Mailbag, incl: What does a recession actually look like? August 30, 2026

23:53So in the realm of, will it be bad when it happens? Yes. Should we delay it? Well, if you could delay it with zero incremental reasons, of course you would, because it's time value of money, right? Why wouldn't you do it if you could? If you can't without making it worse, you've got to decide it's a little bit now, but a lot later. And that's Ram's point, which is a very valid one. That's actually the crux of it is the hubris in thinking you can fix it. Me and a panel of people will fix it. What? You will fix the individual transactions between literally millions of independent agents. Make them do it because, yeah.

24:24Yeah, this is what I desire, this is what I need and this is what I want. These are my preferences. These are the people that can potentially supply that. I can keep that all in my mind and I can fix it. It's just when you really think about at how crazy it is, which is why it's never successful. When anyone tries to, quote, unquote, manage the economy, it always ends in disaster because it's like having someone to manage the weather. It's just like it's really nonsensical. Maybe we could do a little bit of cloud seeding. Maybe we could do a bit of this. We might temporarily sort of influence things at a local level, but it's never going to work.

25:01It can't work. And the reality is, too, when that happens, the marginal businesses go broke. So there's 15 dress shops and the 15th worst or 15th best, the worst of the 15 goes broke because people go, I mean, I was happy to buy from them when things were good because they were a bit close and a bit more expensive. The clothes weren't quite as good, but I kind of made the trade off. But now I'm a little bit tighter. I'm going to pull back on the thing that I want least. And that's probably, I'm not going to shop at the expensive buy jar shop at the cheaper wallets. I'm not going to buy from that dress shop, buy from that dress shop.

25:27I'm not going to buy dresses at all. And what you end up with, and we've talked about this on Friday, the better businesses survive and the weaker businesses fail. and that is a tragedy for the people who own and work in them, but it's actually a positive for the economy overall because we reveal preferences, as we say. We're choosing to put our money in the most valuable places for us. Can I just – sorry, because you're absolutely right. No, please go. I think the words that matter here is when you say it's better for the economy, you're right, you're right. But I would be pedantic and I would say it's better for people.

25:55You wouldn't be pedantic. I mean, what do we mean by it's better? Like there is some intrinsic good in the aggregate level of what we're – No, it's sort of, it's a misframing of things. Yeah. And we've always got to remember when we say, you're right, you're just using the language that is the accepted language. But I feel as though that is what obfuscates so much of the deeper understanding that's required here. It's the same thing, oh, these businesses went out, like, you know, the first business went out of business and that sort of triggered this whole sort of disaster. And you've got to ask, why did it go out of business?

26:24Right? Like, what was the, what happened for that to go out of business? And it was quite simply that they couldn't, people weren't willing to buy what they were selling at a price that was an able or in in quantity or in price that was able to sustain the operation so society said people said i don't want it now are those people right or wrong i mean who am i to say that scott phillips should should want a toyota or he you know you must want a rack of uh pork ribs i you know what you want i i can't possibly say that and and people have just revealed economists call it revealed preference i've just I've just revealed my preference and that preference manifests itself in prices.

27:02And those prices are what allows others to go, oh, there's less demand for pork ribs. So probably I should make, I'd probably make it. And in other words, it was just another way of saying we should waste less stuff. And we should probably put most of our energy and resources into satisfying the things that people do want. There's no, and then I don't, I don't like, what's wrong with that? Like how, again, flip it around and look at it as Charlie Munger says, invert, always invert. Let's invert that scenario. And that's what communists do. It's like, no, no, no. Everyone should have this much meat and milk and bread and housing and go, all right.

27:42It's like, yeah, but I don't want one or need one or I want that one. It just, everything collapses. There's no incentive for me to actually want to try and do things better. There's certainly no incentive for me to produce anything because I'm just going to get looked after by the state anyway. And at the end of the day, people stop making stuff. And when people stop making stuff, there's less prosperity and there's like all things. The whole thing falls apart so quickly on inspection. So sorry, mate. It's just that we've always got to, I think, too many modern economists hide behind these sort of terms as if they're like so self-evident and apparent.

28:13It's good for the economy. And it's like, no, no, no. There's only people. There's only people. There's nothing else. These are all just made up in our heads. and for someone to sort of say, you should want this and this much of it at this point in time from this person is the opposite of freedom, which is the most bitter irony of all because usually it's people with a very strong social conscience and a desire for societal good and in fairness. And actually when you think about it, the very thing you advocate for is an absolute crushing of – it's the opposite of fair. Yes, correct. And it's the opposite of freedom for you to choose.

28:51It's actually, no, I will choose on your behalf because I know better than you. And if that doesn't sound like Orwellian or autocratic or, you know, whatever, it's just sort of like, anyway, it's a very bitter irony, I find. Sorry, man, I later up to you. You know what I love about recession? As an outside perspective, it's true that we say when you lose your job, it's just creative destruction. When I live my job, it's a tragedy, right? And that's true in a recession. Here's the thing, though. James, you're not saying this at all, mate, so I promise we're aimed at you. We also go, wouldn't it be terrible if the recession and unemployment went up?

29:30We don't say, isn't it a terrible world there's not a recession and we've got 4.5 % unemployment? Why? Because people were saying it to the people who might be impacted by the change, right? So there's always a bit of that kind of like, the current unemployment, that's not a tragedy, but if I lost my job, that's a tragedy. If the economy was to get out, if I lost my house, that'd be a tragedy, but if someone else loses it, that's the way this thing seemed to go. I think similarly about war, We should go over and do something. I was like, dude, pick up the gun and go for it. There you go. You want to send your kids out?

29:54You want to go do it? Oh, no, no, not me. Not me. Others should. So what do I say? I say that because you asked what happens, James. So what happens to you? Here's the thing. 95 % of people, nothing happens because most of us keep our jobs. You know, an employment might go from 5 % to 7 % or 8%, maybe 10 % if you're really unlucky. Okay, if it goes from 5 % to 10%, that means 95 % of people's circumstances don't change. 90 % of people still keep their jobs. 5 % were already unemployed or still unemployed. And there's 5 % who become unemployed who were working. Now, I'm not saying that flippantly or it doesn't matter.

30:27But again, how we think about this is what happens to you? Almost certainly nothing. Statistically nothing. You and 20-year mates, one of you will lose a job. Now, again, if you're all working in the same shop and it goes broke, it's a different thing. But you know, your friends, your older family. Older family, probably interest rates fall. If you're relying on cash in the bank, you're probably going to earn less than that. I don't know whether it should or not. RAM will say the RBI shouldn't do it, but they'll probably drop rates to support the economy, so less money on that. They will fiddle.

30:54They will interfere. They will push against the tide. Your older family is less likely to keep their jobs, by the way. And some of the things about recessions that are, again, I'm not saying we should avoid them or there's no moral judgment other than the reality is recessions tend to push out 55-year-olds in the workforce. They probably never work again in a lot of cases. Because the recovery happens and when it happens, They've been out of work for a while. They're old. Employers go, yeah, I'll get someone else. Your kids, depends. There were a whole lot of people who have a very visceral memory of the 90s recession who left school and uni in a workforce that wasn't accepting any new graduates because why would you?

31:30Because you've already laid off people, so you're not bringing anyone new into the workforce. You left uni and you go, what the hell's going on here? So that happens to them. Again, though most of them will have a job. Most of them will get their jobs. The worst bit looks like, depending on how long it goes, that's where we bottom out before we start recovering. which is the silver lining is the worst bit is when unemployment peaks, business failures peak, economic activity stalls, budgets run big deficits because there's not as much tax revenue and lots and lots of welfare payments, which is good, but that's what kind of happens.

32:02And then you said, where does it end? The bit in between, I guess where it ends is when we stop having negative growth. And economies tend to grow for all the reasons. Population growth, productivity improvement are the two. Even just the – what I love about – I get a lot about recessions. What's positive is we all overreach in both directions. It's the excesses that generally cause or create preconditions for a recession. And it's the overdone austerity that is the beginning of the end because you kind of go, save money, save money, save money, save money. Things aren't getting worse. They've stopped getting worse.

