Mailbag: incl. Which business models are best? April 6, 2025

24:22Hopefully it is. Fingers crossed. Fingers crossed. hey um let's go to the question then uh which richard has i find i've had this conversation on twitter i can't i can't solve this one in my own head so i'd love your thoughts ram to my question says richard the government places an emphasis on many benefits such as family allowance health cards aged pension private health insurance rebates etc based on family or household income rather than the individual income of each person there is also an adjustment to that income depending on how many dependent children are in the household why is this then not true of income tax Currently, a family where there is one primary earner of, say,$200 ,000 would pay a tax of$60 ,138.

25:01However, the next door household has two earners earning$100 ,000 each, would pay a combined tax of$45 ,576. I'm not saying this dual-income family should pay the same tax as a sole-income family. Quite the opposite. Why wouldn't the sole-income family pay the same tax as the dual-income family, given the same income contribution is made? The same can be true at lower incomes too. A sole earner on$120 ,000 pays$29 ,000 in tax. Two earners on$60 ,000 each pay$20 ,000. Ironically, the family on two incomes receive the low income tax offset, whereas the sole family does not, despite deriving exactly the same income.

25:40Wouldn't it be more equitable to tax family units the same way rather than as individuals and bring it in line with other government measures? I believe there are other countries that currently adopt this approach. Your thoughts appreciated. Would this make for a simpler tax system? A couple's tax returns already record spousal income, so the reconciliation wouldn't be hard provided the tax returns for the couple were submitted at the same time. Thanks again for the podcast. Despite Rampage's potential slander of the vocation that I chose after seeing my parents struggle financially, I listen religiously every week for the banter and contrarian views put by you both.

26:14Keep doing everything that you're doing. Well, almost everything, Mr Page. Thanks, Richard. good one I love it I find this I'm going to go first yeah please and it's you know it depends on whether you're asking as a single person or as part of a family because it's kind of one of those scenarios where one approach or the other discriminates against the other group by definition right so if you're a single person earning that money and you're paying 60 grand in tax the other family is earning 200 grand are paying less tax, you're like, well, hang on, why are they getting to pay less tax if I'm paying more?

26:54And vice versa. So if you're single and you have a spouse and kids and who doesn't work, you're like, I want a discount. If you're single and don't have a spouse and kids, you get no discount. And it kind of gets, it gets really super values-laden really fast. The people who tend to promote, this is not you, Richard, by the way, please don't misunderstand me. People who promote it on Twitter are kind of the people who tend to say, therefore there'd be more kids, therefore there'd be more family units, and I'm not, I'm not against more kids but I'm not sure that's an end in itself unless you have a kind of philosophical ideological value thing that we need to breed more for whatever reason you think is necessary and I'm I don't criticise them for having that view but it's kind of it starts there rather than with the fairness of the tax system itself it's like you know people have more families if there was tax difference maybe but do we why would we why would we want that or do we want that or and again not as not as a criticism just as like I don't it's presented self-evident I'm like but on the same token I kind of get it right if If one person goes to work and one person stays home, the choice of being able to, and we've talked about this before, mate, the second income in households, when women finally got reasonably decent, almost equality, to work in the workforce, it was optional for a couple of years.

28:02Then very quickly, house prices shut up and it became capitalized into a property price. So it became an obligation rather than an opportunity. It's not a choice anymore. Right. You kind of think, well, if we're a smart society, we'd have a situation where parents could afford to either work each part-time or one look after the kids and the other not. or find a, find something, and this is not male, female, a lot of people do the whole women should be at home thing or women are more natural carers. I think that's right. Tread wife was the phrase I heard the other day. Tread wife? Have you heard that?

28:24Yeah. If not, that sounds like tread fires. It's a whole social media thing. Okay. Yeah. Traditional wife, right? Traditional wife, yeah. Okay. So this is not that, for me, it's not that at all. Women should be able to work, women should be able to work as much as men and couples, by the way, homosexual and lesbian couples too, should be able to choose who works how much if we had a more reasonable housing. We weren't getting a housing bit. All I guess I'm saying, Richard, is I hear you. The problem is there's a downside either way. And a single person might say, well, hang on, why should a family get a tax break that I don't get just because there's one income in that household?

