Mailbag: incl. What are the best investing habits? April 2, 2023

35:07No. Was it necessarily the way around? No, also not. If you have a manager that's run two different businesses in different economic circumstances, either macro circumstances or just different circumstances for those businesses, that's a really good sign for mine if you're looking for performance. It's rare, very hard to find. I look for businesses that have been successful under long-term managers where they've gained meaningful market share and or profit growth at the expense of competitors or better than their competitors. So I don't love comparative analysis on pricing, but I actually do love it on management performance.

35:44If you've got two businesses, one's done better than the other one and meaningfully better, there's a decent chance management is part of that. Now, it can be brand, it can be a whole lot of other things, but management's probably part of that story. Look for management candor. It's really rare. We talked about that before. If you get a manager who just says, this is what's going on, this is what you need to know. That's important. A bit of humility is important if you can find it. So that's probably, they're probably just a quick checklist of things I'm looking for. No, by the way, you'll be wrong about management as you are about investing some proportion of the time as well.

36:14There'll be people who are charismatic who pull a wood by of your eyes. There'll be people who look disappointing who do a spectacularly good job. The other thing is, just one last one for me, is look for managers who talk about the business as an operating business. When you talk to a manager, I'm going to say Darrell Obotomy at BAPCOR, could really clearly enunciate why BAPCOR needed to change the things he was doing, why he was doing them, what he thought it would lead to. Not that his predictions were right, but he had just an obviously really detailed view of the business, how it was going to make its money, why it was going to be successful, what the future looked like.

36:50That level of granular detail, he could still be wrong. But if you combine that with other stuff, it tells you a bit, I think, about how well those businesses are being run. Rem? Yeah, no, I agree with all of that. It is hard. I mean, one of the big, I'll show my own business here for a second, but with Premium, we do CEO interviews at least once a week.

37:15And it's hard to sort of say what makes you pay more attention than not. In a bizarre way, the better storytellers more concerning because they know the narrative, they know the right things to say. That's right, exactly. You know, I've always loved the very soft-spoken one type of CEO. I like the one that is, as you say, talks about the business and rarely talks about the share price. I like the one that when they talk about the business, they're talking about how it looks over three, five, ten years, not like what we're trying to do next quarter. I like ones that have been consistent in their messaging.

37:50It's very sort of hard to make it a formula, but I think you do pick up things over time. and I've said it before too, I like managers that own mistakes. Yeah, we did this and it was a mistake. You know, we move along. This is why we're doing it. And they tend to get a hard – there's a big incentive not to do that because they tend to get a hard time for it. But I appreciate it and, yeah, it's – oh, the other thing that needs to be mentioned is alignment. It's always great when insiders have got a lot of money in the company and importantly money that they have put in themselves, evolves, not, you know, here's a risk-free direct alone that you can go and buy shares or performance rights that you get if, you know, as long as you continue to fog a mirror, you'll get 10 million shares next month.

38:37You know, that kind of stuff's pretty egregious. But when there's genuine skin in the game, you see them buying on market. It's not a guarantee. And shares rather than options, right? Like the money they're putting aside, like options are free money. If things work out, you might get something here. It's like, no, I've got real dollars in the market. I could take them out now and cash them if I chose to, but I'm leaving them there because I believe in what's going on. The saying is management sell for many reasons, but they buy only for one. And that is that you might sell shares because you've got a tax issue or you want to buy that new private jet or whatever it is that CEOs want to spend their money on.

39:09There are totally legitimate reasons why you would want to sell. Rebalance your portfolio. I don't know, whatever. But you're only buying voluntarily on market with your own cash. And I'm not talking about a window dressing, oh, look, wow, the CEO who's worth$20 million bought$1 ,000 worth of shares. That's completely, you know, it's almost cynical. But when they've made significant purchases, and actually you see a lot of directors doing that, again, no guarantees in this game whatsoever. But do you like to see it? 100%, you know, especially when it's big sums of money. They might be wrong. They might be absolutely genuine on, this is so cheap, I am buying it.

39:46But they might still be wrong because they don't know that a new competitor is going to come out of left field tomorrow and destroy their business. So it happens all the time. But it's a good sign. It's a good sign. I like to see it. I like it, mate. I like it. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

40:07Let's go on to a question from Bishow, who says, Morning Fools, you both talked on a recent podcast about the government's lack of long-term vision, planning and policies due to the influence being placed on being re-elected. Short-term vision, he says in brackets, or she says. Then should we look at having longer election periods? say perhaps five-year terms like in some other countries this will allow governments more time and incentive to implement mid to long-term programs that way these programs have the time to develop and people can see the results prior to going to the polls again or would it be politically untenable due to a successful government being able to stay in power for longer and no opportunity presented to the opposition to campaign for change thoughts regards be sure what do you reckon mate longer terms or are we good as we are well this is well well outside of investing and i'm i'm no political science scientist so yeah i mean i don't i have not deeply thought that through lengthening election cycles yeah i can see the advantage i'm sure there's a whole bunch of negatives that come with it as well you're you're you're more on top of this kind of stuff what do you think you mean i'm an opinionated so-and-so who spends too much time i'm thinking about politics um be sure i like the idea um i i don't know i go five years i reckon four might be a good compromise the current federal terms are three years um we had a government new south wales a state government they have they have fixed four-year terms here and they were so badly on the nose for the last year or a year and a half it actually became a bit distracting but it almost kind of reduced a bit of faith in government these guys were always going to get turfed out they're going to lose by miles.