32:41So I've probably gone spend again now. And so it's almost the bounce back to some degree that kind of kicks off the recovery. Again, not always as a generals and et cetera, et cetera. But that generally is what happens. And then we spend normally probably take six, 12 months for the economy to get back to where it was before we started. And then we get growth again after that. If we're really lucky, if we're really lucky, the existence of the recession gives us a next good five or 10 years because the growth from that comes from a pared down, shaved back economy that is in a more sound state by the time it comes out.

33:15And more risk aware. It's just like, oh my God, oh, turns out I shouldn't take on 100x leverage on property development. You know, it's just like, it's the same reason as why the boomers and their parents were so fiscally responsible because they lived through the Great Depression. Yeah, nice. Obviously are. And people in our age are just like, well, things have always been good, so I don't need to worry about it. Like it's sort of, you know, it's the whole, what's that, you know, the good times make for soft men and weak men. Soft men make for, you know, all that kind of stuff. But there is a nugget of truth to all of that.

33:52I cringe when people say it because they usually say it to support their own. Yeah, it does get used in bad ways, yeah. But also the reason it is used is because it also is kind of true. I mean, yeah, again, ask your grandparents or maybe your great-grandparents about how old you are. You're probably younger than us, James. I mean, yeah, literally, the Great Depression, people who lived through the Great Depression lived the Great Depression for the rest of their lives. They had cans and cans and cans of food in the cupboard until they died, right? And some of them were 40 years old. Why? Because they just knew they didn't want to run out of food again.

34:18And so they learned to be frugal. They learned not to overspend. They learned not to assume. And then you kind of fast forward, and I've said before, I reckon seven years, it's about the average recession length too, but it's about how long our memories are in terms of economic history. So the Yanks, the Silicon Valley Bank thing, which also feels like ancient history already, happened, what, five, you think, after the GFC? Yeah. And it was kind of one of those things where, I was long ago now, why did it happen? Because they kind of went, oh, these rules on the banks are too tight. Let's relax them a little bit.

34:46Now, again, whether you're going to rules on banks is not really the point here. It's just the fact that I kind of went, it's been a while, and now the banks are complaining they can't make enough money. And, okay, maybe we should, and you start to relax the rules. That's how the GFC happened in part because we relaxed a lot of financial rules during the early 2000s. Why? because we want to try and help things grow and be productive. And so it's all those things that kind of, we forget so quickly. We forget so quickly what history does and what it looks like. And this is where my general, they say with food, don't eat anything your grandmother wouldn't recognize.

35:13It's kind of the same with finance. Buy now, pay later on credit cards and personal debt and bank debt and company debt and size of mortgages and whatever. It's like, you are setting up a circumstance that everything has to go right. If it doesn't, there's going to be hell to pay. And why do you do it? People will say, I don't feel like I've got a choice. And And again, here's the other thing, by the way. Individually, it's kind of true because prices are set by everybody else because the marginal underbidder sets the price of every product, right? Baked beans through their houses. Why, as a society, are having that view?

35:40Because we haven't had those times to go through. It's the old story way back. During the GFC, TD Bank in Canada was about the only major bank in North America who didn't have the mortgage-backed securities and collateralized debt obligations on their books that caused the subprime crisis, right? And for years, they were laughed at. Why aren't you guys in this? Your profits are not growing. You're not doing this thing. And they were like, we don't understand it. We don't get it. We don't think it makes sense. And they all laughed at, laughed at, laughed at until the music stopped. I was like, oh, you were the sensible one.

36:12They weren't that sensible though, were they? Because, no, I mean, I'm serious. I mean, like on one hand, they were extremely sensible. Yeah, yeah, yeah. But it's sort of like this is what we mean by moral hazard. It's just kind of like in a saying. It's not the right thing to do, but the outcome is different. Well, yeah, but it's just sort of like, again, get rid of everything except the human beings because they're the only things that matter. The people, because that entity wasn't just a thing. It was groups of people. Right, right. And those groups of people could have made out like bandits in terms of how they paid and remunerated themselves, et cetera, et cetera, et cetera.

36:46And when it eventually inevitably went bad, it's like there was, you know, I lost my bonus for you and back to the party. It's like, wait a sec, all that prudence and anti-fragility and all that structural integrity that you had. It's kind of like, yeah, but we didn't wear the consequences. Yeah, but no one wore the consequences, right? That's kind of the, well, certainly not the people that engineered it, which is what's so wrong about all of this stuff. You're right, mate. They absolutely did the right thing. But this is why it's worth mentioning. We tried to do it on Friday with, you know, you can't have heaven without hell, right?

37:20It's sort of like, this is like, go forth and conquer and whatever profits you make, you shall reap the rewards on. But if anything goes bad, don't worry, we'll bail you out and we'll make sure that the rest of society, we just socialise your lives. It's so egregious. Sorry, mate. No, that's good. I was going to say one thing in terms of why do we come out of it at the other end of a recession? Because at the end of the day, there's always wants and needs that need to be satisfied. I mean, you can go as far as you like, but at some point it's like, I want to eat. and I would like someone to put a house up.

37:54There will always be, no matter how primitive a society you want to go to, there will always be a group of people that want stuff and there'll be some other people who are good at doing other things that will exchange their skills and outputs for something else. It doesn't need to be managed. You don't need to tell people that they, do you prefer more comfort and less pain? Yes, I do. Do you think that every single human being should be entirely self-sufficient and unto themselves an island? No, I don't want to live the lifestyle of a hunter-gatherer. Thank you very much. And even they had specialisation of labour.

38:31Yeah, totally. You know, so they will always come out. We've got to stop. What will happen? We'll be fine. We'll be fine. What we must not do, though, is continue to do the thing that resulted to this in the first place. I don't know. I can't stress that enough. And yet, like modern day Australia, we're not technically, technically we're in a per capita recession, which is the only recession that really matters. So yes, we are in a recession. Technically we're not, but it's sort of like, you know, the second that there's an aluminium plant, for example, you know, that doesn't, it's unviable, we'll bail them out, we'll bail them out.

39:05We'll do this, we'll do that. And it's just like it's why we get so frustrated about it all because it actually has the opposite impact. It is short-term sugar hit, long-term pain spread amongst everyone else, rewarding those incapable of delivering value for their fellow human being. And it's just like that is just absolutely backwards here. And I'm not saying it's great, but it's just can we just stop? When you're doing something dumb, what do they say? When you find yourself in a hole, step one, stop digging. That's the step. Well, we can talk about step two and step three. Step one is stop digging.

39:35We dig these massive holes and we go, oh, we're really deep. How are we going to get out? I know. Let's dig deeper. I'm like, okay, let's do that. That's exactly what we do. I'm going to add to your point, Major, very quickly, and I'll move on and you can throw our last word in. We've got to spend 40 minutes on the first question. It's such a good question. It's such a good question. You said we get out of the recession because people want stuff, and that's true, but that's how we end up with activity in general. Getting out of the recession generally means we grow as an economy, and you're right, I'm adding to it rather than disagreeing.

40:07We get out of the recession the same way we've grown the economy for the last ever, but certainly since the industrial revolution, which is productivity. Because Andrew's made the point a million times, we're on islands, only so many coconuts, et cetera, et cetera. Why does the economy grow? The economy grows short of population increase, which does help grow the economy. The economy grows when we get better at doing stuff, when we are more productive. We've got the same number of people, same resources. We managed to make things better, faster, cheaper out of the things that we have. And so that allows us to have more things.

40:34And how do we measure more things? We measure it by counting up the value of all those things and the numbers higher than it used to be. That's effectively it. Now, We talk about deflation and money printing and how you value all those things. And at the end of the day, ours works. I mean, there's a whole lot of stuff below that. I'm not going to be able to do any further detail. It's a deep rabbit hole. It is. It is. But my point is just that, and again, you're right, Matt, people still want stuff and they want stuff again or still. But over time, what you're asking James indirectly is how does the economy grow?

