Mailbag: incl. Time to back up the ute on Nvidia? August 4, 2024

25:40The less you know about it, the stronger your opinion is on it, is my expression. so people who know absolutely nothing about it they will tell you exactly why you're an idiot um but but on friday's pod we were talking about places like argentina lebanon that kind of thing now if you go to any of those places um do you know what everyone does um they spend their local currency and they save in u.s dollars oh there you go right now they're kind of doing the same thing yeah that michael and i are doing correct yes exactly right that's right now it's got no crypto and no proof of work and blockchain, all this nonsense, buzzy word kind of stuff.

26:19There's a thing called Gresham's law. And Gresham's law is you spend the good money first, right? Oh, sorry. You spend the bad money first because it's just eroding in value and purchasing power. You get, spend, you're paying me 11 pounds. I'm going to spend that as soon as I possibly can, even if I don't know, I'm getting out of it. Or I'm converting it to a harder unit of account, which in this case is the US dollar. It's sort of like the prettiest horse in the glue factory kind of thing. And are they speculating on the dollar? Are they investing in the dollar? No, what they're really doing is they're choosing to preserve their purchasing power in that currency and not their local currency.

26:59And quite frankly, that is an incredibly sane thing to do if you live in those countries. And again, it's so hard for us to get in Australia because we've never really had these, well, you've made the point on Friday, we've lost 20 % of our purchasing power in recent years. So maybe there's a bit of a taste of that. I can tell you in the last four years, my purchasing power in Bitcoin terms has gone up through the roof, right? And that's the point. It's not a speculation. It's not like a tech play. It's not all these nonsense that everyone talks about. I'm just choosing to preserve it in a different monetary unit.

27:33And it happens to be a different kind of monetary system that we've never had before. And let's not go down that rabbit hole. But if you can look at someone in Lebanon and say, yeah, it makes perfect sense that you would keep greenbacks under the mattress, then you get it. Then you get it. And that's the exact same thing. I think Michael's point, though, is a good one, though. And this is where all the tourists come undone. Because they see it going. And they're only interested when it goes up. And they pile in. And then it goes down. They get out. And they're speculating on it. But it doesn't, you know, people speculate on the Aussie dollar too.

28:09That doesn't mean that it doesn't have any utility. So people are doing dumb things all around this, and you will very rightly roll your eyes with what a lot of people are doing with this thing. But I think Michael makes the right point to sort of say, we've got to stop comparing it to more traditional investments. And it's really just an alternate store of value. Frankly, I'll give you another money that's not considered a money. Australian property. So there's a utility value of a house and then there's the investment value. And frankly, a lot of people are storing their wealth in houses, in bricks and mortar.

28:43Yeah. Why? Well, they think that that's going to preserve their purchasing power. Been a pretty good bet. Been a really good bet. Some people out here, in fact, a very significant proportion of audience right now have a significant amount of their money in an index fund. Preserving their purchasing power. That's all they're doing. It's all they're doing. Money is far beyond the little bits of plastic in our wallets and purses, right? There's a moneyness to a whole range of different things. And this is just a different thing that has a moneyness to it. And I'll shut up because I'll just keep going if I don't shut up.

29:18I don't want to say this, but I do want to say this because I think it kind of adds, but we'll move on. I think that's true, mate, except that in the case of the U.S. dollar, they're not expecting the U.S. dollar itself to become intrinsically more valuable. because more people are using it. I'm sorry, the why that matters. Oh, sorry, sorry, sorry. So there is one thing to say, I will hold US dollars rather than Australian dollars, for example, more than Argentinian pesos at that point for those very specific reasons. I suspect, I think I'm right, because I think you've alluded to it, or at least said it maybe outright.

29:51There is also for you an adoption thing, which is the Bitcoin sales is going to become more valuable, even independent of the purchasing power question. which is the investment return component. So someone who buys an ETF is not just trying to preserve their purchasing power. Otherwise, they'd be aiming for an inflation, a real return of zero. There are very few people buying the ETF who are saying, all they want to do is cover inflation. That's literally all they want. I don't want anything more than that. I'm not trying for more than that. I just want to preserve my purchasing power. They're actually saying, I want to improve my purchasing power over time because I think these companies will be more valuable in more than just real terms.

30:25You're more valuable in real terms. So you cover inflation and you get more on top of that. And my suspicion or my understanding of your investment case on Bitcoin is, yes, it's going to preserve value against a depreciating Australian dollar as one part of its function. And its core function as a currency, which is back to Michael's point. The other thing is that you think at some point more people are going to use this thing because there are a limited number of them. That is going to increase its real value in that purchasing power. It's not just preserve the purchasing power. And I guess that's why that's almost the best way to think about it.

30:56But that's almost the difference between the currency and the investment part. It's a currency up until, from making up for the purchasing power to the point to which it preserves the purchasing power, it's a currency. Thereafter, it's an investment. I think there's those two things happening at the same time with Bitcoin, at least until it hits, maybe eventually, maybe never, but I assume eventually, some degree of that purchasing power. It doesn't go up anymore because more people are using it because everyone already does. And at that point, then it just becomes about the purchasing power itself.

31:23That's when it becomes a true currency when there's no more aggregated value because of higher uptake. And then it grows at the rate of productivity. Exactly. That's right. Yes. And this is what's interesting about this point in time is because, again, we're seeing this thing monetize in real time. It's 15 years old. Again, brand new. We've never, ever had anything like this before. We've had money before. We haven't had this kind of money before. And it's monetizing. And so if we're 50 years in the future and everyone's using it, and yes, you're not going to get those gains. But we're at a unique point in history, whereas as this thing bootstraps itself from zero to something, you do actually have that potential for increasing dollar returns, but as Michael more rightly puts it, increasing purchasing power.