41:46It was almost one of those things where you can almost sense, I think, in the population, a bit of a loss of faith in government generally. Now, frankly, there's a lot of trust left in politics anyway, so maybe it doesn't matter anymore. But there was just that sense of like, obviously, these guys are hopeless. Obviously, they're going to lose. Obviously, whatever. And it almost became a bit of a walking clown show, car crash, choose your renter for, where people kind of just ignored and went, oh, this is kind of not great. So I think I agree with you i think i i definitely like the idea of you know not having to effectively start campaigning as soon as you win you know the idea of having a better time to to make some changes and make things work i quite like so i think i'm bent on on balance i would absolutely i'd go with four year terms personally um as a start maybe you can increase them to five if it worked but i think it's i think it's a smart approach man i think three years is too short um it's just really sure if you think about you know three years like think about that by the time you win you get some stuff sorted out you're probably going to campaign out a year so you got two years max to do anything at all so yeah i i actually think it's a it's a nice idea also by the way it's not a big deal but a reminder that i'm sure you know the senate elections there's only a half senate election every three years so effectively a senator serves for six years uh and that i assume changes some things now different focus and all that kind of stuff but it's not exactly unheard of so yeah i like the idea i wouldn't have a massive issue with five but i reckon we go to four and see if that works and then maybe go from there there you go one one one other problem solved for the world you're welcome we do what we can here we go from oh dear uh hi there says mark not sure if this is the right channel to submit a listener question but here goes i love the debate between andrew and scott about home ownership and the different direction and regrets they candidly bring to the discussion i agree wholeheartedly with the boys negatively gearing residential property is an absolute dud when you properly account for the opportunity cost of the money needed to fund the deposit and sustain the dreadful losses year in year out until the point of sale or slow progression to a break even and eventually positive cash flow.

43:48I've headed down the home ownership path myself, but I've used the equity built in our home to fund the full deposits for four further residential investment property purchases, i.e. he says no cash out of pocket whatsoever. However, those residential properties have all been deliberate, carefully sought out high-yield properties based in major regional centres. They will produce positive cash flow from day one, so none have cost me any cash out of pocket to hold either. The surplus cash has been funneled into accelerating pay down of our mortgage, its non-deductible debt, he says, and more recently maxing out concessional contributions into my wife's super.

44:24so my question is or was there an opportunity cost to this strategy that i need to account for and reconcile myself with am i just another delusional residential property investor missing a key point i've racked my brain for the last 20 years on executing this strategy and i haven't been able to find a flaw in my reasoning but if there is one i'm sure the smarts of andrew and scott will flush it out and i'd love to be all the wiser for it full-on mark Where is the flaw in Mark's plan, Andrew Page? There's no flaw in it. It's just being aware of what possible scenarios it can lead to. So this is what's difficult when you raise certain concerns against certain investment structures and expectations is that historically when you look back, taking on a huge amount of debt and rolling any increase in equity into more loans is just obviously the best thing to do in a rapidly rising market, like just full stop.

45:24It is. And for a long period of time too. For a long period of time. So there's two questions here. Was that a good strategy? Well, as it turns out, it was remarkable. What could have happened? Just to put it out, there's not a prediction or anything like that, but the only reason the equity was there to be able to roll into something else was because of the price increase. The price didn't increase that much, or God forbid it fell, that doesn't that doesn't work now if you were to say this sounds like a really smart investor because they've actually unlike a lot of people looked at it and go i like i like assets that have positive cash flow which so you know already i'm i'm i'm much more um on board with this and they've done it to an extent where if there was any sort of nastiness in the market where they're not a forced seller i.e okay my the the the value of my houses goes down but the income stream is more or less okay i can still continue to service the mortgage i can ride through it and come out there's no problems with that i've got absolutely no problems with that the risk is though for some people who have pushed the thinking and strategy so far that although it's made squillions on paper if there was you know a 10 or 15 drop which is what what's happened in sydney over the last 12 months um forces me to sell and lock in like you the benefits of the leverage works both ways is what I'm saying.

46:45And so that's the downside. And then it's just it's not a black and white thing because at 1%, you know, if you're leveraged one to one, 50 % geared, you're probably pretty safe. If you've borrowed eight times for, you know,$8 for every$1 you've got, you're much more risky. Where you want to sit on that spectrum is entirely a personal choice. The more riskier you get, the better money you'll make when times are good, but the more risk you are at washing out. And that needs to be the calculus that you look at. So is that a flaw or is it, it's not a flaw, it's just a feature. And it's a feature you need to be aware of and find a line that's comfortable.