40:59Because the end of the recession is when we stop going backwards. But why and how does the economy grow thereafter is only and ever productivity and population. They are the only things that can mathematically grow the economy. And again, if we talk deflationary prices, there's a whole lot of stuff that goes with it. And we should measure it in well-being and how it's worked and all those other things. But any of those things are still exactly the same answer, which is we're more productive. If I can have the same loose end with less hours because I'm more productive, that's productivity. If I can work somewhere else and get more stuff, that's more productivity.

41:28If we denominate it in shekels or dollars or bitcoins or anything else, again, if I live a better life and we measure it through GDP, because it's all we've got, at least, well, it's not what we've got. It's all we choose to measure. But it's the same kind of value. They're heading in the same direction, which is the economy gets bigger, we are better off, extended living improves when we do things smarter, cheaper, faster, and that's productivity. So obvious, right, when you lay it out like that. Even when you say the economy gets bigger, you can unpack that a little bit too. No, no, it's all over.

41:56You know, I'm really, I don't even give us, who gives us stuff what the economy's doing? Like it's so abstract as to be impractical, And it feels so self-evident that it doesn't even make sense to disagree with that as a notion. You know, it's like, wait a second, are you saying you don't want the economy to get bigger? I'm like, yeah, well, not in and of itself. If we are producing more because that is allowing us to satisfy more of our needs in wants in ever clever, more efficient ways, then yeah, I want the economy to grow. do i want the economy i mean i could double the economy tomorrow correct i become an autocratic regime i force everyone out of their home you're all going to dig a hole and i'm going to pay you i'm going to print up money i'm just going to pay you to do all this work and the level of economic activity is just going to explode but we're all going to be working our fingers to the bone doing stuff that no one wants and it's like that is not growth it's not growth in any kind of sensible conception of what it means to grow.

42:59You know, it's like, what does it mean to grow up? Does it mean that you're physically getting a bit taller and hairier? What does it mean that you're actually growing as a human being, that you are becoming more capable, you know, that you're more resilient, that you're all the things that you want your child who starts off as this pupae that can't do anything into something that can ultimately, you know, make a computer chip. That's growth. And again, it's one of these things that's sort of hard to pin down, but I just, I do rail at this idea that, oh, the economy has got to grow. It's sort of like, I know what you're saying and generally I agree, but it's actually when you push people on that and you say, well, what do you actually mean by that?

43:37You'll find very people who should know better and that have PhDs and degrees, by the way. It's just like you don't actually have a, other than just growth. And it just feels like the conversation just ends because I said this word and that's it and we're not even going to open to discuss it. But if you can't explain this in very simple terms, It just reveals that you don't actually understand what you're talking about here. And too many of our problems have become, have been engineered themselves because of this myopic focus on activity. Let's do more. Let's do more. We need more people doing more stuff.

44:10It's like, no, I don't want to do, again, I'm on the island. I want to do less stuff, bro. I want to do more time on the beach, less time fishing, you know, trying to feed the village and chopping down firewood. And of course you get it. Of course you can. Just because there must be a billion people instead of 30 people on Survivor Island, it's the exact same concept. Of course it is. We have so lost our way with this as a school of thought, I feel it. And it's all because of the foundation. It's just sort of very, very simple questions that a 12-year-old would ask. We've just stopped thinking on that regard and used it as this self-referential justification for just like just doing stuff, do something.

44:48I'm going to open up a can of worms. I don't intend to because we may only get one question done. So I apologize if this is where it goes. But I did want to mention too, you talked about the economy. You talked about the Voss side of stuff. And I think I'm very pro-business before I say what I'm going to say. Everyone knows that by now. We are listening to the wrong people. Yeah. And so if you think about, let's take, I will take the immigration debate, not talk about immigration for its own sake, but just to mention it. You take deregulation, you take labor laws, you take whatever. Who is screaming about those things?

45:19the people who are most likely to benefit from them. Now, I'm not saying they're wrong, even necessarily, but big business doesn't really care about my standard of living. They want more customers for their products. Or they want to be able to have less competition so they can sell me more products, their products at a higher price. And it's not evil. It's perfectly self-interested, right? It's where we need a strong and sensible polity to actually enforce, make and enforce appropriate laws to get out of the way when they don't need to be in the way, but to make sure the guardrails are in place when they need to be in the place.

45:45So does it matter if the economy grows? as Ramsey said, of course it doesn't. Who would want the economy to grow? The answer, by the way, and this is where I'm going to talk about both sides of my mouth, I'm a shareholder in ARB. If the economy grows, either by people or by dollars, and more people shop at ARB, I get richer. So as an owner of capital, I kind of like a bigger economy because, again, assuming ARB gets its share of the sales and blah, blah, blah. Well, that's where I was going to get a bit basic. What you're betting on there is that they continue to make things that people really love and continue to buy, regardless of the recession or not?

46:16Of course you're going to champion that. I don't mean recession in general. I just mean in general. So just about the size of the economy. Does it matter? Right. No, unless your business relies on a large number of consumers spending a larger amount of money in your shop, in which case you're like as a group, and think about the Business Council of Australia, for example, lots of door to find a bow. They're going to want a big Australia. I'm not saying they're wrong. I'm just saying for their own purposes. There's probably some people at the BCA, and God love them, I'm not singling them out for any reason that first came to my mind, who genuinely believe in the things they believe for ideological or social or personal reasons, moral reasons, whatever, right?

46:48There's also a lot of them who are like, so I'm paid to be a gunslinger for hire. I happen to be working for the BCA and my job is to try and maximize the revenue and profits of the people who are in my organization. And so what should I go and lobby for? I mean, why do we measure GDP? Because we can. Why is it important? Why do people want to be bigger? Because if you're business writ large, you can fight amongst each other or you can just have a bigger economy and therefore you're all We're going to get more. So, you know, yes, you're going to try and beat the other guy, but you're also going to band together with the other guy and say, let's have more customers.

47:18Why? Because we might get some each and that would be good. And maybe you get them, maybe I get them, but at least if there's some more to get, we can argue about who gets them. Yeah, but you can only get them. Yeah, sorry. Well, I'm not going to be too sequel, but the reality is those, who wants to, just to answer your question, which was kind of rhetorical, who cares if the economy gets bigger? People who have a stake in the economy getting bigger, is my answer. Yeah. Yes. Again, another bit of - I'm not saying that I'm just making the point that, you know, and whose voices are heard more. Is it yours?

47:48Am I like, I would like to work less for the same amount of money and spend time on the beach place? Yeah. There's no constituency in that. Yeah. Yeah. The point I was going to make is - No, it's not cynical at all. And it's just sort of like we've got to get over the moral outrage here. They're trying to make money. It's like, oh, so are you, dude. Of course you are. Like everyone is. 100%. I mean, go and tell your boss that you'll work for 20 % less, you know? Of course you. I think I'm overpaid. I did a bit of, I did a survey. Turns out I actually get paid a little bit more than the other people were doing my job.

48:18So I'll hand some back. Thanks boss. Everyone's greedy, right? So we just got to stop at point. This is sort of virtual still. They're more greedy than I'm greedy. And I'm like, no, everyone's greedy. And there's a lot of a-holes in the world, right? They just start that as a starting principle. Now, the fact that organizations might try and sort of band together and fervor their own interests is not news. This is perfectly to be expected. That's what you should expect in all kind of manner of institution, regardless of what it is. Even in the most socialistic, communistic institutions, everyone's very self-interested.