32:18Yeah, increasing real returns. Exactly. Yeah. I mean, it's fascinating. You could cherry pick the worst four-year period that you could possibly find. And your purchasing power has always gone up. It's pretty interesting in that regard. But yeah, as I said, I'll shut up because I'll just keep going. Thank you. Interesting conversation. Thank you. Good question, Michael. Thanks. Steve asks a question, throws his thoughts in. Hi, Scott and Rampage. Thanks for your fantastic pod machine discussions. I was listening to a recent mailbag and you were discussing staff layoffs and company prices going up as a result in the short term.

32:57I've been following, this is sadly not buying, Xero since 2022 when it was around 70 bucks, dropping one day to 65, then back up. Xero then laid off 15 % of their staff and the share price went up. I at that stage had a similar view that Ram was talking about the other day which is if you lay off staff it is done to the detriment of the company in the long run however Zero has continued to climb I'd love to know your thoughts about this do you think they have shot themselves in the foot by hobbling happily at the moment or did they fire only the seat warmers also I'd really like this to be anonymous just kidding no one knows me anyway thanks again for all your pods and the thought provoking discussions you provide us with cheers Steve Steve, great question, Steve.

33:42Thank you. I'll have a first swing on this one, if that's all right. Yeah, please. Just for fun. I mean, you made the point about, look, I think it depends on why you lay off the staff. I think it depends on, so lay off staff is always bad for morale. Always, always, always. Because people miss their friends. They think it could have been me. They worry about the business. It's bad. It's bad for morale. And it's probably bad for productivity in the short to medium term for that reason. the question really comes down to why you're laying off the staff and to what what and what to what extent is cyclical rather than structural i worked i don't know if i said this when we talked about it i worked for a food company and they laid off about 10 of the office staff and it was kind of disheartening for a week and then i had this realization the following week or so which was they've gone and the business hasn't felt a thing there wasn't work not being done there weren't customers being unsatisfied there weren't phone calls not being answered there weren't emails not being returned and and those people were good people and they weren't just seat warmers but the company was overstaffed they just didn't need that to whatever work those people were doing it wasn't the work some of that work frankly didn't keep getting done there's a very famous story about jack welch uh ceo of ge uh back when he was a hero rather than a villain as he is these days or was um he there was this report that used to take his staff somewhat inordinate amount of time It was an 11-column report.

35:02It took them days and days and days to pull the information together. And it was sent to head office. And slowly, Jack just took a column at a time off the report and freed up those people who were doing it until he just stopped producing the report altogether and no one ever asked him where the report was. Now, maybe it's an apocryphal story. It's in his biography, autobiography. Maybe it's apocryphal. But, you know, there are things that get done because people think they should be done. But when they stop being done, there's actually no value lost. And it doesn't mean that people are wasting their time necessarily or not working hard or not working diligently.

35:31just that you can do stuff with smaller staff. So I'm going to say I don't know, Steve. I think if those people were not instrumental to value creation or the value creation could be done with fewer people or by divvying up the workload differently, those people were probably doing productive work, but some of that work's now being done by somebody else. It's very, very possible for that to happen. My issue with layoffs is firstly, companies that get too big and then have to lay off. They've hired indiscriminately, which is just bad across the board. That tells you management aren't particularly paying attention.

36:05If they're laying people off just to deliver a profit, to try and scrape their way through and then put people back on when they start making money, then they're also not being run particularly well. If it's genuinely a case of, oh, we found ourselves in here. So to me, zero gets a big red cross for hiring people they then had to get rid of because they've hired indiscriminately unnecessarily. Bad for the business, It's bad for shareholders. Bad for those people who then lost their jobs. Bad for their colleagues. If you don't need them, don't hire them. So it's a cross, absolutely. But do I think that making them redundant was a bad thing?

36:37I don't know because I'm not close enough to the business. If it was done because they weren't needed over the fullness of time for the business to be successful, then it was right to let those people go, hopefully with generous redundancies. If it was done just to manage a short-term problem, want to make things look better, that's where the real damage is done on redundancies in my view. Do you have a different view, Ram, or something similar? No, no, I think that's right. I mean, it's subtle, isn't it? You can't cut yourself to greatness, is I think the point we made at the time. And I'm always nervous when companies get in trouble and say, oh, it's okay, we're just going to cut off all these costs and then we'll be okay again.

37:11It's like, yeah, as you say, it's either hobbling yourself for the future or recognition of that you got above your skis at some point. As I understand it in Zero's case, though, they had – This is what the bulls will argue because we said earlier that what the PE was something astronomical, right? Like 103 at this point in time, according to Comsec. Very high number. But also, yeah, but we also have to tease apart what we might call the staff employees required to keep the business going. And then there's the growth CAPEX, the capital expenditure. There's the growth OPEX, operational expenditure.

37:52There's the growth spending that is actually completely unnecessary for keeping the wheel spinning of the existing business, but it's laying the foundations for a new business. And I believe in this case, it was an expansion over to the US and UK and elsewhere. So incredible success in New Zealand and Australia. We've got really great stuff. Well, let's go take on the world. Well, Intuit and others over in the US, pretty well positioned, much harder competition to beat. We have Reckon here and Myob. They were kind of easy foes and the guys at Intuit, not so much. And again, look, likewise, I haven't stayed close enough to it to form a strong opinion.