28:56I've got one income in my household, but I don't get to split it with anyone because I'm single. And so I kind of, I don't have an answer for you because I don't, I think it's super, super values laden. And I don't think families, I don't think couples are more important than singles. A family is more important than singles. Probably not. I mean, taking care of kids that you have is more important as an obligation, a moral obligation as a parent. Should society therefore say you're doing God's work and you're populated in the countries, therefore you need a tax break? Maybe. I struggle because you have to start, the only way to resolve this is to start with a value position on that bit and then work out how you then tax people.

29:34I kind of can't, I can't make a compelling case. The other thing, by the way, there's a little bit of, We've got to be a little bit careful with things like domestic violence and financial control with this sort of stuff because if you make it deleterious for a couple to break up, either because of control by one partner or just because they then can't afford to break up because they have less money separately than together, there's also a bit of a – and look, some people say, well, that's great to keep families together. Can I tell you, if there's miserable families and or for domestic violence, keeping families together is something we've thankfully left behind the 1980s with no fault divorce.

30:05So it's not the main reason, but I would be mindful of anything that does create more issues for people in violent or just vulnerable situations. But again, it's a very good question. There is no easy answer as to why not because there's no easy answer as to why. The country's made a value call at some point. Other countries, you're right. Some are talking about Turkey. If you have all the three kids, the wife never pays tax for the rest of her life or something. But again, it's very gender-based, right? So there's also that. But yeah, I don't know which is the answer. I can't argue strongly against your point, nor can I really kind of man the barricades in favour of your point.

30:45I kind of think tax probably should be individual rather than family. I think that's probably just an individualist kind of thing there. I'm not an individualist. I'm probably more a societalist, if that's a word, than individualist. But I love family units. I love that parents look after kids. I think it's desperately sad that we make both parents work because they have to rather than choose to. but I don't know that I'd take that to the tax system. What do you reckon, mate? Yeah, it's complicated, isn't it? I'll just look at a few points on what you said. I mean, yeah, just because the work done at home doesn't show up in GDP figures.

31:21That's true, yeah. Now, if I'm a traditional economist, I think therefore it doesn't matter. Now, anyone who's, I'm more of the domestic side. I take more care of the domestic duties in our household. I do too, actually. Because I work at home, right? My wife gets up at the crack of dawn, drives for half an hour work all day. She's not a year. Between this pod and the last pod, I said, I need 15 minutes because I've got to hang out the washing. I did think that's what it might have been. I'm sure I didn't ask it. And no complaints, but it's just like, that is economically valuable in the same sense that if I was way too tired to do this, even if I had a billion dollars, but to pay someone to do it, then it would be recognised.

32:02The same work is being done and now it's being recognised. So it's kind of like, yeah, I just want to make that point. Just because something is not measured doesn't mean it doesn't matter. And that's sort of secondary or tertiary to the point being made. The other one is that years ago I set up a trust. And I set up a trust purely to get around the problem that you're talking about. Now, they've closed a lot of the loopholes, thankfully, because it was ridiculous that the dog could earn some money and my three-year-old could have 80 grand a year. You know, it was stupid. It was a rort for the rich.

32:34Yeah. And it doesn't work on terms of income tax, but it does work in terms of investment returns. And I've said to you before, I'm not actually sure if it's been worthwhile in the grand arc of time. Just due to our particular circumstance and how things unfolded, it probably just would have made sense if we put everything in my wife's name and we would have saved a bunch on accountant fees. Anyway, but that's one way to get around it because the whole point of a tax structure, a trust structure rather, is that you can split up the revenue from your investments and the capital gains, and you can allocate it wherever you want.

33:10I do worry if that can be games to some extent. The thing with tax policy and everything is that you've got to – people will find a way. So I can imagine there'd be all kinds of marriages of convenience or just marriages on paper that might get around that kind of stuff. I imagine it would even apply to de facto relationships these days. I mean, we kind of treat de facto as married for most of those purposes at a certain length of time. And you and I could check up together and pretend we were partners and we'd save ourselves 10 grand a year in tax. Yep. The other thing, I always have, I live in this fantasy land where I think that, because often there are really good solutions, but they're just so practically impossible to introduce because they are such a radical departure from the status quo.

