represent the interests of that institution unpaid for the record by the way voluntary gig the so I agree with you Andrew about the strategy i will say this is not about serious i'll all actually but while the board are supposed to have carriage of the strategy and while you're right they should have good boards the reason they should have good boards is because there are a lot of rubber stamp boards and there are a lot of non-rubber stamp boards and so while the board the ceo especially implement the board strategy in practice in my experience again not at the hall but in other organizations the ceo will say here's our strategy board what do you think in other words please rubber stamp this now hopefully a good CEO will have the right strategy so the board shouldn't maybe hopefully only be rubber stamp or at least be able to rubber stamp it because they agree or they can suggest change or they can discuss it and come up with something different the board should absolutely override a CEO and say yeah no we're not doing that uh if a if a merger or acquisition comes up the CEO will go to the board with a with a with idea I would like to spend 100 million dollars buying this business can I do that please yes those are really big decisions and as you say hiring and firing the CEO is a challenge.

1:19:05The hard part with the CEO board relationship is, on one hand, it should be the board strategy. On the other hand, you want a CEO that you can trust to go and do the job because you meet them 12 times a year. The other 353 days, they're doing their own thing and you're hoping to hell they're doing it right. So it's a really, really interesting one. Your key point though is they are representative shareholders. And that's the key one is if you're genuinely looking up to shareholders, the board should be saying how is this building long-term value for the business what is that what is that strategy going to do to improve the value of the company are we doing the right things the right way hopefully the board has a really broad range of experience you might have a legal person a financial person a sales person you might have an it often these days expert who can provide that high level effectively internal consulting to a ceo and a good ceo will use that too and say hey we're going to do this i know you've done that before you're in this area or do you have contacts so a good ceo will use the board proactively too to basically improve yep excuse me the decisions of the business it's a it's a difficult one it's more complex than it seems because the board wants to give the ceo some rope uh you don't want to be you know you know if it has to be cleared by the board but equally enough that it actually does the right thing you get the right outcomes that's why back to your point mate the reason a good board is important is because if they get that right, you really turbocharge the business.

1:20:31If you get that wrong, you either leave a CEO to their own devices or you micromanage them, or you end up with this really weird stalling somewhere in between where nothing gets done because you haven't given enough autonomy, but also you're not giving enough direction. And so it ends up in this really weird, funny place in between. Yep, well said. And the final point I'll make is that the chief executive officer is there by the good grace of the board. The board is there by the good grace of us. How to get on. As a shareholder, you get to vote on whether they get to keep their job or not each year.

1:21:05Depending on when their term's up and they're up for re-election, et cetera, you get to do that. So it is a democracy of sorts amongst shareholders. It's not one person, one vote. It's like one share, one vote. But you absolutely get a say. And again, I think that not enough of us as shareholders exercise our right to do that. and I get it because it's easy to be defeatist there because usually proxy votes and the rest, you know, you can have a little bit of a protest vote, but it's not going to swing the dial. But it does send a bit of a message, I think. And yeah, focus on the board. The board's really important.

1:21:39I think what's disappointing and what's exciting, I think, about the smaller end of the ASX, which is where everyone knows I fish, they all tend to be much more concentrated boards with people who have been there for a long time and understand it. when you get to the top ASX 50, right? You've got people in there often that have no experience whatsoever in that particular industry. There could be various ex-premiers and politicians, for example, that they're there potentially because they can help open doors, but they're certainly not there for their business experience. And you tend to get sort of these roles that are more vanity roles than anything else.

1:22:14And I don't know if a lot of these very big company boards, a lot of the people there are really adding any value at all, frankly. And it's a shame. It's a shame that it is like that. But again, you know, all I'm saying as an investor, now that you know how sort of the power dynamic works, definitely look at the CEO and that, but also take some time to read the annual report and find out the backgrounds of these people. What other businesses have they been involved with? That's often very interesting, by the way, as a research angle. And you see someone who's been on the board of five other companies and they've all gone to dirt.

1:22:48But now everyone has bad luck and some people operate in high risk sort of industries, but it's certainly not as encouraging when you see someone who's like formerly on the board of three other very successful companies. Like, okay, it's not a guarantee, but that's a good signal. It's a good start. Just quickly to how do you get on the board? You normally get invited by the current directors to join the board. And then there is a vote, generally speaking, whether you are the right person for the board. occasionally a board member will basically go to go to shell directly can you please add me to the board that often is the way there's been some grief with endeavor group recently you find a good all that you can force yourself on if you buy enough shares that's right yeah you can you can so you go to an elon musk and walk in with a kitchen sink in your hands you go right i'm here so that that's important they can be they can be voted off the board by being voted against also there is those new relatively remuneration report votes where if a majority of shelves vote against it twice in a row the whole board is spilled and they'll have to then reapply for their positions um often a lot of this stuff is done in the back rooms so a director will speak and this is why the ceo speaks the fund managers as well and our fund managers like the director and want them to be there or not um so that kind of you know as much as the vote is public a lot of the shoring up of support is done behind the scenes and again the fundies tend to trust the current directors so if andrew and i and someone else are on the board of strawman.com and we say hey we'd like uh john smith to join us on the board uh generally shells will have will i will send out the other shareholders about it anyway or we'll have made sure that they're keen and want to be part of it or or whatever um so a lot of it is rubber stamping not because they don't care but because a lot of the work's often been done in the background do you want to know a little fantasy i've had for a while here careful careful and i and i would never i don't think i'd have the guts to do it no no no it's it's very it's very safe it's very pg um we don't need to go to other dark places let me tell you um uh you there i mean believe it or not there's dozens of companies on the isx with the total market capitalization of under five million dollars yeah right so i don't have the funds in the capital myself but i have sometimes fantasized of just getting a group of like you know 10 of us together and say let's just buy up the shares gradually on this company wait till we have a controlling interest or a very powerful voting block vote ourselves onto the board and then run this thing the way that we know it should be how arrogant a statement is that but i just sort of thought yes same you know what i mean i love that idea of just going i i'm not just investing passively in this company anymore i am aggressively taking this over from the inside and i'm going to run it i mean fast forward you know a couple years and there's just a big steaming crate on the ground from all the destruction that we wrought and you know carry the sun went down with the ship but it has always been like it's not i sometimes joke with my friends it's like we could all go in and buy an apartment two-bedroom apartment in cuji or we could buy this business on the asx wholesale wholesale or just the whole damn thing that's absolutely true you know and it's like well they're making some money here you know it's Again, I don't have the guts to do it.

1:25:54I'd never convince my wife, but it's like, we could put a buyer's group together and this could actually be done. I know there are certain rules of disclosures and stuff above certain thresholds of ownership, but one of these days when I'm materially well off enough that I don't have to work day to day, I might try that. I might try. Are you in? I'm in. Count me in, mate. Hey, excellent. We'll get a syndicate together. You'll hear it here first when we find out. And we will be referred to as the syndicate. The syndicate. Just that. Just the syndicate. I love it. I love it. We'll either end up being, I don't know, Twiggy Forest or Christopher's Case.

1:26:31We haven't quite worked out. One or the other. No in between. All right. I reckon we are done. This has gone a long time, but it's been lots of fun as always. Mate, will you come back next Friday? A hundred percent. Awesome. Until then, enjoy your week and full on. Cheers. The Motley Fool and people appearing in this program may have positions in the companies mentioned. General advice only. Please speak to your financial professional to understand how it may pertain to your situation. Subscribe to the free newsletter at fool.com.au forward slash listener. The Motley Fool operates under Financial Services Licence 400691.