47:22Yeah. Um, I, so, so I think there's a couple of things going on. I think, you know, has it worked out well? Yes. Um, now I can, I can play Russian roulette and click the trigger and nothing happens. I say, see, I told you I was smart to play Russian roulette. And you go, well, no, that was clearly stupid. Um, you can say, I have all my money in cash in four different banks i've been really thoughtful and careful and yet there was some unforeseen economic crash you know was that stupid no you still lost all your money so separating out the outcomes from the odds of success or the or the uh sensibility or otherwise of the strategy are different things so first i'm not saying you're wrong by the way mark i'm just saying you look at those differently so you can't judge they call it eventing in the statistics world in four things also the professional poker world is saying this hand worked out therefore i played it correctly and that's just not true um that you might you might have done it or you might have been lucky and you need to separate those two and again if they work out badly the same thing just because you get a bad outcome doesn't mean you you played it badly um so that's the first second thing is obviously we're looking at both at the time and subsequently so at each point when you had the extra extra um equity because of the rising prices was it right to use that money is a different thing from should i have planned it out right or you know could it could have gone differently so we're kind of partly saying after the fact was it right or before the fact was it right the other thing is obviously during the case as you generate a more equity was it was it a good idea to keep going well probably if that's if that's the way it worked out a couple of things so i'm not going to say you did the wrong thing or you're doing the wrong thing i'll add a couple of things to ram's uh thoughts in terms of potential because you're asking us for the to shoot holes or potential holes in it i'll take that approach um if interest rates had do continue to be higher than you thought, then all those positive cash flow things can become negative cash flow reasonably quickly.

49:14Again, depending on how much equity you've got in each one, all that kind of stuff. And there are circumstances where you can go from negative cash flow to positive cash flow back to negative cash flow, or just from positive straight to negative. Because if you've maxed yourself out, all of a sudden, if the rent's not covering the interest repayments because they rise quickly, you can go from positive cash flow to negative cash flow. And then potentially, the more leverage you used, I don't mean leverage in terms of absolute borrowing. I mean, the degree to which you took that home, the principal place of residence mortgage, and parlay that new investing, you can actually bring yourself entirely undone.

49:46In some circumstance, depending on how much you've got, how much you borrow, and all that kind of stuff, there is a scenario where someone with four investment properties and a home mortgage goes broke for exactly those reasons. The interest rates go up too quickly, they can't pay them, and all of a sudden, they wipe out their cash flow. Secondly, of course, you can wipe out that equity so the money you thought you were taking and putting aside and growing with if that goes into reverse it's again you leverage worked both ways you leverage the downside so it wasn't a no loss outcome potential it hasn't been which is great and congratulations glad you've done well but in in a different world in a parallel universe somewhere you've now got five properties that are all underwater and costing you money every day and you think man that that got bad really fast so there's that that kind of stuff as well is definitely possible the other one is opportunity cost.

50:32And it's straight out, what if you'd taken that money out of the mortgage and put it in shares instead? And what if those shares had grown over time? And I don't know the answer in terms of what it might've done, but there is a scenario I've talked about before with my investing. We've got a very complex spreadsheet where I put in my assumptions for share gains, dividends, property gains, rental increases, interest rate changes. And my wife and I have tried to look at that and say, which one should we do? Should we take money out? And I've said before, I may buy an investment property this year if things work out, you know, attractively enough.

51:00If prices fall enough, I may do it because that spreadsheet might change. But for now, I haven't got a scenario where over 30 years, based on the assumptions I think are likely, I think I'm better off actually putting money into shares than leveraging into property because of the net costs of doing all that kind of stuff. So it's a question of assumptions, mate. And more than assumptions, it's a question of which assumptions come true, how accurate those assumptions were and you can't know those in advance my last point is just a simple one which is i'm very much i don't go back to square one kind of guy i've worked hard i've saved hard i've been very lucky over the first x years of my life and working life if i had to go back to zero now because i accidentally got it wrong even with the best of intentions i'd be in a very different economic circumstance i choose not to put myself in that scenario i don't want to have that much debt.

51:50I don't want to be that exposed to the risks of making a bad choice or having bad circumstances, bad outcomes. So I'm not going to put that much leverage in my life. When it goes well, you will, you know, we draw on a graph, I can't have the same upside you've got because I'm not borrowing into multi-millions of dollars worth of property, which if I'm right or you're right, will be worth many multi-millions of dollars in 20 years. Your upside potentially is bigger than mine. Absolutely, Mark. Absolutely. My downside potential, I think, is less than yours. And that makes me very happy. I'm comfortable being in that middle space rather than shooting for the stars and maybe coming crashing back down to earth.