48:50The people at the top of the CCP, I can guarantee you, are extremely selfish and self-interested, right? The fact that they can get a regulatory moat put around them or something is only by virtue of a political apparatus. And that's why I say it's so ironic because it's sort of like when these things happen, people go, oh, look, capitalism sucks. It's like that's the opposite of capitalism. That's using political interference to convert the market. That is literally the opposite of capitalism and yet capitalism gets the blame. You know, it's not the fact that we should only allow these people to hold a banking license or we should only allow these people to run a nursing home.

49:31and like, wow, it turns out that we absolutely reduce the impact of competition and we wrap them in cotton wool so that they don't ever face the consequences of their own ineptitude and failure. And then we get outraged when they start rent-seeking and exploiting and doing all these evil things. It's like they couldn't do it. They couldn't do it without government on their side, right? So it's just a more nuanced topic of that. Totally, that's fair. I just add that because so many are like, oh, but yeah, but they're assholes or, you know, this or that. And I was like, yeah, yeah. Yep. That's, I don't know how old you are, but there's a lot of them out there.

50:07Right. That's just that we, we, we, if your solution is everyone should be nicer and just like not worry about themselves. It's like, I'm with you, but believe you me, I with you, like I click my fingers and live in that world. Yes. But, but it's sort of like whenever you're, whenever the stakes are pretty high with these kinds of decisions, right? Like you just, if you're, if you're foundational, mental model is discordant with reality. It doesn't matter what you build on top of it. It's just all going to fall apart, right? I just lament with it all. It's just like get out of the way. People are really, really, really, really good at solving other people's problem and they're good at it because there's real great reward if you're good at solving someone else's problem, right?

50:53So again, it sounds like you're sort of being anti-government. It's not that at all. The government there need to sort of set the rules, set the playing field, make sure that there's a referee. Absolutely, all of that kind of stuff. But don't be the direct allocator of capital in areas like that because you remove the profit incentive, you remove the cost of failure, all of the incentives go backwards and you get all of the problems that we're seeing sort of today. And I mentioned Poland before, that's why it's turned about face, 180 years. It's why China went from literal famines and dirt poor poverty to one of the richest countries on earth.

51:27It's why Singapore turned from a swamp, you know, a tidal, you know, swampland into one of the most richest and prosperous nations on earth. Just people will want to make stuff for their own self-interest, but we need it so that you are only rewarded when you do create value for other people. And if you waste resources, we should stop you from doing that. Or just not stop you from doing that. stop supporting you not prop you up in your ability to do that not not because we're evil not because we like failure it's just because can you just stop again we're all on the island scott's over there he's like harvesting all the coconuts and he's chucking him in the water because of some you know like some weird entertainment sort of service that he you know it's like and no one wants it no one's paying for it but they know what but if oh but no scott's stupid business is going out of business but let's prop him up because he does employ six people and they'll lose a job if we don't do that.

52:20It's like, yeah, but maybe we get those six other people could be like collecting coconuts and planting coconut trees and doing those kinds of things. And I don't even need a committee to do that for me because it turns out people like coconuts. And if I actually do that, I will get rewarded. And if I'm better at doing that than someone else, I'll get even more of a reward and everyone gets super rich. And it's just, it's, it's a, we all work less and it's an absolute thing of beauty until someone sticks their busybody knows in and goes, I think I reckon this, and everyone should do what I say, and it never ends well.

52:50Sure, as I say, we're not even saying those people should be cast on the scrap heap in the meantime. You can have a welfare system that supports people who are in that transition period. That's a different discussion. 100%. Correct. 100%. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

53:09You ready to give some parenting advice? Yeah.

53:15I will just say you probably should ask our kids whether we should give parenting advice, but we'll ask our parents advice. But you haven't, so we will, because as you well know, we have nothing but opinions. Hi, says Tom. I have a question for the podcast. Thank you for answering my last question. I was anonymous last time, so this time I think I'll be Tom. Are you Tom now, or are you pretending to be Tom? I'll never know. My question is, at what point, if ever, do you tell your kids everything about your financial situation? People's finances are strangely extremely secretive. No one knows how much money anyone else has or how they got it.

53:51Even some spouses probably don't know the full extent of it. Many people probably go to the grave without explaining in detail to their kids how they made their money and exactly how much money they have, how it got to that point, where they started, and how they hope to continue building their wealth. My oldest child is 15. So is it even appropriate to go into that much detail with them? To sit down and show them where every dollar is and how it got to that point? Or do you just give them tips on how to invest and leave it at that? Maybe wait until they turn 18. Interested to hear your opinions.

54:28Many thanks, Tom. All right, Uncle Ram. What's the advice? I don't know if it's the right. I actually don't know, but I don't say numbers to the kids because I don't think they're old enough to contextualize it. I think - The calculus don't have any zeros either, mate. It's the other problem. It's the other problem. Well, I've done it in the - What's a feeling, daddy? Don't worry about it. I'm talking to my wife about something, you know, this and I don't know, we made whatever on an investment and the little ears pre-codes, oh, that means I can have an iPad. Yeah, exactly. Because they only cost$800 and you just made that so I can buy that.

55:06Like, yeah, but I made that because I didn't consume it and I put it at risk and I waited a very long time. And this is the reward that I - And they're back playing phones already, aren't they, by the time you finish that conversation? Yeah, yeah, yeah. They don't - So I can't have the money? Okay, fine. There's also two, there's a very natural, we always measure ourselves with each other. It's just humans. It's just how we are. And it's easy for, well, you see with a lot of people, right? They just have a superiority complex based on some kind of number in a bank account or some made-up number, really.

55:41And it's just sort of like, I don't think you need that context. It doesn't matter. You're not better than anyone else, buddy. And it doesn't need to – I don't want to try and make you feel that you are by boasting about something, you know. Yeah. Which is even – I'm making it sound like there's something really important to boast about. There's not. There's really not. But I just, I feel as though it, for me, when money comes up, I always try to connect it back to effort and risk and time. You should say Bitcoin, so that's a win. Well, it's kind of the same thing, right?

56:19Because that's where it's sort of, it's that, I've often said, and I say it to my kids all the time, it's just like, it's not a matter of whether we can afford it or not. It's whether or not I think you should have it and that I should just give it to you. If I was to give you everything that you desired, I can get, again, it's something I'm pretty confident of as a parent. I guarantee I will raise the most pretentious little ungrateful snot that ever walked the planet. I'd be another trust fund baby out there, thinks the world owes them a living and thinks they're better than everyone else. So it does, you know, I could be worth$10 billion and I would still pay my kid 15 bucks to wash the car or whatever it is.

56:58I shouldn't even put a number out there because people are going, you bastard, that's all you pay? Because I think that learning the value of a dollar, as antiquated as that sounds, I think it's really important. I think you've got to connect return with effort and that, yeah, money's great. Money solves a lot of problems, right? And money really allows you to sort of do a lot of cool, fun things that you otherwise wouldn't have. But you can't sever the cord between where it came from, right? Because it just, without that clear understanding, even if I did have a billion dollars, it's like, well, I'm guaranteed that you're going to lose it the moment that it gets into your hot little hands, which is the story of every rich family ever, right?

57:48Shirts lose to shirts, leaves in three generations, yep. Always happens. And it happens because the first person sort of recognizes is sort of the value of the dollar, where it comes, what is required to do it all. The second might kind of manage to hang on to it and the third will just completely, the court has been snapped and so they'll completely disregard the very lessons and conditions that arrived at that in the first place. So, yeah, no. But I don't know. That's off topic in terms of numbers and that and I'm just rambling at this point so I'll pass it back to you. Yeah. I think it's good, mate.

58:24I don't know. Don't listen to me, Tom. Frankly, don't listen to most parenting experts. There's a couple out there who are really good. The rest of us just banging on about stuff we think we know. I've mentioned before, mate, the Basil Ehrman song, Everyone's Free to Wear Sunscreen. I've mentioned it to you on there. And the quote is something like, advice is nostalgia, pull out of the rubbish, being dusted off and kind of given new life. It's not exactly that, but it's pretty close to that, right? So take that for what it's worth, Tom, as we give you our thoughts. So a couple of things going on.