33:55So on that line of thinking, what I would do, I've said it before on the pod, I'd have a land tax and I'd have a consumption tax and I would scrap income tax altogether. You can do the maths on it and work it all out, but it's basically, it's very hard to hide your wealth. And let me step back a bit. And too many economists and financial types miss this. There is a difference between stock and flow. Yes. Income is flow. Income is, your capacity to generate income is sort of part of what you might broadly define as wealth. Flow because it comes in regularly over time. So it flows in. It's a flow.

34:30Yes. But then there's stock, which might be my two by two cubic meter of gold that I have in the basement. You know, it's like doesn't do anything. You own it, it exists, doesn't come and go. It's stock as in literally stock. Think about stock in a shop. It's a thing that's there. It's inventory. It's a physical thing. Absolutely. Well, it's representative of a physical thing, but yes. Yep. By the way, this is why yet another reason 438 as to why GDP is so stupid. I think I'd do the other B word. Go on, keep going. Bitcoin, no. I could, but I won't. Is that we, the framework in which we operate and the lens through which we look is that flow is all that matters.

35:09So I went a little bit of a mini rant on Friday talking about the stock matters a lot too. And I don't actually often tweet, but I tweeted during the week because retail sales figures came out. You know, oh, it was 0.2 instead of 0.3. And what does it mean for the RBA and this and that? And it's just like, As if consumption is the only thing that matters and tells you anything meaningful about the economy. You know, it is capital formation and the capital stock. It's resources. It's inventory. It's resilience. It's all of these things that I think any sensible person without the brainwashing of traditional economics would look at and say, you've got a farm.

35:42I've got a farm, right? And we've both got silos full of seeds from last year's harvest. And I go, I'm going to take all of that and I'm just going to eat it all. And I'm going to cook some bread and have a grand old time. In fact, you know what? I'm going to sell the tractor. And I'm also going to parcel off the land. I'm actually going to allow some, you know, Monsanto to do some chemical experimentation on some part of the paddock, whatever. I'm going to monetize the hell. I'm going to, to use the parlance, I'm going to sweat the F out of those assets, right? And my income is going to be brilliant.

36:13Heck, my income is going to be brilliant. And through the lens that we look at, it's a long arc. I'll come back to the point. we would look at that and go Andrew's economy his farm economy is far better what has Scott done? Scott has pushed back consumption he's taken those seeds and he's put them in the ground for something that may or may not come down the track depending on how kind the weather is and even if it does get a good crop well maybe everyone else's crops are good and maybe the commodity prices he's going to get is not going to be as good as he had expected but he's going to take risk, he's going to forego consumption and therefore he's not going to spend as much.

36:53Now, let's say we just continue to do this, right, until I've just got a pile of dust. I'm big, fat and bloated from all my high living and I'm sitting on a massive acre of dust. You're sitting on this beautiful land, fertile soil, all the productive capacity in the world. Blind Freddy can see that you are far more wealth than I have, but not in any way that is measured or is understood through, I think, how corporations think, how economies think, a businesses, a government kind of thing. And even partly where my long tangent will come back, even in thinking how our taxation system works. Why are we taxing income?

37:33Income's good. We want people to be productive, right? Now, it's more the, it's more, I would tax the things that, what do you do if you're, and by the way, I'm not saying punish the rich. I think in a fair system, the rich are rich because they've created a huge amount of value for everyone. So it's like, have at it. I totally applaud your ability to do that. But you probably, if you have done well in life by virtue of your genetic endowment and the luck that you have had along the way and the civilizational infrastructure that is around you, you probably will have a nice house. You will probably have a decent level of consumption above that from someone else at the other end of the spectrum.

38:16They're far harder to hide. And therefore, they're more immediate and obvious to tax. And I'm not saying tax for punishment, just tax because ultimately, we have to fund the services that we all desire. And I think it just gets rid of the problem that Richard's talking about there. Because what really matters is the stock on this component here. It's like, if there's the two people working and living in a $10 million mansion on the harbour, it's very different from two that might be working in a one bedroom shack, you know, out in the middle of nowhere. So it's sort of, yeah, I say all of this, none of it's going to happen.