52:32So again, I'm not saying you will. I'm just explaining why I would take a different approach and what the risks might be of doing that. Yeah. I mean, again, it's one of these conversations I think people will pigeonhole too much as pro-property or anti-property. It becomes, I know firsthand that it's very easy to be misunderstood with some of these comments. So for the avoidance of any doubt, I will say that I'm absolutely not against the idea. Look, if I could conservatively leverage, say 50 % gearing ratio into a portfolio of properties that gave me a gross yield of 5 % or 6%, argue whether I'm realistic in that assumption or not.

53:14But if that's what I looked out there and thought that I could get, I actually think it'd be really, I'd be really disposed to that. It's not an ideological affront I have to the concept of doing it. I think you've taken on leverage, but to my earlier point, it's not a great deal. I mean, you'd have to see the value of your property drop in half before you sort of got into real trouble there. And that's probably unlikely on a company, a company, a property that is yielding that kind of cashflow. So again, never say never, but that doesn't strike me as an overly risky approach. And if equity did build up over time and I could maintain that kind of gearing ratio while at the same time maintaining a good yield and in dollar terms, growing the amount of income that's coming, I think I'm totally cool with that.

53:59So I'm not anti the approach. I'm not anti the asset class at all. But it is, as we were sort of talking about before, it is looking at the situation as it is right now. And my negativity is really framed in the part of, well, actually, if I look at a lot of places now where I know and what I can afford and the kind of leverage that I would need and the kind of rental yields that the market is offering, I don't want to highly leverage into something that's going to be a negatively cash flowing asset. That's just me. If the market ever changes, I'm all, you know, very different standpoint. So, and I think you need to maintain that flexibility when saying, is it property?

54:37Is it shares? Well, actually, there's a big opportunity set within asset classes, but across asset classes. And your job in shepherding your money is sort of saying, where is the best risk reward opportunity? You've just said, for you, you look out and you think it's shares. I'm with you, right? That's my view at this point in time. You couldn't force me to buy some of the properties that are available right now in my area. But that could change. And if that changes, I need to change my stance as well. So yeah, hopefully a bit more nuanced there. Yep. Question from Tendai who says, Hi, Scott and Ram.

55:09Hope you're not losing your hair in the midst of the market turmoil that was triggered by the collapse of SVB. This is in brackets, pardon the reference to losing your hair, Scott. FYI, I have as much hair as you. Thank you very much. Oh, Tendai, do we have to do this? Question. The price of Bitcoin has increased by 15 % or more since the onset of the stock market meltdown. does this indicate that bitcoin has become the new gold i.e a hedge against share market volatility i know this sounds like an oxymoron he says or at the very least does this bolster the case for including bitcoin as part of any investment portfolio to diversify risk as there is less correlation to share price movements p.s ram if your bitcoin portfolio was to increase in value to say two and a half million dollars would you cash out and buy a house in sydney full-on tendi unfortunately we don't have time to answer this question oh man you're putting this at the end There's so much to say.

56:02All right, let's do our best. Okay, is Bitcoin the new gold, Andrew? Is it a hedge against share market volatility? I don't. Let's go back a second. It's actually up about 70 % since the start of the year. Historically, it has actually been reasonably correlated to what they call risk assets. Yeah. And so, yeah, it's been very volatile. But then again, I would say, well, look at some of the biggest tech stocks in the world. hello volatility, right? Like this is sort of not an unusual characteristic of Bitcoin. Like it's not the only thing that's sort of volatile. We've even seen with government bonds can drop 40 % in a year, right?

56:42So I guess I'd make that point. By the way, mate, you said it's up 70 % since the beginning of the year. It still is down 32 % over the last 12 months. Oh, yeah, absolutely. I mean, you can frame it any way you like, but it's still up a gazillion percent over the last five years. Correct, correct, correct. I think for me, what's interesting about it is I fully expect this thing to drop 50 % multiple times over the period that I hold it. But I think what was interesting is that in a situation where there was very serious financial concerns in the financial sector, you had asked me, there's going to be bank runs in the US.

57:18What does that do to the price of Bitcoin? My guess would be it's not good. It's not good because people are scared. And when people are scared, they flee away from risk assets. It's very much classed by traditionalists as a risk asset. It's going to be bad for the price. It went up and it went up a lot. That was interesting. It was Bitcoin is sort of call for this decoupling that will happen at some point where it's actually recognized as something that doesn't fit into any of the traditional molds. And it's actually got a lot of characteristics that make it actually a very effective hedge against a whole bunch of other things.

57:51So what I would say is, forget the price, honestly. What are the metrics that matter? Number of hash rate on the network, number of nodes, the number of wallets, the number of usage, all of those things are just going bottom left to top right. So in terms of the network, it's never been stronger. Would I sell if it got to, let's say, play a hypothetical. I'm not saying it will happen. Let's say it gets to$100 ,000 next year or$1 million next year. Would I cash out? Actually, we'd buy more. And the reason I think is that if under that scenario, that scenario really only happens as it becomes more established as a viable asset class.