38:36Too often, I think as investors, we look at initiatives that didn't pan out and go, heads must roll. What a mistake. It was so obvious. And I just think anyone, again, who's run a business, I'm always reminded of that Buffettism of, you know, I'm a better investor because I'm a businessman. I'm a better businessman because I'm an investor. And it's so true, right? And it's like there are things that don't work out not because of ineptitude. There are things that don't work out because business is super hard. And we're operating in this chaotic, dynamic environment with rapidly evolving, shifting stands.

39:11It's just hard. Anyone who started a business will know that. Are you an idiot because your cafe didn't get off the ground? No, not necessarily. It's really, really, really, really hard. Not everyone gets a hole in one. Not everyone has this incredible success rate. Even the massively uber successful entrepreneurs out there have had all kinds of failures along the way. It's normal. Look at Steve Jobs. He's lionized these days, right? People forget how close Apple came to go bankrupt, right? Absolutely, yeah. Like, really, it was a couple - He got fired the first time around. Yeah. There may have been no comeback, and Jobs is one of those people who tried to start a computer company and failed.

39:50Never ran. Yeah, and we never speak of him. Yes, exactly. No, he's like, oh, what a visionary. And look, I know I'm being a little bit too mean. He's obviously so right. No, no. Yeah, no. It's like - Mate, it's 100%. Tony Gustafsson, the Matilda's coach, was being written up in the paper. So we're recording this Thursday morning. And there's an article on the Australian base saying, he's obviously bad. He's obviously over. He's not doing any good. And there's two things. One, we made the semis of the World Cup less than a year ago. Two, it's been written on the day after he lost. Had he won, then it's masterstroke from Tony Gustafsson, honorary Australian, you know, we won Olympic gold.

40:21And I don't want to bag the journalist, Sarah, I'm not a soccer expert, so maybe they're right. Maybe Gustafsson has lost it or didn't do the right job or whatever. It's just funny that, you know, the context, he's a national hero for a while, then he's a national villain because we lost. You think, well, maybe it is, or maybe it's just kind of, maybe he's neither, right? Maybe he was never as good as we thought. He's probably not as bad as people are saying now. We're using the result and saying, well, therefore, obviously he's bad rather than maybe that team played well. Maybe our girls had a bad day or a good day last time.

40:46It's very easy to find something to blame. I mean, you would know it better than anyone. As anyone who sort of talks stocks in a public arena, you're only as good as your last win, right? Oh, man. That's so true. And it doesn't matter what your track record is. You know, I have forever been the guy who backed Catapult or EnviroSuite. You know, I just – by the way, Catapult's going gangbusters. Thank you very much. Where are the critics now? People have moved on, exactly. Yeah, yeah. The amount of times we get a, Montypool suck, they recommended this one company and lost money. It's like, really?

41:19That's the basis? Anyway. And again, it's not to sort of say, you know, that no one is due criticism, but, you know, when you sort of deliver double-digit total market performance well in excess of the market average over a decade or more, and someone's going to throw shade at you because one of your recommendations didn't instantly work out. You know, it's like, come on. Are you not entertained? What do you want, right? Like it's just – and it's the same with – it's not make it about you or me. Although, you know, we've both done pretty well. I'm pretty happy about track records. I think you've got to celebrate your victories when they happen, right?

41:58So it's strawman.com forward slash strawman. You'll see exactly my track record since 2017, right? I'm very proud of it. But it's full of dogs, right? And the same thing goes here, just to bring it back to our original point, is that we have to have a certain tolerance for failure and mistake. Because if you demand perfection, you'll never find it. You'll never stick with anything and you'll never make any money because perfection does not exist, right? And so in the case of Xero, I think we can look back at a lot of them now and say, yeah, you spent too much. And actually, that's true for a lot of tech companies.

42:46Back in the sort of COVID era of free money and a market that only cared about revenue growth and didn't care about positive operating cash flow or profitability or anything like that, then the market delivered exactly what people want and the market changed at mine and now everyone's a villain. And it's not that clear cut. And there are the CEOs who decide that they want to get into something stupid, which is stupid. And it's like you deserve all of the derision. At that case. Yeah, absolutely. But a company that is just gobbling up market share, incredible unit economics that is potentially disrupting an old way of doing things, as is the case with Xero.

43:26And they went to the US because it's the world's largest, most attractive market. and it didn't work out immediately or as quickly or as cost effective as they want. It's like, hang them, hang them, burn them. So true, mate. Now, if they did, yeah, I don't know. I've made the point. So you articulated it nicely between differentiating between the different types of layoffs. And I think that is the point that we should return to. And that's the point that, actually, you could have just answered the question and moved on to the next one. We didn't need all my elaboration, so I'll shut up. No, I like it.

44:01Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

44:11I've got another Bitcoin question, and it comes from Peter. Now, Peter's first question is actually almost exactly the same as all we got from Michael, but there's two questions, and so I want to address your second one, also because it gives me the chance to do a very bad Richie Beno impersonation. So you have been warned, dear listeners. Looking forward to that. Pits says, hi, guys. Medium-term listener, second-time questioner. Still very much loving your work, although Ram's getting more and more cantankerous in his old age. He might need to go for a run or something to clear the head. It was already at a high base as well.