58:58I don't think it's useful to use absolute numbers. while the kids aren't able to understand things like the value of money over time and also the other uses to which you put your money. I think it's really useful for them to know about things like bills and the outgoings and stuff like that. Why do I say that? By the way, you mentioned your kids want the iPad. My young bloke is dead counting me providing the book as hard as I can because he has this view that I sell lots of books. We can afford all the things he wants. So that's disappointing greatly when I sell 14 books and he goes, Dad, that was really disappointing.

59:39So I've had the same iPad experience you've had. He doesn't want an iPad though. He wants other stuff.

59:47Here's the thing, Tom. I reckon if I said I had$1 ,000 to my kid, he would think I was rich as anything and he could use it for anything because it's just there. It's nothing else being done with it, which is your point around about putting the money aside and building with it. So until you know the context of the dollars, the money itself isn't very – the numbers are actually unhelpful because the money that I earn, that we have, go to everything from food to housing to cars to holidays to whatever. And it always feels like a – no matter how much you do or don't have, whatever is not being used right now will feel like it's available to be used for whatever the kids want to use it for.

1:00:28It's not their fault. They can't contextualize more than that. But I do think, personally, knowing how much things cost is important for kids. Knowing the sort of outgoing, not in detail, but like, you know, the kind of, hey, the shopping costs$400 when I went to Bullies last time, and I've got to pay this much on car insurance, that much on the mortgage, that much on rent, or that much on car repayments or whatever. I think it's useful. And they start to get a sense of, oh, man, there's a lot of money going out the door, right? So$100 feels like a lot of money if... My bloke's dead kid into fishing, right?

1:00:55He wants to buy some fishing lures. $100 to him is like four or five or six fishing lures. And I say, well, actually, will these cost us$400 or something to the shop? It's like, man, that's a lot, isn't it? So yeah, it is. So I think there is some real value in letting them put money into context so that the dollars they have versus the dollars you're spending, that's where I think it's more useful. And in small chunks. So how much I earned this year or how much I'm spending groceries this year, the numbers are kind of a bit hard to get your head around. But if they've got$100 in the piggy bank and you've got$15, I don't want to piggy you make anymore in the wallet.

1:01:25And there's a shop that costs 400 bucks or your rent costs this or your mortgage costs that or the car repayment or the car mechanic or whatever it is. I think they're really useful conversations personally. But until I can really contextualize it, it's hard. The other thing about, I mean, look, 35-year-olds, some obviously, don't get compounded. Don't get putting money aside for retirement. So I expect you have a 15-year-old in your case or a 13-year-old in my case to kind of go, oh, I get it, Dad. You got$1 ,000 here, you got to put it away. You're not going to spend it so that in 40 years' time you can spend it on something.

1:01:53It's like, I don't have, I don't want, I don't, I can't contextualize it. I can't put that. Why would you do that? Surely I'll have enough money by then. I'd really like the thing now. So it's all that stuff. So I think you're better off building good money habits with kids before you try and explain your circumstances. That said, that said, what I think is really important, some of the other things you talked about, mate, in, and this is just my opinion, don't listen to me, in the qualitative and explanatory stuff you mentioned. So you ask questions about, explain in detail to kids how they made their money, how it got to that point, where they started, how they hope to continue building their wealth, that is gold.

1:02:29That right there is absolute gold. I worked hard. I saved hard. I invested in this. That's the return I got on this. This one actually went to zero or went down massively. They always say that anyone, you don't learn by being told, you learn by experiencing, you learn by observing. So I would absolutely have those conversations. It doesn't matter how many dollars, but if your wallet shares are up 20 % or down 20%, that's useful. If you manage to, yes, you save every month so you can buy some wallet shares, look how much they're worth now, that's useful. Dividends as a percentage of the share price, that's useful.

1:03:05Getting paid for doing nothing. The lessons of the how and the what matter so much more than the how much, in my opinion.

1:03:16This is not a question you asked, Tom. I've said this before, but I reckon one of the best things you do is give your kids a brokerage account with a small amount of money in it and then match them dollar for dollar when they put their own money in. And that's not about your money or their money. It's just they get to see the benefit. They get to see the, what's the right phrase? The process of compounding, of saving, of putting money aside, of foregoing consumption, all the things you want to tell them about with your money, they're better off learning about with their own, in my humble opinion, because they can't contextualize the big numbers.

1:03:47I've said before, my first job, I got$24 ,500 a year was my first pay packet. Not pay packet, annual pay. The one pay packet, that would have been nice. And I felt like I was the richest bloke in the world, right? Because I didn't have any expenses to go with it. If you told me it would be double that, I would have thought I was the richest guy in the world. Now, we all know that the average wage in Australia is 100 grand a year. So I'm obviously very old. But the point is the transition there is really important. And you can't contextualize the other stuff until it comes. So I think it's really important to explain to them what you're trying to do with your money, the process you're going through.

1:04:25I am putting aside money every day, week, month, year, so that I can do this, I'm going to invest it in this, I'm going to compound it at that, so I can retire at this. The process of what you're doing and why you're doing it is really useful. The dollars actually, I reckon, get in the way rather than helping. I do have a view, Tom, and this is a personal view, lots of people will disagree. I am a massive, massive, massive, massive fan of joint bank accounts. If you can't trust your spouse with a joint bank account, I don't know how you're married or living with someone. And that's just a personal view.

1:04:55There's a very, very, very personal view. So I'm not criticizing you or anyone else who's doing it. If you don't know how much your spouse got, then how much you've got, how do you have a trusting, functioning relationship where there's not resentment and how much they've got? Am I spending more than my share of the bills and all that kind of stuff? Everyone's different. But I can understand in some circumstance if there's like family histories or personal histories or something where it's an issue or I don't know, but I struggle with that one. So everyone's different. For me, Maroff and I have had a joint bank account since we got together or very soon after.

1:05:27I don't know. I don't know how you do anything else, but everyone's different. And I guess whatever works for them. With kids, I would not tell them the numbers. I would absolutely at some point in their adult lives tell them the numbers as you get closer to some sort of idea of when that might be handed over, just be aware that those conversations can go badly. If mum, dad got a lot of money and I'm struggling, they would give me any money, depending on who your kid is, know that that might cause its own grief. Also, by the way, we've talked about Die With Zero, that book ran before. Giving your kids money when they can use it right away until you die is probably a more useful thing you can do if you're of that.

1:06:02I'm not saying anyone should do what you want with your own money, but if you're going to, think about giving your kids money while they can use it rather than when you die, they don't need it anymore. So that's just another general thought. Yeah, I wouldn't have done it at 18, Tom. I'd probably do it at 30, but that's just me. Rem? Yeah, I don't know. Your numbers just change it. It's even like, I'm sure people have had this experience where a friend or even just an associate that you've just known for a long time and something just drops and you go, how much? And it kind of changes your view of them.

1:06:34Yes, yes. Isn't that like - Which is why we don't talk about it. Which is why, you know, it just taints everything. you know it's it's like um if ever you win the lottery um i'm told they uh they send a counselor around oh do they really yeah that's cool um yeah because most people lose it yeah and and there's a there's a lot of good advice that that they they give to lottery winners one of them is don't tell everyone how much you won yeah because it'll ruin your ruin all your relationships it's like you know the mates he used to catch up with on friday for a beer after work now expect you to pay well you got all that money you can pay can't you and it's like well like i can and i'm sort of happy to when but it's just like once it becomes expectation resentment comes into it you know and it just sort of i i feel as though it's it's hard on both sides of it it's hard not to feel as though you're being taken advantage of it it's sometimes on the other side feels well why wouldn't you pay like why are you being so tight you've got all the money in the world and it just it just changes relationships i think yeah exactly yeah you know and it's just And then he's like, well, I did win$100 million, so I'm going to share that around, right?