58:31So it's kind of like the price is higher, but the risk is lower. And this is the point I've made to you before. I think at the current point in time, this is the best risk adjusted return profile you've ever had for Bitcoin. Yeah, you could have bought it for a dollar many years ago, but it was a complete speculation. We had no idea what was going to – the network then and now is completely different. In a future where this is increasing corporate sovereign adoption and the rest of it and the prices, that's being reflected in the price. That's like, no, now it's an even better bet. The upside isn't as great, but the risk is significantly less.

59:05So I think – That's a unusual one, mate, because in this case, while normally I would say, well, hang on, that's just momentum trading. You buy more because the price goes up because more people like it. This is literally – its value is in the price by definition. If Woolies price goes up, it doesn't make it more valuable necessarily as a business. We talked about sentiment earlier. In this case, it would literally be sentiment is the thing that matters. We're measuring supply and demand for the currency itself. That's how it would be measured. So I just want to make that point because we've talked before about momentum and prices going up and down.

59:34You're right to distinguish that. Why is that the case? Well, let's say that, again, hypothetical, the world decided to transition onto Bitcoin tomorrow. I mean, at the current price, there's not enough volume there. You can't, global trade is too, the whole entire market cap is like half a, half a, was it$500 billion, right? So it's less than the market cap of Apple. It just, it doesn't have the weight to support the transactions that are necessary. So Bitcoin has this really interesting phenomenon that as it, as the exchange rate goes up and up, it's actually able to hold more weight. More transactions can go through it.

1:00:10There's more liquidity on the network. It becomes more useful in terms of its value proposition. So it's sort of like, it's like saying I bought Amazon because I think it's going to be a much bigger player in the online retail space. And then after five years of success, you say, I'm cashing in because I was right. It's like, no, now it's more right because they're clearly achieving on this end. And this is not that yes, the price and value are two different things. Now, the best, you're not getting as good a price buying Amazon five years after it becomes more obvious, but there's still huge upside potential.

1:00:43And now it's a much, much safer bet because they've got a dominant, clear lead, heaps of momentum in the business, huge network effects establishing. Like that's too often people miss out. Forget Bitcoin or just investing in general because you feel, oh, I've missed the bottom. It's too late for me now. When these big structural changes are underway, you can be very late. You can still do very well. And in fact, you're taking much less risk than the earlier people. The earlier people get the better return, obviously, but they take much more risk in getting that earlier return. I'm going to shut up now because I'll keep going.

1:01:16I think$10 is partly the joke about$200 million was at what point would you take the money and buy a house? As a broad idea, rather than it being overvalued necessarily in the numbers. Great problem to have, but it would be a very painful decision because the way that this is more just a cynics way of looking at it, but I can assure you, let's say it happened and I thought, woo, I can afford a house to buy it out right now and I do it. You know what's going to happen after that, right? It 100 X's from there and I'm sitting in my little house going, why did I do that for? Except if you don't buy the house, you know the price of Bitcoin is going to get there.

1:01:55Exactly. That's exactly what's going to happen. You're stuffed either way. Exactly. So I'd be very reluctant to do it. And it's very clear. I just want to make this clear because it too easily gets understood. I am not buying this thing because I'm speculating where the price is going to be next year, next three years, next five. This is either a thing or it's not. And if it's not, it's probably zero or very close to zero. If it is a thing, it's worth a hell of a lot more. And it's going to play out, even under very bullish scenarios, it's going to play out over a long period of time. And so that's the frame I'm going into it with.

1:02:26So don't at me if it drops 50 % or if it's 10%. And you hold me to account, mate. If we're talking in a year's time and it is a million dollars a coin, I'm not going to be doing any great victory laps because I certainly didn't call it, didn't expect it in that kind of timeframe. And it's just sheer hubris to do so. So, yeah, it's important to frame things out correctly. Yeah, it's a good point. I'm only going to add my thoughts only to one part of this question, which is just the new gold thing. I think it's true. I think we might have talked about it a couple of weeks ago that people did find Bitcoin as a place to put money because it's a simple, easy, quick transfer out of a distressed bank that required very little in terms of setup and time and all that kind of stuff.

1:03:05So it makes sense of like, if you're worried about the value of your dollars or dollars in general, having some other asset like Bitcoin or gold or something else made sense for some small number of people. And that's a real thing. And it potentially is part of that acceptance story. I don't think it's, if it becomes the new gold, I don't think it's the new gold yet. We've seen it way too volatile. It is, as you said, might reasonably correlated with growth assets or risk assets more more directly thus far um so i i think objectively it's here's the here's speaking of sentiment gold's only gold's only the old gold or you know is it's only seen as a hedge for inflation because people think it's a hedge for inflation yeah so the very the very the very nature of buying gold rather than holding money drives the price up so we say see i told you it was going to be that it's like the people doing it create the very outcome they're looking for which is not which is not cynical or even wrong it just it is what it is yeah if people tomorrow said that gold is no longer a hedge for inflation no one bought it next time there was a problem no one would buy it and it would cease to be true yeah so it's only true for as long as people think it's true um it's a good thing to think is true to some extent because we've got 10 000 years of track record where it has been absolutely yes i can sympathize with the gold bugs on that so i think i think looking at it through the lens of digital gold is a good way of thinking about it, really.