44:45Now, here we go. He says, I know Ram loves to go on about Bitcoin, just like Richie had to crap on about the cruise for two. Is that okay? On occasion. Very good, actually. Crap on about the cruise for two. but the discussion on the 2 June episode was enlightening for me that was a special one, I didn't have to do that one in the voice but I thought I would I cannot help but find Bitcoin and other digital currencies intellectually fascinating Ram's quote breaks your brain end quote phrase is apt but I'm still sort of in the I just don't yet get it enough to jump in camp I'm not writing in to debate why I'm still in that camp but if I heard him correctly Ram's point about not being in it or solely in it as an exchange rate play.

45:28You convert it back to a dollar, which is what we just talked about before. He said, if that's the case, I can sort of see the distinction at least in theory. But I have a question. Now, we asked the first question about the currency which we've covered. The second one, probably a stupid question, says Peter, though, probably not. But does increasing use uptake, call it what you will, necessarily mean greater purchasing power? Why would a pizza necessarily cost 10 Bitcoin today, but only one tomorrow? If the worldwide use of Australian dollars was to triple tomorrow, would a beer in Bondi necessarily become less expensive in Australian dollar terms?

46:04Or does increased uptake just mean a higher US dollar value for Bitcoin as more and more people buy into it? In which case, doesn't that just get you back to the, I'm not buying it to convert it down the track question? Who's to say the Bitcoin gods may not change their mind on its limited availability and decide to flood the market with Bitcoin tomorrow, thereby devaluing it? I'm still struggling to reconcile this increasing adoption necessarily means i can ultimately buy more with my bitcoin when i switch to spending it rationale if i understood ram's point correctly cheers in advance full-on peter it is a still a breaks your brain thing right because i like the aussie dollar thing if the aussie dollar is let's say 10 times more more valuable sorry it's useful 10 times higher in theory more people would want it so it should go up yeah but that doesn't necessarily mean i could buy a beer for you know one australian dollar rather than 10 australian dollars all of a sudden just because the dollar itself is more more valuable or more expensive have you thought that through mate because i yeah yeah gosh yeah okay oh the trouble with all of these bitcoin questions is people in people in bitcoin talk about the rabbit hole yeah and it's a thing right because you sort of start on one thing and then you you go a layer down and it's like and then you go another layer down.

47:22I'll let you know when I hit the bottom because I haven't hit the bottom yet. Bitcoin is a teacher. I worked two decades in the financial industry with never really having an understanding of what money was, our stock and trade. I didn't know what money was. I mean, I knew it instinctively like we all do, but talk about it and tell it like, gosh, it's a teacher. So these questions, they're not stupid questions. They're the right questions. The trouble is, is that answering them really takes the hours of podcasts. Strap in, Peter. Strap in. So I can't do it very quickly. I do want to pick up on one thing, Pete.

48:01You said someone comes out and changes the protocol and dumps them all. That is impossible. And that, to go out breaking your brain, like, whoa, that's not, I don't have the time to explain it. It's impossible. That's kind of why it's a big deal. Yeah. We've never had a money that is absolutely immutable and resistant to change. So, well, let me be careful. It could change, but you would need virtually everyone on the network to agree to it to change. And if that was the case, then we all obviously want it, so it wouldn't be a bad thing. But it's not going to be something where an elite, there's no CEO of Bitcoin, right?

48:42There's no Bitcoin foundation. It's an open source protocol. It's 30 ,000 lines of code that we all voluntarily elect to run on our node if we want to or use someone else's node. But you can't change it. All you need to know is that both China and the US have tried really hard to get rid of it. The most powerful entities on the planet couldn't do it. No Russian hacker. No one. And all I can do, and this is going to be super frustrating to anyone listening, is just make that statement and mic drop and walk away because we're here for 12 hours otherwise. But the other saying in Bitcoin is don't trust, verify.

49:27And so I'll put that there to just make it as a statement. And I've arrived at that conclusion after a lot of thought, a lot of reading, a lot of thinking. But I would be virtually guaranteed in thinking anyone who goes on that journey and chooses to study it, you'll realize that that's actually true. And that's a big deal, right? We've never had a commodity where increasing demand doesn't lead to extra supply. So let's say that the price of gold tripled tomorrow. Guess what happens? All of these unviable mines open up and start digging. Supply comes onto the market, right? Let's say that everyone decides that they want NVIDIA shares.

50:07What do you do? Issue more shares, right? Like it is impossible to do, right? So that is something that you have to make your peace with. Or not, but either way it's - Or not, yeah. I mean, here's the other. I've got to be careful here too because people always think I'm putting it down the throat. I don't care. Don't do it. Do what you want to do. I have zero interest if anyone does it or not. I, I, or my only, my only, um, thing is to sort of say, we all do the Gandhi thing. We ignore it. We laugh at it and we fight it. And then it wins. Right. And it depends where you are on that journey. And I've gone through all of those kinds of phases.

50:41Um, why does it get more valuable? Um, if let's not talk about, um, Bitcoin, let's talk, let's talk about Nvidia. Let's talk about zero. I tell you, one of the biggest epiphanies I ever had as an investor was when the penny dropped for me on network effects. And we often talk about moats, these sustainable competitive advantages. And I would say with very, very few exception, the most valuable, profitable, best businesses in the world are such because they have a network effect. and a network effect is something where there are more people using that network, the more valuable it becomes. A fax machine is a good old example.