1:07:39And it's just like, and then all of a sudden, I'm, Scott, man, here's a million dollars. Thanks, buddy. It's just good, you know, I'm happy to know you. And you go, that's brilliant. And then three weeks later, you found out that I gave another friend of ours$2 million. And now all of a sudden, you're angry with me for giving you a million dollars. I could be sorry if you gave me$2 million instead, because imagine what I could do. I could have paid the mortgage off and I could have bought a car. I could have a holiday. Yeah. And you got 100 of it, so why wouldn't you? Right, right. It just, it's sort of, they say don't talk about religion or politics or money.

1:08:07And I think it's pretty much for a good reason, you know, it just, it just sort of changes the dynamic. And I would prefer people to value or not value my company, regardless of whatever number there is in a bank account, you know, or a hardware wallet, whatever the case may be. You like how I did that? I did like that. It's like a nice thing. There you go, Tom, we've got no idea. and no qualifications, but we'll do it anyway. Mate, let's finish with a question from Luke, who asked a question about Norway's sovereign wealth fund, which is always fun. I like the start, mate. He says, good morning, Mr.

1:08:41Correct, and Mr. Also Correct, using a different analogy. That hits pretty close to home. Yeah, it does. My name is Luke. As always, thank you for your dedication to all the informative and entertaining episodes. Should you ever need a crown shined, shoe cleaned, or simply desire a jester while you feast, I would be ever so obliged. Wonderful, Luke. We will send you some details. I got some shoes. Mate, my shoes are right now. Badly into polish. Thanks, Luke. I hope you can help me clear up a question, he says, regarding the Norwegian Sovereign Wealth Fund. I recall you mentioning on the pod machine that the fund has a rule strictly prohibiting investment within the Norwegian stock exchange to avoid domestic market distortions.

1:09:21This feels counterintuitive to me, says Luke. I would have assumed that injecting capital into their own nation's enterprises would benefit their economy. My specific questions are as follows. Am I fundamentally mistaken in my assumption that domestic market investments would provide a meaningful benefit to the Norwegian economy? And two, if they wanted to reverse this rule, could they feasibly mitigate the risks of bias or market distortions by using a passive blanket approach like an ETF? Or would the sheer size of the fund make this impossible to do without causing significant distortions or risking suboptimal returns?

1:09:57Kind regards, Luke. P.S. I recently had a friend mention that his wife had bought Bitcoin, to which I responded, I don't have the intellectual capacity right now to talk about the B word. After some very disgruntled looks, I had to clarify I wasn't referring to his wife. Well done, Luke. One less friend to share the lotto win with. Well done. Well done. That's very, very funny. I like it a lot. Mate, question one. Would the domestic market investments provide a meaningful benefit to Norway instead? uh potentially potentially i mean i'm sorry i'm sorry not sorry but it depends oh no okay well you know it depends put it to this put it i've got let's go with my billion dollars right there's there's there's a highly productive capable person with lots of great ideas let's call him scott and there's another friend we've got calling barry and he's a meth head yeah now Now, does my meth head mate who can tap me on the shoulder for as much money as they want, are they helped by me giving them money?

1:11:01No. Are you helped by, well, yeah, actually not only you, but potentially me in terms of the returns I will get, you know, my personal sort of return on that, but also the greater value that would be created by all the incredible businesses that you would start. So it is a wonderful advantage to have access to cheap capital. Don't get me wrong. But that's kind of the secondary consideration. The first consideration is do you have something to invest in in the first place? There is nothing more dangerous than, I always say, with companies on the ISX, there's nothing more dangerous than a board flush with cash because they will spend it, right?

1:11:39They will spend it and they'll do it in the name of growth and that, but it's usually, it doesn't usually end up well. Statistically, it's actually about two-thirds not to work out well for you. So, so look, I don't think Norway starved of capital, right? And if it turned out that it's like, wow, we've just found even more oil and gas. And it turns out that if we could deploy a bit of extra capital here, we could, we could exploit this resource even to greater effect and with incredible economic returns. And actually, if we could tap into our sovereign wealth fund, that would be a great way to do it because now we're not dependent on anyone else.

1:12:13But like, yeah, potentially, yeah, that might be great. It's like, well, I think everyone should be able to have a circus business. Every single Norwegian. I don't know if you'd be tapping the capital, you know, the pool of money for that. So it's an advantage that it's there, but it's secondary. It depends on what you want to use it for. It's only an advantage if you've got a good idea in the first place, a good positive return on invested capital opportunity. Otherwise, you're just tipping good money after bad. Yeah, yeah, no summary. So look, there's a couple of things. Firstly, the fund was set up largely to actually avoid Dutch disease, which is actually there was so much money coming in from oil and gas.

1:12:54They didn't want to lose, get a massive win and then all of a sudden have nothing left over. It'll hollow out every other industry. And then when the oil runs out, they're doing nothing to show for it. So it was a very, very, very, very, very far-sighted strategy, which is just amazingly great, as you know, I think. But that also has implications. So what you don't want to do, well, if you only invest inside Norway, then where's the wealth creation for the fund relative to the rest of the country? So think about it really simply and really self-created Norway. You're Norway the business. You're Norway the country.

1:13:24Norway incorporated. And you have made some extra money. Let's just pump it back into the rest of the family and do more things. Now, there'll be a little bit of upside there, but where's the growth come from? Where's the gain come from? And if you think about it in that context, like actually, you know, someone's going to own the asset. So if it's not the sovereign wealth, it's the individual. it's not the individual to solve a wealth fund, where's the growth nationally come from? Or conversely, so actually if we can grow our wealth outside the country, we get all the things the country's got plus more.

1:13:50We effectively have all this, everything we own is here. So take Ram's example, right? I own the island plus I own the island next door. Now I could have spent the money buying more coconuts from each other on the island or more coconut farms to make it a capital purchase rather than consumption, but the money's still circulating in the economy. You're creating and you're not storing any additional value. So conceptually, that's what it was about. It absolutely is about not storing the Norwegian economy. Here's some numbers just quickly. The size of the sovereign wealth fund, these are all in US dollars, 2.3 trillion, trillion US dollars.

1:14:23Remarkable. So bloody impressive. I just, I weep every time I say it. Imagine what we could have. Imagine what we could have. Don't even. The Norway GDP, 500 billion, right? So now we're talking about stock versus flow. but the fund is worth five times Norway's national output. Okay? So investing that sort of money is going to be tough. How tough? The Oslo Stock Exchange is only worth 300 billion US dollars. In other words, the sovereign wealth is seven times the size of the Oslo Stock Exchange. Could you actually deploy that money there? No. Now, if you could buy Norwegian farms and houses and other small businesses and other things, I'm not saying it's the only thing, but if you had to have that money in liquid assets or relatively liquid assets, to put$202.3 trillion on a$300 billion market, you'd blow it up.

1:15:12Everything would be seven times the price. Would it be worth it? No. It'd be money chasing a home. And so that would objectively be bad. So that's kind of what they're trying to do. And frankly, again, if you're Norwegian rather than someone somewhere else, you'll say, well, hang on. So I get the best of the Oslo Stock Exchange, plus the best of the Norwegian economy, plus I get the returns from that money invested outside, which doesn't distort my market at all. why wouldn't I? And so that's the reason. Now back to your question, Luke, if there were productive ideas inside Norway that couldn't be funded even though they were profit-making, then yes, it would help.

1:15:48And this is the independence thing from around. It would be beneficial to use some of that money for the Norwegian economy because this thing can make $100 million, actually$10 million to do it. Okay, yeah, we've got$10 million. We can give the money. Great, that sounds positive, right? Let's do it. Why not? That assumes that there is unfunded positive ROI projects going wanting because there's no money for them. And that would be the only scenario, which is around kind of talked about already. That's the only scenario which would make sense. Otherwise, what you do is compete with other capital that's already there.