1:04:22Because it's not something that produces cash flow. It's not an equity. It's not a dead instrument. It doesn't. So I think talking about it in those terms is not, it's the wrong framework to sort of think about. Gold is a good framework. 90 % of gold's value, if you look at all the gold in the world, is there. It's a monetary premium. Its value is because you can use it as a proxy for money. If you took that away, you know, the amount that we use for jewellery and industrial purposes is very inconsequential. The price of gold would be much, much, much, much, much lower. So it's a good framework because it shares the characteristic of scarcity.

1:04:57It's just that the great thing about it is that it marries all the advantages of a hard money gold standard, and it combines that with the telecommunications revolution. So now I've got gold, which is invisible, weighs nothing, can divide up into as many pieces as I want, and I can teleport it at the speed of light. I can instantly assay and verify it. You know, no one's put tungsten in the middle of it. Or, you know, it's just like all of the advantages of one system combined with the new. But if you want to say, how do I think about it? I think gold is actually a pretty good way of thinking about it.

1:05:29The difference is it doesn't have that 10 ,000 years of history and there's no guarantee that people will see the benefits that you see in it as eventually the thing. 100%. Which is why it's not yet the new gold. In terms of the way it will behave in economic circumstances, not the new gold. I actually 100 % agree with you, mate. I mean, for all of my, I'm a skeptical of Bitcoin as a gold and vice versa. You know, it's no worse than gold. I completely agree with the possibility that you still need people to have that net effect of 10 ,000 years of acceptance. That level of acceptance that gold's had 10 ,000 years to build, Bitcoin is trying to, Bitcoin itself doesn't do anything, but Bitcoin holders, users, promoters, fans, true believers are hoping to make it a give it the status the classification the acceptance the whatever of gold which is not there yet tender so yes i wouldn't i personally i don't buy gold anyway i'm not trying to hedge against volatility by definition um but if i was going to i would actually use real gold for now for that specific purpose if that's what you're literally trying to do is i know there's a very good chance this will be a good hedge i think you can have a reasonably good view of that with gold because of that history bitcoin may eventually be that thing i wouldn't be surprised if it eventually was um nor what i'd be supposed to wasn't hence my fence sitting but uh i i wouldn't use it as a as a replacement for gold in that very specific context yet because the market hasn't come to that view yeah yeah i think that's i think that's totally fair it it is there's something uh called the lindy effect and and basically it says the longer something has endured the more more valid it is right and so gold's very valid because it's just survived for so long which sounds silly right because it's almost by definition but that is almost exactly the point of lending effect if we had never discovered gold and someone discovered it tomorrow it's yeah yeah you know it's it's not going to have the same qualities that it has this is i just circle back on an earlier comment bitcoin i think too many people when they think of bitcoin they think about it in the terms that they first heard about it five years ago which doesn't sound like much but the thing's only been in existence for 14 years and that's why it was such a ridiculously speculative early bet i mean it's the way it's evolved has been fascinating but that i will make the point again that it is today a far better bet than it has ever been because we actually have 14 years and next year we'll have 15 years.

1:07:48And this is always a core part of my thesis, which is if it survives, it's worth something. So you can imagine, let's play another hypothetical. Let's say for the sake of example, put price to one side, that the Bitcoin network is still running in 10 years time and it still had no downtime. It still had no hacks. It still operated flawlessly. that is by definition a much more uh uh interesting proposition because it's it's it's now now we've got 25 years worth of history yes you go well that's still not enough for me and then you get to a point where it's like i've got 50 years at what point do you sort of say wow there's this permanent thing and and not only that but more and more and more people are using it that's kind of that's kind of where you have to start with it if it if it's the every day that goes by it becomes a little bit more valuable we've got to be careful to our conversation on trends and stuff before tomorrow we could wake up and the whole thing could have collapsed i think once you understand the um technology it's extraordinarily unlikely but it could happen right and and and if if that was it's it's all over but but every day that it doesn't i think the the the opposite is is also true and so my we'll finish the pod but i look i i would just say my i am got no care to try and convince people to buy it or not buy it.

1:09:06But I think you have to have a, I've got a set of a series of circumstances under which I would say, thesis broken. What a crazy idea I had to invest in Bitcoin. I'm out. Like there's certain things that can happen that would change my mind. I only encourage people who are anti-Bitcoin to say, okay, what would cause me to change my mind? Now, maybe it's like, okay, by the time Apple has it on its balance sheet, okay. By the time it's officially regulated in the US, okay, that's it. By the time it reaches market valuation of $1 trillion, that's when I do it. I don't know where the milestones are for you to see it, but you should be aware that you can't have a static view of this thing that is monetizing from the ground up.