51:26There's a good example. You and I have a fax machine. Kind of useful if ever I need to send you a bit of paper, right? Three of us have it. That's kind of interesting as well. Now, the math is such as that it's exponential so that every new person who jumps onto the network, it's now very valuable. When that dude first bought the pizza, with Bitcoin. It's like a tiny little fringe community, right? Or like, we look at it now and go, oh, what an idiot. It's like, not really, not at the time. And it was just really hard to get. In fact, you had to kind of mine it yourself to sort of get it. Or you had to buy it through Mt.

52:01Gox, which was an exchange that was first set up to trade Magic the Gathering cards, right? That's right. Oh, man, the history is sort of fascinating. Now let's look at the year 2024. You know, we've now got former presidents and presidential candidates speaking at Bitcoin conferences, talking about let's have a strategic Bitcoin reserve, right? You've got Michael Dell of Dell Computers laser eyes and talking about them putting it, you know, that he's adopting it. You've got Bill Miller and all of these big fund managers. Like, it's just sort of like you're seeing more and more and more people use it.

52:41Can I spend Bitcoin now easily in Australia? Nah, it's really hard. I have to convert it to Aussie dollars and then I have to spend it, which, you know, it's not that big. It's actually super easy to do, but that's what I have to do. Let's play it forward a little bit. Maybe it doesn't go this way. And if you don't think it's going to go this way, don't buy it. But for goodness sake, do not buy it if you don't think it's going to go this way. It has to be fundamental to your ball case. But if you feel as though – here's the thing. Once someone takes the orange pill, that's it. I've never found anyone who's gone.

53:12No one's gone back. Actually, no, no. Like, just, you know, it's like religion. So once you've swallowed the orange peel, you've sort of swallowed it. And then now all of a sudden the guy running the cafe, he accepts it. I'm going to definitely spend it because I want to foster the circular economy. It's kind of cool to kind of use. You know, it's outside of the system. Rah, rah, rah, rah, rah. And then he finds that he can pay his landlord with it and stuff. It goes beyond this pet rock, beanie baby thing that I can trade because I have some particular vision of the future and I'm going to speculate.

53:47Actually, it's got a real utility. And therefore, the network effect gets stronger and stronger and stronger and stronger. It's at the point now, I would argue very fervently, that it cannot be beaten at this stage. And that's why the maxis, so-called, say Bitcoin, there is no second best. right there's bitcoin and bitcoin there's no there's no other there is no other currency because digital currency that it has uh that can replicate the immaculate conception that can that can grow the network and have the hash rate and have oh again i'm gonna start throwing buzzwords out here and lose people but it's it's it's impossible and think about this what has the biggest network effect in the world.

54:32And I would put to you, it's the US dollar. I would say the US dollar has this. Yeah. I can take a hundred dollar, a Benjamin Franklin. Yeah. And I reckon pretty much any place on the planet, I can use that in some way. Not easily, you know, like it's hard to go to Tokyo and buy a coffee with it, but I can find a money exchanger who will happily accept it. Yeah, right. I mean, I can do that, right? And does it have a bigger network effect than the pound? Yep. Than the Aussie dollar? Yep. Than the Kiwi dollar? Absolutely. And you can go down the 170 different fiat currencies that are in the world today, right?

55:12And it's huge. And this is the thing that is, this is what's, this is the short answer. This is what's so remarkable about Bitcoin in the last 15 years, that it is now worth more than silver in terms of market cap. I think it's the 10th most valuable asset on the world in market cap, right? And this is something that's competing against something that has the most entrenched, dominant, strongest network effect ever. And if you think that that will continue, and look, maybe it changes tomorrow, but let's stick to the facts. So far, it's only gone in one direction and trending extraordinarily strongly in that direction.

55:51if you think that that will continue and that each day that goes past more people will opt into the network it will gain increasing utility increasing acceptance and therefore increasing value that's why things will go down and that's why things have gone down in bitcoin terms and no matter how valuable it gets and how much people demand it you just can't make more of it so there's only one thing that's that's left to correct and that's the that's the i won't say price, it's the exchange rate. Anyway, I'll shut up at this point. That's good. It's a deep rabbit hole. It's a deep rabbit hole. I think you've done a brilliant job of explaining it, mate.

56:28The bit I'm trying to get my head to, and I'm doing this in real time, is Peter's question, which is analogous to, but probably not identical to Bitcoin, which I think is why it doesn't work in the same way. I've got to think it through. But his argument is, so let's say Bitcoin's a currency. We're all kind of so far saying, yeah, that's true. Yep. The argument is, when more people use Bitcoin, it'll mean I can buy a pizza for fewer of them. Yeah. Because the price of Bitcoin or the currency value or the purchasing power of Bitcoin goes up because more people, whatever that is, right? Whatever we call it, goes up.

57:05His argument is, let's say we convinced the Kiwis and the Canadians to use Australian dollars all of a sudden. Mm-hmm. would that mean as an Australian earning Australian dollars, I could buy a beer for fewer Australian dollars? So let's think of - Go on. Yeah, no. Oh man, gosh, it's hard, right? It really is hard. So no in that - And you know why no? Because we would print more money. We would create more money. We would create - So let's - But let's say that we don't - Stick with the analogy though. Yeah, okay. So you can Google this. And there's various sites that do it. The RBA, they'll give you what's called this different – oh, man.