1:16:19You're pushing down the price of the capital. You're pushing up the pool of capital. The returns get worse. Nobody wins. You're making your own citizens worse off. Your own local investors and those investors worse off because they're having to compete with you. So yes, if there were unfunded worthwhile ideas, yes, you should use some of the ways of sovereign wealth fund to do that. People say all the time, the exact same about the Australian super. Oh, we should make super funds invest in Australia. So all you're really doing is either making them fund stuff that's not profitable, which is stupid.

1:16:47Disaster. Or you're making them compete with other people who are currently funding stuff at reasonably, you know, I'll say market-ish rates, not we're seeing the RBA. You know, I'm going to lend you this money if I can get a return on it. I'm going to invest in your investment if I get a return on it. As soon as you increase the amount of money competing for those ideas, you push down the return rate, which even in the best of cases means the super is getting a worse rate or the other guy gets a worse rate or the rate is so low it doesn't cover your risk. In no case is that a positive. So, you know, it's tempting to go, we need that money here.

1:17:19No, we don't. I mean, with exceptions, any good idea with a positive ROI gets funding. Not everyone. Not all the time. Of course. But of course. People like money. Yeah, right. I've got an idea over here. I'm going to make$100 million worth of$10 million investment. Do you want to fund it? No, I don't. No. No, not for me. Right, right. And why would Super be better funding that than Andrew? He's got his straw man billions. So he's going to throw me$10 million for my$100 million idea. He's not going to. He's like, well, I don't think that makes any sense. So then if that's the case, why do we want superannuation or why would Norway want to go, bugger it, we'll throw money at Scott anyway.

1:17:53Every investor in the private market has rejected this as a terrible idea. Now, there's a possibility they're wrong. I'll be real here. They could be absolutely missing a job. A lot of the world's best investments were very unobvious kinds of things. But to think that a bureaucrat with no skin in the game, they're going to get paid either way, that they're going to be a more savvy allocator of capital at these weird fringe case kind of examples, it's going to be a disaster, an absolute disaster when we do that because I'm pretty sure that we're going to tap it at some stage. Sorry. Yeah, so look, I get the thought, Luke.

1:18:31And yes, in a world where there isn't enough capital to fund really good ideas, you're 100 % right. But that with the test, are they really good at going begging? Yes, statistically, because law of averages says, you know, someone didn't fund Canva until someone did. And maybe, you know, is there another Canva going begging because there's not super money chasing it here or in Norway? Maybe, but is it also going to chase a whole lot of rubbish stuff because there's so much money they've got to find something to invest in? Almost certainly. So, yeah, honestly, that's the answer there. Can I give you just a very, very quickly on that?

1:19:04Did you see that the head of Australian Super, who was it who stepped down recently? It was all on the finish. It was like, oh, they stepped aside after a year of 14 % returns and rah, rah, rah. God, it's stuck in my craw. And it's just sort of like we're really, they're dealing with this much money for long, definitionally long-term savings, and we're just talking about what happened in the last 12 months. Like, is that nonsensical to you? you. And maybe the long-term return is fantastic there and they deserve it. I don't mean it, but it's just, it's so emblematic of the focus that the people will put on it here.

1:19:37And anyway, I just - It's a great point, mate. It's a great point. Yeah. I just don't want that. And that is why I think you have an advantage, slight aside, as an individual investor, opposed to the institutions, because there is so much institutional pressure and incentive for you to perform in short periods of time. And things like that just incentivize that forward. It really means whoever's going to come in is like, well, gosh, I've got to beat 14 % per year. You don't do that by taking prudent, long-term, sensible investments. You probably have to go well up the risk for that kind of thing.

1:20:07And definitionally, that means taking more risk, which means maybe it'll be a 30, 40 % down year. You know, it's just sort of - Yes, 100%. I do not want that kind of tomfoolery being normalized within our national retirement pool. Correct. Which I think answers your second question, Luke. So could they mitigate the risks of bias or market distortions. Not really, mate. The sheer size. Most of the people who worry about distortions are not worried about them investing in company A rather than company B. It's that throwing that much money at companies A, B, C, and D distorts the entire... Distorts asset prices, distorts risk premium, distorts ROI, probably lowers the returns for domestic investors and the sovereign wealth fund.

1:20:46No, we... Honestly, it was up to me. I would actually, at this point... I know you are at financial repression the other way around. I would be mandating super to invest more overseas than here. Frankly, if you're going to either direction, do I want to invest more at home or more overseas? No, take more of the money that's invested overseas. Why? Because the overseas market's bigger. At some point, super's already$4.5 trillion. We don't need to chasing Australian housing or Australian shares. I mean, again, if the investors are there, go for it. Just invest wherever the best returns are. Correct.

1:21:15Invest wherever the best risk-adjusted returns are. That's it. Full stop. That's where you're doing it. And given Australia's 2 % of the world's equity markets, if you have more than 2%, I mean, is it possible Australia is a lot better? Yes. Is it twice as good? Yes. Okay, make it 4%. Okay, 8%. Okay, 12%. How many people super is more than half invested overseas? A small minority in proportional terms. So yes, there should be much more investing overseas because we're 2 % in the world's equity markets. I know what we are property-wise, but it's going to be something similar because we're 28 million people in a world of 8 billion.

1:21:42It just makes no sense not to take advantage of the opportunity to... And also, it changes the risk thing about Norway, right? The Norwegian economy goes to pot tomorrow. You've got$20 of dollars invested overseas. It's a great hedge to have. It's a great, I mean, yes, as a currency, yeah, short term. But again, long term, do you want, yes, Norwegian economy is wonderful. People live there, work there. And you've got this massive opportunity to be exposed to the rest of the world, good and bad. But it's a perfect diversification. There's every reason to do it and almost no reason not to other than those unfunded great ideas, which I suspect are probably don't exist, but maybe they do.

1:22:18It's actually part of a theme of the whole, all the questions that we've had here. Just there was some, there was a phrase in the questioners, the way they phrased it there is like, oh, do we need to worry about markets being distorted? And I just, I feel as though that itself deserves a bit of unpacking because it's like, it assumes that there needs to be someone to sit over and watch and actually understand what distortion looks like and how it can be anticipated and how it can be corrected, which just, to me, misses the whole point. Whether or not the market is distorted is only up to the individual investors putting their capital on the line, right?

1:22:53It's just like, I don't know. I think that I could allocate a trillion dollars in Norway, a population the size of Sydney, right? And I reckon I can do that. It's like, well, then do it. Yeah. And if you're right, then well done you. And if not, then you're going to lose a bunch of money. I don't need anyone else to do that. That's the mechanism. That is the very mechanism that keeps it in check there. I just, we've got to get away from this, it's so, the more I've pondered this and I spend an ungodly amount of time thinking about all of this stuff, so much stems from our very natural, understandable desire to, to, to manage something, because that's usually what you do with a lot of things, but not, not, not with markets, not with, not with, uh, economies that they aren't to be managed.

1:23:36It's almost an oxymoronic kind of statement. It is an emergent system. It is one that sort of bubbles from the bottom up. It's not something that is administered from the top down. And so much of the language and the discourse is really when you start hearing the words, again, from very well-meaning, but like, oh gosh, there's a whole bunch of crappy things in the world. I wonder, how can we make it better? Oh, if we did this, this, and this, we could make it better. And so always come from a really good place, but it misunderstands what can feasibly be done. And it assumes that the very mechanism that we're trying to use to coordinate this is inherently flawed and cannot operate in and of itself.

1:24:22And it's just sort of like, the more that we deny that just reality of it, the more we are inevitably going to stumble towards bigger and bigger disasters. So I'm just, every chance I get, I'm just going to make a point here no one needs to manage the distortion managing the distortion is the distortion is what i'm trying to say yeah there is no distortion if there is if there is a distortion that has come from just individual actors pursuing their own individual interests it will it will undistort itself it will undistort itself very very quickly without anyone having to tax my money and fix it for them and not fix it and make it worse like it's just do you get where i'm coming at here like it's so, it's so, Oh, we should do the government should do this.