1:09:47It's either you're right, in which case history will prove that you're right, or if you're wrong, there's two kinds of wrong. There is, I was late to see it. And by the way, that's everyone's journey. Everyone is late to see it. But do I just want to never see it or never give myself the opportunity to see it? Now, for some people, for you, for example, the line is much further out in the future to where it is for me. No one's right or wrong. But I would imagine there's a point at which, like, again, let's play the hypothetical. The Australian government's just adopted it as its official currency.

1:10:15We'll give a stupid example, right? Yeah, yeah, yeah. And if you're at that, and by the way, let's say it's another 10 years of seamless operation and it's integrated, like, most global commodities are settled on that as a medium of exchange. You've now got a barrel of oil being priced in Bitcoin. The person who goes, no, no, it's a con, only criminals use it, it's boiling the oceans. You know, it's like, man, you've really got to update your thesis here. Because a lot of this FUD, this is called fear, uncertainty, doubt, is kind of laughable now. It actually wasn't when it was first proposed.

1:10:46They were actually, you know, oh, what about a quantum attack? What about this? What about that? And it's like, actually, all very good points. But, you know, it's 2023 and they're redundant now. and we don't have time to go into that. But the legitimate FUD that exists today, again, assuming that the thing goes on, will at one point be extinguished. And you just need to be flexible enough to kind of go, okay, now I'm going to take it seriously. I think the standpoint of saying, I will never take it seriously on principle is a very silly, whether it's Bitcoin or shares or anything, it's just a really dumb standpoint.

1:11:17There's no circumstance on which this could be true as silly as there's no circumstance which is going to be false. And that's, I think, the challenge. I think that's, I think it's absolutely right, man. I think that's, I think there's, so there's a couple of things you don't, it's also okay not to have a view, I would say for what it's worth, or not to come to a strong enough view. I'm always, I believe the effect is real. It's also true that everything that eventually breaks existed for a period of time that was larger than the time it took to collapse. So it's almost, you know, up by the stairs, up by the elevator thing.

1:11:48It's like, you know, Enron was a wonderful business generating a whole lot of money until the day it was actually a fraud. Like there's that kind of, no, it was actually a wonderful business, but a wonderful stock, you know? So there's also that as well. There's always the first time that, you know, anything times zero is zero. You win roulette four times in a row, then you don't, it's all gone. So those things are both true, I think. And I'm absolutely with you on Bitcoin. There is absolutely a scenario in which it becomes a permanent store of value or exchange or both. Maybe it becomes the underlying layer of all financial transactions.

1:12:16Maybe it exists as something off to the side. The range of potential outcomes is massive. and I just don't I have a limited amount of money there's an opportunity cost I don't want to spend the time to go down a rabbit hole that may or may not end up successfully because I've got plenty of other alternative options for my cash but I absolutely agree that other people do exactly the reverse I spend no time on mining companies other people make a fortune on mining companies that's cool you don't have to be the best you don't have to but I know you I'm sure if we're still doing this podcast in 10 years time and if it goes in a certain direction, I'm sure there'll be a point where you're as on board as anyone because it becomes a point where it's silly.

1:12:55Usage, not price. Yeah. I mean, it's like the person who, oh, the Wright brothers are idiots. This thing's never going to take off. It'll never work. And they're sitting in the nursing home 30 years later with all these jumbo jets going overhead going, it's ridiculous. It's like, well. At least one of those is going to crash. Yeah, exactly. Just put that, think about what does it take because the head in the sand is just dumb on any. it's the same with AI if you want to talk about investment themes or lithium or any kind of thing have your view just don't be rigid in your view that's the only thing I urge here and I as you mean we've been doing this pod for yonks man you were the one who bought Bitcoin back in 2017 and I was the one laughing at you you know you've just got to be flexible on these things yeah totally and that description is a really cool line I'm glad you brought it up because your change of mind is absolutely evidence of that.

1:13:50Someone who goes from skeptical, you ask me every podcast episode, what's Bitcoin worth now? And it was fun. It was always just purely for the theater. But it was pure skepticism, right? It was purely this is ridiculous. This is not going to work to actually you find out a bit more about it. Okay, now I've actually changed my mind. That's really rare. And I think that's a really good example for our listeners. Maybe it's on Bitcoin, maybe it's not. But don't have a closed view of anything. If there's more information that's presented, you should absolutely be open to changing it's you know what was it john maynard no it was jp well he basically said you know i saw you've changed your mind he said well when the facts change i changed my mind what do you do right like that's correct i think that's that's uh really valuable um what i will say this and then we really should end this but it's your fault for bringing up bitcoin um no no it's ten dollars for bringing up bitcoin i didn't want to ask the bloody question i'm a i'm a humble servant of our listeners so i was joking to you before i'm going to a Bitcoin conference.