57:48God, this is deep. There's M1, M0, M2. There's all these different measures of quote-unquote money. But let's look at M2. That sort of includes all bank deposits and notes in circulation and et cetera. So let's say that that didn't change. And then the Kiwis and the Canadians decided that they were going to use it. Now, what's the population of Canada and New Zealand combined? I don't know, 30, 40 million. So, we've now got 25 million. I'm making that up, but I think it's in that ballpark. So, there's 25 million people in Australia that now are on the network, the Aussie dollar network. Yeah. And now we're going to more than double that.

58:22Yeah.

58:26And we're not increasing the amount of dollars. Yeah. Right. So, how are these people going to get it? Well, they have to buy it off me. Or they have to deliver a service to you or me or anyone who's holding Australian dollars. That's the only place they can get it from. Where else are you going to get it? Buy it off me. I don't know what you're going to do. You're going to have to give me a Kiwi dollar or a Canadian. I don't want it because you guys aren't using it anymore. I don't know. It's going to have to be a hell of a lot of Canadian dollars for me to let go of my Aussie dollars. I tell you that much.

58:53But somehow you've got some US dollars or maybe you just give me a bushel of wheat or your car or something like that. That's actually the answer, right? because the answer is they give you more beers. Yes. When Twitter asks about the beer, he says, well, hang on, I buy a beer for$10. Why will I be able to buy more beer for an Australian dollar? The answer is because the goods that you exchange for that, not directly, not from the Canadian, but the Canadian will sell an Australian retailer beer more cheaply because to get the Australian dollars, they've got to give away a lot of beer. So there's a lot of beer in the retailer's store.

59:25So my purchasing power as a holder of the Aussie dollar has now just gone up significantly. Now, I can use it in Canada. Now I can use it in... And there's only the same amount. But this is... So you have more goods per store of currency, which is what changes the price. So it's inverted supply and demand. The supply increases dramatically because it has to to get those Australian dollars that it wants. And by doing that, it effectively pushes the Australian dollar price of that down. It's effectively deflationary because it throws a whole lot more goods in per Australian dollar to buy those dollars in the first place.

59:58And that's – because at the end of the day, we exchange Australian dollars for Canadian dollars, but we don't really. We exchange Australian dollars for Canadian dollars, which are used to buy Canadian goods sent to Australia. So we're really exchanging Australian dollars for Canadian goods or Canadian dollars for Australian goods. It's just that we use the intervening exchange, literally exchange, the handing over one for the other to facilitate the purchase. Oh, mate, you just nailed it. That is exactly – again, money is – let me be very clear on this. Money is an abstract concept. It doesn't exist.

1:00:26You know, all the people who try and dunk on Bitcoin by going, oh, it's only real because people think it's real. Like, yeah. You know, people in glass houses, mate. Like, you think your Australian dollar is real? Like, it's not real. It's a bit of plastic. Or, more likely, it's a zero and a one in a database on the ComBank servers. It's not real, right? It's real because we think it's real. And so, I know that's very uncomfortable, right? We don't... I reckon you went down in the street and you asked 100 people, what does the bank have? People still live in the 1920s. We think there's a vault there with gold in it.

1:01:06But even then, mate, even if there were bank notes in the vault, the piece of paper or the piece of plastic, it's not that much different to the ones and zeros. I mean, you can... There's fractional reserve banking we talked about. We refer to it a lot. We move on from that. But even without fractional reserve banking, it's still that idea of if I have a piece of plastic and I give you that piece of plastic, you'll give me some stuff. Yep. And if I go work for you for an hour, you'll give me a piece of plastic. Yes. And we just kind of go, well, we have to believe that I can say that piece of plastic is worth what I think it's worth.

1:01:34And we kind of think about it in dollars, but it's not. My labor is worth 15 cans of Coke. That's what it is. In the meantime, we hold a piece of plastic to recognize that I don't want the cans now. And the boss has to have the cans. But the boss will give me the plastic so I can go and get the cans from someone else. That's how it works. Dude, money is right up there with language in terms of fundamental inventions of human civilization. People talk about opposable thumbs and tools and that. Like, yeah, pretty cool. But language was what really separated us from the animals. And money is what allowed us to coordinate at scale.

1:02:10Otherwise, you come across Dunbar's number, which basically says every human can really only maintain a maximum of, you know, what is it, 300, 400 people as a relationship. I just can't know and trust 30 ,000 people, let alone 25 million people in Australia, right? So you're in the middle of Coober Pedy and you need some petrol and you hand over this plastic note to pay for it. This dude's never met you before. You could be the least trust, but he trusts the money, right? And that is why it's so valuable. And the difference that we have now for the first time ever in history is that we've got our current system, which is a pretty good system, by the way.

1:02:52Is it better than, you know, we've improved. We've gotten better. But it's only as good as the faith we have in the government and the RBA. And that's as good as it is. Well, to my earlier point, it's just like, here you go, Scott. I'll give you$100 right now, Aussie dollars, or$100 of Argentinian peso. What do you want? Same current exchange rate. What do you want? You don't have to think about that for three seconds. And the reason is because I'm as useless as they are at the RBA. I trust them a lot more than I trust the Argentinian central bank, right? And so the value comes from the trust.

1:03:26We now have what people often refer to Bitcoin as a trustless system, which people misinterpret me not that you can't trust it. It's a clumsy term, I have to say. It's a clumsy term. But what it means is I don't need trust. And not don't trust in the system, but I don't need to trust that you will agree with me on what it's worth. There is an independently verifiable way of - It is. What you have to do is you have to have trust in thermodynamics and the laws of mathematics. That's right. Right? It's like you get really deep here and talk about proof of work and how it bridges the physical and digital realms.