1:25:05Like, yes, wherever they can feasibly and reliably do it, but wherever it's just like, you, you can't, you can't do it when you really spell it out. What are you trying to do? You just, like I said before, you can't anticipate the collective desires of millions of people. And it just, it's so ludicrous. So can we please stop talking about how we can fix this by just putting the smart, a smart enough person in, or just, you know, the right kind of people in with the right kind of policies. It's just the right kind of policy is no policy in terms of the specifics. The general framework, that's the policy.

1:25:38That's a good policy. Outside of that, just let it be. So I kind of agree with you conceptually, mate, but I actually disagree in this circumstance, if you know, and we're now 25 minutes in. Only in the sense that I think if there was a government mandated or controlled pool of money that is going to push prices past what would be otherwise considered fair value. I think we can reasonably say that's a distortion. I don't think that's a... I know what you mean generally about who gets to decide. I don't know there will be a much clearer view of, has the market been distorted by this? Now, the market funds don't level the prices are higher.

1:26:12We can use those phrases. But I think if you said, if Norway said tomorrow, turns out we're going to put$2.3 trillion into the Norwegian stock market. Does that distort price discovery? I think so. I think it must because unless the market is able to respond by adding$2.3 trillion worth of new investable ideas to soak up that money, then you have got a government action or inaction taken, which has had an effect on the market, which means it's not settling at a price that would be a market price. Yeah, but the distortion you're worried about has come about by an initial active, an original sin of distortion.

1:26:49But that's still a distortion, my point. Like it's still, would it distort the market if they put 2.3 trillion? I don't know how we can say no to that. I think it's just objectively true. Yeah, yeah, yeah, it is. But my point is don't distort the market. Like just, and we don't even need to, the incentives are already there. It's like, what is the incentive? The incentive is to look after this pool of money and best where we get the best risk-adjusted return. So anyone running that fund who will go, you know what, I think the best risk-adjusted return is this way, throwing a bunch of money at assets that are just clearly already overpriced and there's not enough capacity to say.

1:27:20Like that is sort of like there's a circularity to it, if you get what I'm saying. I totally agree. You're right saying that we need to mandate against, we need to mandate in how we remedy a distortion. And it's just like, well, just sometimes you've got to touch the stove, I guess is what I'm saying. It is that if for whatever reason the custodians of the Norwegian self-fund were to do that, and I don't think that they ever would, then the corrective action isn't more distortion. Sure. No, I agree. I'm just making the point that we can – the argument would be, well, markets find their own prices.

1:28:01You can't distort a market if the market is doing market things. I think there's – objectively, in this case, where there is external and non-market – non-commercial decisions being made. You're right. I'm 100 % agree. That is absolutely the distortion. I just think we can reasonably say markets can be distorted. It's not just prices finding their level, it is a genuine distortion being created. And yes, by action, but it's almost, I'm just separating the two on saying, you can still say there is a market distortion in those circumstances. Yes, prices find their own level. The market price is the market price.

1:28:31Therefore, you can't distort a market as long as the market's finding its own price. In this case, I think there is a case of the market not really finding its own price. You are flooding a market and saying, well, find your own price. We can't. There's not enough investable stuff which we're going to have to pay. 48 times earnings for a business that's declining at 5 % a year because there's no rush for the money to go. I think that's objectively installed. Yeah, but I'm not preemptively adding another more layers of regulation and rules around something that's probably very unlikely to happen in the first place.

1:28:58And if it did happen, it would fix itself pretty bloody quickly. Do you know what I mean? Too many things get done because, oh, maybe someone will do this. Oh, let's layer all of this kind of stuff around it. It's like, well, A, is that a problem? Has it actually happened yet? You know, it's like, or are we inadvertently actually creating a scenario where actually we're removing the cost of bad decisions from those decision makers themselves in an attempt to prevent further bad decisions? It just, it gets, I'm with you on the intent. I'm with you on the intent. And I'm also very cognizant of the slippery slope argument there as well, and just very, very well-meaning people with good intentions trying to avoid bad things, inadvertently creating the unintended consequence of just making it worse than it otherwise would have been if you'd ever did anything in the first place.

1:29:45For anything to look, just really quickly, and I don't want to start another conversation, but if Norway was to put all their money into the stock exchange, let's say they did, right? And the market is from 300 billion to 2.6 trillion with adding it later. So you get things listed at 85 times earnings. Yeah. The problem is the price is set by the Marshall buyer. So the sovereign wealth fund jumps in. The act of buying pushes share prices through the roof. Yeah. And then the next person to buy says, I'm not paying 85 times earnings for picking up Woolies. I'll pay 20 times. So the price falls. And all of a sudden, Norway's sovereign wealth fund has put 2.3 trillion in, and their stake probably ends up being worth half a trillion.

1:30:18Oh, yeah. By the very act of them buying at those excessive prices and then letting the market find the next best price for Woolies. Yeah. So you actually destroy enormous value. It looked good for a day, but then as soon as the next buyer set the price, and then imagine the software's going to try to get out of that position. How do you sell all your shares in bullies? Yeah, yeah, yeah. Or you have to be. You do it at$90 instead of the$85 you bought it for. Yeah. So it would destroy the market going in, and it would destroy enormous amounts of value coming out. It's like buying everything at the top of the dot-com boom, right?

1:30:49And then going, oops, it's gone. It's like, yeah, you cradle it, and you push the price up, and that's gone. I frame it slow. What it would do is it would transfer wealth because for them to buy the shares, they have to buy it off someone else. So here I'm buying a company. I bought it at this. Now it's like five times as much as like I will sell it. I mean, I have to have sold it for them to have it, right? So it's sort of actually the fund itself is worn out, but like every single existing shareholder before the fact who sold into that is made out like an absolute bandit. And even those who did nothing, even if I was held my shares, I didn't sell to the fund and they, you know, they bid up the price and they still didn't sell.

1:31:25And then it crashed back down. It's kind of like I'm back where I started from. Like the fund itself and all the people it represents, don't get me wrong, don't get me wrong. But it's actually just been an incredible transfer of wealth to those who are more prudent with capital management. Are the people you want to get rewarded actually, because it's actually a really important skill for people to manage capital very well because it increases prosperity. It feels, I mean, it's these reflexive kind of nature of markets that we must embrace and not deny. Almost all great economic blunders have come from unrealized, not accepting that very fact, you know, and, yeah, we keep making it.

1:32:10We keep confusing it. We keep thinking this time it'll be different, you know. so i i don't know it look yeah i don't know i hear what you're saying but it's just sort of like it's sort of like we often talk about like making sure that you're sort of a second level thinker not a first level it's like i'm gonna go three four or five levels deep on this but all i know is that the first level is wrong yeah that's right that's right and and that it's it's it's sort of yeah i don't know i i think the the conversations that are generally had around This is really shallow in what they think is going on and how it actually works and what a problem is.

1:32:51We're actually at the stage in 2026 for most in the West where it's just like just a company being profitable is a bad thing. That's kind of where we're at, you know, and it's sort of demonized at this point. Or in fact, a company that's not going not doing well is something that needs to be supported. I mean, it's just, this is not helping anyone. And look, I don't have to worry too much about it because again, markets will correct. They do because they're a real thing, but we could avoid a lot of pain just by recognizing the nature of the beast in the first place. Very good. I think we have probably well-duty outlasted our listeners' patience.

1:33:29Thank you for listening to Motley for Money. Thanks for being part of our community and for those poor people still listening, thank you for doing that. One day we should have something the other giveaway at the end of something. It's for those people who make it at the end of an hour and a half long episode. We'll think about that. No promises. Don't listen next week just for that because it probably - Stock tip. One day. Oh, stock tip. God. No, we won't do that. All right. That's it for us. Until next Friday, enjoy your week and fuller. Thank you. Cheers. The Motley Fool and people appearing in this program may have positions in the companies mentioned.

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