1:14:44Bitcoin Alive, quick plug for a couple of weeks. If you're interested, come along. Oh, it's all right. There's going to be better things to do with your time. But I said, my wife said to me, this is like, this will be the first time where you get to have a conversation about Bitcoin where the other person also wants to talk about Bitcoin. Because normally, it's just people very politely suffering through my rant. So I'm very much looking forward to that. But the point I was going to make was is that in the last two or three weeks, I've had, because people know what my opinions on it is like, and they've had to enjoy these conversations.

1:15:17I've had more people reach out and going, so how did you say you bought it again? And how did you store it? Like all the questions, like, wait a second. What's, well, I was talking about this in November last year. Couldn't, couldn't get your attention on it. What's changed? 70 % appreciation in the price has changed. And isn't, isn't that all, whether it's shares or whether it's investment property, whatever it is, it's sort of like, you know, as an investor in certain asset classes, you're very positive about it. You cannot drum off any interest when prices are down. It's that classic meme of the two signs.

1:15:47There's a stall there. It's like, you know, complicated but correct answers, and there's no one there. And there's the other one saying easy but wrong answers, and the line is a mile long. And the Bitcoin version of it is Bitcoin at$15 ,000 US, no one's there. Bitcoin at$30 ,000 US, the line is a mile long. And it's sort of like, this is what I was saying to you, like watch the hash rate, watch the nodes, watch the wallet count, watch the metrics. is like in terms of is this, are more people using the network? Is security growing? Are they increased transaction velocities? Da, da, da, da, da. It's like, well, it's only moving in one direction.

1:16:19And that was true three months ago. And it's just that you got to buy it for half the price. So anyway, it's an interesting, people will be more, more people will be attracted to it purely because the price comes up and it's sort of the wrong reason to get involved. But it actually works in the favor of the, again, it's such a strange asset slash asset class slash whatever because of that normally that would be the world's worst thing right everyone pushing up the price of something just because they're excited about it in any other endeavor is like that's terrible yes this time around as you say the very nature of the price being pushed up is what gives its own momentum it's different yeah um yeah the saying is um you come for the money but you stay for the revolution and i just i just love that meme because i think it's sort of you do go like oh here's something i You can make money on them.

1:17:07Then you go, oh, wow. We're going to fix the world here. My greatest objection to Bitcoin is the people who will be proven right and be completely unsufferable. I would literally agitate against Bitcoin purely to stop people, not so much like you, but like plenty of others, who will never let me stop hearing about it for the rest of my damn life. I heard someone, gosh, we've really got to end this, but I heard someone speaking the other day. It's like, again, just play. Hypotheticals are always fun, But let's say it gets to a million dollars a coin in some stage. The billionaires of the world at the moment are all the tech bros, right?

1:17:43It's the Elon Musks and the Jeff Bezos and the Bill Gates and all of these kind of – in that future scenario, it's Michael Saylor who's the CEO of MicroStrategy, the biggest corporate holder. People that just really aren't household names will become the new, which is going to be – and you're right. It's going to be – It ought to be insufferable. You're going to have plenty of people saying, I told you so, and it's going to be funny. Dear, oh dear. There is something funny about getting rich holding a thing that's just a medium of exchange. The whole idea just blows my mind from a million different reasons.

1:18:14I'm going to finish this podcast, mate, but I'm going to finish it with Keynes because he never said that quote. Paul Samuelson, funnily enough, attributed it to Keynes, which is amazing because Samuelson himself was a... You mean when the facts change, I change my mind. I change my mind. Yeah, okay. So Samuelson said it on Meet the Press in the US and credit it to Keynes. Okay. So indirectly. But here's the only line that, what I like about this is the actual quote is actually even better when it comes to investors because here's the quote from a 1924, I think it was, piece of writing. The inactive investor who takes up an obstinate attitude about his holdings and refuses to change his opinion merely because the facts and circumstances have changed is the one who in the long run comes to grievous loss.

1:18:58Oh, that is excellent. Which in our purpose is, isn't it? Like it's not as pithy. But from an investment perspective, like the Samuelson version is a lovely, pithy TV version. Yep. Now, Kane's just talking about having something and not selling it after things go bad. Yep. So, you know, taking kind of a risk aversion model here, but it works in both directions. Just because I looked it up, I thought it was worth sharing. Well, here's a classic example. Buffett, right? The famed anti-technologist, you know, just ages avoided all technology. You know, for a while now, Berkshire's biggest holding has been Apple.

1:19:32And so here you have an octogenarian who grew up in a completely different world, who's famous for not investing in tech in this current day, at this point in time, whose biggest investment is a technology company. And it's not to say, the point of that observation is, is that, well, that kind of what makes him one of the best investors the world has ever seen, is that flexibility of thinking. Having gone from, I don't invest in it because I don't get it, to, oh, I get it, and now I'm investing in it. And that's just another wonderful characteristic about the man. Simply full on. Cheers. The Motley Fool and people appearing in this program may have positions in the companies mentioned.

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