1:04:01And that's the blow your brain amount. Physical existence means you don't have to take on faith that you get paid. That's what the trustless business, you don't trust the system. You don't have to have faith in someone else's ability to deliver what they say they're going to. It's there because it's there. And I say, Scott, send me some Bitcoin. You open up your wallet. You shoot it across to me. And I know that you've done it. My software will not communicate with your software if we're not all on the same page and agreeing to the same rule set. That's kind of how it works. And it's just, oh man, why do you people write in about Bitcoin?

1:04:37But I guess - They're good questions though. And they're the right questions. And they're the questions that we all have. And the only thing, again, I don't do what you want to do. All I say is don't trust and verify. And it is - Michael Saylor is the CEO of MicroStrategy, right? They own almost 1 % of the entire supply. They've just been buying like crazy, right? and he was the biggest skeptic. Right, okay. Every single - That's the way, the zealot is always the reform. The convert is always the biggest zealot. We all have our Bitcoin origin stories and they all start off with - Yes. You're laughing at it.

1:05:16I thought it was stupid, yeah. And by the way, if that isn't your first reaction, there's something wrong with your brain. Yeah, right. You, like - Yeah. Because it's so crazy. It's so insanely crazy. Yes, it is absolutely right. Yes. It's preposterous that you would have a computer program that comes up with a different type of money that in the view of those who have this view is so much better and so much different and so valuable when it's literally, it's like, I've got to copy Microsoft Word. I'm rich. What do you mean? It is. It's absolutely preposterous until you've at least done some of that work.

1:05:50And I'll shut up after this point. But the thing that I think, And we all muck around with the altcoins. I'll use the polite version of the term. Because you look at everything in technology has taught us that something is going to come along that's better. Yeah. Right? So we had, you know, the old one is we had MySpace and then Facebook disrupted it. And then much better platforms kind of since. So it's like, yeah, Bitcoin is really cool. It's got a blockchain, does all this kind of stuff. but solana or ethereum or this is going to be better and and the other thing that's going to break your brain is to understand that it is a one-time invention it's like if you think it's preposterous for if someone rocked up and was trying to sell you a stake in the internet 2.0 or electricity 2.0 yeah you know you would laugh if you're like no we've got it dude it's invented It's the wheel is the wheel is the wheel.

1:06:49No one is coming up with wheel V2.1, right? Like it's done. Move on. And that's what Bitcoin is, right? It's that one-time invention. It's happened. And people suffer from - They do it in shares too, don't they? So how many times have you heard this in your career? I'd love to buy CSL, but it's 300 bucks a share. Yeah. I'm going to buy this little company because it's only two cents. It's cheaper. and then you have to go, okay, there's a pizza. You can chop the pizza in the morning. And you go through the explanation, right? And so people come along and maybe they get over their initial things and they go, yeah, but it's, well, what is it now?

1:07:2866 ,000 US or 100 ,000 Australian. Oh, that's too expensive. I can't do it. But Dogecoin is only$3. So I'm going to buy that. And that is fundamentally misunderstanding that there is a pizza that can be chopped into multiple things, right? You can buy a dollar's worth of Bitcoin. Yes, don't worry about it. I laughed at it at 20 grand and I finally bit the bullet. I think the average price for me is 40 ,000 Australian, something like that. I just sneak that in there for a little bit of a humbling bag. But I can tell you at the time, it was, oh my God, I'm so late. Oh my God, I'm so late. I've missed it.

1:08:03And then now it's 100 ,000 and you go, oh, I'm so late. It's like thinking you were late to the internet in 2005. Or frankly, you're late to the internet now, right? Can I just give you a - Last thing. The only losing move is to not play. There you go. I will support your point a little bit with a safer common ground example. Berkshire Hathaway shares. I wrote about this during the week. They're now more than a million dollars Australian for one single share. A couple of things like that. Must be too expensive. Must be too expensive. Don't buy it. So what I was going to say was, a year ago, I go to American dollars, they haven't got the full...

1:08:43So at the moment,$659 ,000 American dollars is the Berkshire price, right? A year ago,$535 ,000. The shares are up 23 % over the past year, and they're already half a million US dollars each. Yep. Again, I'm not saying Bitcoin's Berkshire or Berkshire's Bitcoin. Concept's the same. A big number, correct. I think that big number can't go higher. I mean, Berkshire could have been cut into 600 ,000 times more than as many pieces. And she has herself for$1.20 each. It's the pizza all over again. Actually, I've got to shut up. No, shut up. Move on. This is almost... We've gone way past this already.

1:09:20Such a fascinating concept. Come back for a second. Just on the trust thing, just the observation, right? You said you've got to trust the money. You've got to choose to trust the money, right? The Australian dollars or whatever. It's not even that. you've got to trust that the other guy trusts the money yes like that's it's like a Keynesian beauty contest yes it is it is exactly what it is because you've got to say well hang on I trust it's$5 but if he doesn't then it doesn't matter what I think he's got to trust that it's worth$5 and for him to trust that it's worth$5 he's got to trust that I do and you do and everyone else does otherwise it's like two of us you can change and it's what I like about it look I'm not a convert as you know mate I'm strongly agnostic and I wrote about it on Twitter for those who want to go and find it if you want some of my thoughts.

1:10:02Thank you. And then watch out. Then this becomes the Bitcoin podcast and it's all over. And another thing. No one preaches harder than the newly converted. Correct. That's the risk. You ought to be careful what you wish for around. Our listeners certainly do. But what I think the really important point is, mate, is the things that are new. Money is as preposterous as Bitcoin is. Yeah. And I think that's kind of, you know, But because we're born with it and we're born with the trust and we're born with the network, I'm not saying Bitcoin will become money or is money, whatever. It may still crash and burn for all I know.

1:10:38My point is that the preposterousness of Bitcoin, if you're going to think about Bitcoin and think about whether it makes sense or not, feel free to do that. But remember that money is as preposterous, we're just more used to it. And so just kind of keep that in your mind at the same time. before you dismiss Bitcoin. I said, I'm not a convert, but I'm absolutely not dismissing it. Before you dismiss it, just make sure that you're not dismissing it on grounds that simply are taking for granted all the preposterous things we already know and do. And so we don't think they're preposterous because we do them.

1:11:09It doesn't mean if they were introduced tomorrow, if there was no money, right? There's zero money. And the government said, look, what we're going to do, we've got some extra plastic sheeting over here. We're going to dye it purple and we're going to put a five on it. Everyone can have one of those when they work for an hour. And that's how we're going to make this work. Are you good with that? What are you kidding? I want the watermelon and the bushel of wheat and the can of... I don't want this plastic. No, go away. It's going to get stolen. No one's going to like it. What if people don't like it in the future?

1:11:34What if they stop using it? What if there's a better idea? Look, someone else has invested in a different bit of plastic over here. They're going to use that bit of plastic instead. I'm not making the case for Bitcoin at all. What I am saying is just be careful. Laughing too much is something just because you don't understand it or it's new. There's a lot of stuff we do currently that we should laugh harder at, but we don't because we're used to it. We're used to it, right? And I'll just make, you keep drawing me back in. I would say this as an objective fact, you know, Bitcoin is accepted in more places in the world and is held by more people than the Australian dollar.

1:12:09Yeah, that's a good point. Do you know what I mean? Like, it just is. If I rock up, you throw a dart at a map of the world and say, what currency do you want to carry with you? It's like US dollar first in this point in history, then Bitcoin.

1:12:28Honestly, maybe North Korea and a few weird exceptions, but you'll find an exchange. You'll flip it to local currency and you'll be able to cross the border with 12 words memorized in your head. It's fascinating. The number of people, a guy on Twitter a while ago is saying, well, I can't buy a coffee, therefore it doesn't have value. And it's like, well, have you tried buying? Go into your cafe with a lump of gold. See how that works out for you, mate. I tell you what. Or tin. Yeah, that's right. Yeah, or grab your Great British Pounds and go to your Oxford Street cafe and say, here you go. The cafe will laugh you out.

1:13:00Now, does that mean that the gold or the bushel of wheat or the pound doesn't have value? No, it doesn't, right? So anyway. It's crazy. Shut up. That is a silly rationale. This is the thing. Ignore the silly rationales. Take it seriously. Think about it seriously. If it doesn't work for you, that's cool. Yeah, reject it if you don't want to. Don't even have to reject it. I think I said you don't have to reject it. I think you can. Maybe I'm arguing for my own case here. But you can just say, I don't know. You don't have to believe it's going to fail or it's wrong or it's bad or it's not investable.

1:13:28Again, you don't have to short NVIDIA. We started talking about NVIDIA. You don't have to short it just because you're not buying it. You can just say, I don't know, and that's cool too. Dude, that is such an excellent point beyond this conversation. Just bring it back to something shares-related for a second. My God, everyone feels as though you must have an opinion on something. This is why you and I – well, I'll speak for myself. I don't get invited back on TV very often anymore because I go, oh, it's complicated. I don't know. It depends. And I'm like, oh, for God's sake, mate, can you just say buy or sell?

1:13:59And I'm like, well, I could, but I'm going to be pulling it out of my backside. I'm not helping anybody. And again, this is not about Bitcoin. When it comes to investing, get over yourself, right? Have the humility. That's so important. You don't need to have a strong opinion on everything. And the dawning of knowledge really starts with those three words of I don't know. And you know what? It's okay to say that, right? And that recognizes the state of affairs. And then you can correct that. You can know if you put the work in. And if you put the work in and you still don't know, totally cool.

1:14:39There is nothing wrong with just sort of saying I don't know. We started this podcast talking about NVIDIA, the best performing stock probably in history. You and I have been working in this industry for ages. We both missed it. We both haven't invested it. True folks, yeah. And then we sort of said, I don't really know. I haven't followed it that well. And it's like, I'm not embarrassed. I probably would be laughed out if I went to Macquarie or someone asked for a job and said that, I'd be laughed. But make your peace with that because there's nothing more dangerous than someone with some money to spend who thinks they understand everything and it's just going to go super quickly.

1:15:12Correct, correct. That is a wonderful way to finish. A bit of a warning after what's been a fun conversation. Two Bitcoin questions this week. I know. They should quote it for the year.

1:15:25Will you come back next Friday anyway? Well, if there's more questions like that, you couldn't, wild horses couldn't drag me away. Not even digital ones. Thank you for listening. Thank you for spending some time with us. Another great episode. We'll be back next Friday. As always, you're going to send us an email, info at fool.com.au. let our customer service or member services team know it's about a podcast question. I'll make sure I get it. Hit us up on all the socials on Twitter, Sage underscore Simeon and Strawman. Invest for Ram's thoughts on Bitcoin and sometimes other things. Or you can follow me at TMFScottP on Twitter or Insta or Scott Phillips Money on Facebook.

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