38:49Way too radical, way too radical. But you would find that the use of land is far more productive because of the incentives. There's a lot of trickle down sort of effects from a more sensible system. But, you know, as I say, it's not going to happen. Big topic. I could go on. I've already gone on too long. So families or singles, do we change or do we keep it? burn the whole thing down, start again. Again, that's what I would do. I would, to resolve this. The premise of the question, Richard asked us a very specific question. I don't know. And I think what it would do, it would probably, it would marginally either improve or make worse, but it's so marginal.

39:30I don't know if it would be the needle, the national needle moving mandate that we all so desperately need. And there would be the unintended consequences consequences of it as well. So it could well be better. I'm not saying it's not. I just don't know. And if it was, it would be a little bit better. I want to finish. We need to move on because we've spent half an hour on Richard's question. The one thing you made a really good point on, it's a point I've made to so many people, and people willfully or otherwise miss it. And I mean, not Richard at all. When I say willfully, it's, you made the point about not to punish people, but to work out how we fund our services.

40:09Yeah. and I have I don't blame people for thinking that the government's taking too much of their money or they're misusing it or whatever like I get that general sense of it's probably being wasted so I'm probably paying too much tax so I probably should pay less so any tax cut I get is good I get that kind of thinking as a first order thinking and it's not wrong to at least be mindful or maybe skeptical that maybe they're paying too much tax because things aren't being spent the way they should be I think it's very good odds that you and I could probably save some money if we spent a couple of weeks in Canberra right so So I think that's true.

40:41But I really want to double underline your point because so many people say, I should get a tax cut because, or they've already got a tax cut, or that person, and it's always I. I shouldn't be punished for working harder. I shouldn't be punished for earning more. I shouldn't be punished for this. They get a discount. I should get a discount. And it's not the wrong personal approach if that's your lens. I encourage people to have that broader lens, which is your point, which is simply, we have government services that we all agree are appropriate to provide. Now, we change our minds every election, but for now, we have a government, and they put a...

41:13Actually, I didn't say for now, because then it becomes a Labor thing. At any point in time, we have a government. And that government has passed legislation or inherited legislation that requires a certain obligation on the government to fund services. And as you and I have railed about a lot, I'd rather pay more tax than have more deficits because it's just stupidity. So let's... And people, by the way, yelling at the pod machine right now, saying, we'll just cut spending. That's the other side of it. I'm not going to go about that, but you're absolutely right. That's one option. But once we've agreed on a level of spending, the question is how do we fund it?

41:40And so it's not even a question of should I pay more or less tax? Did I get a tax cut versus last year? Do I, does someone say get away with something? It's just simply who is it most fair to ask to fund what proportion of the spending? That's all it is. And so when we say, well, we shouldn't, luxury car tax stirs people up on Twitter, right? We should have a luxury car tax anymore. I'm like, okay. so it was introduced to protect local industry which was stupid I've said tariffs are stupid that was a stupid tariff as well local industry is gone the car tax still remains but we should get rid of it so okay let's assume you're right so the burden won't fall on car buyers that are buying expensive cars who is going to fall on?

42:19because if you pay if you don't pay luxury car tax on your car purchase you save some money you think great that's fine and Jack's alright I'm okay what do we add that to the national deficit like everything else? or does someone else pay this? so who pays that extra tax? and that's the question simply it's not a question of how much do I pay versus last year or how much do I pay versus Jack over there but it's more a matter of who is most who is most appropriate to pay what proportion of the tax some people say I earn 200 grand a year and I've got to pay 60 grand a year and that person's a factory where they only pay 40 grand they don't pay any tax I'm like well they earn 40 they pay no tax make those numbers up you earn 200 you pay 60 you got 140 they've got nothing left over and you're really telling me you deserve a tax break and that's the kind of and again that's a loaded statement and I don't resolve from it, by the way.

43:01I fundamentally believe it. It's why I rally at stage three tax cuts. People say, well, lower income workers got a tax cut, so I should get one too. In a perfect world, sure, but there's still a deficit and you're still got a massive increase in take-home pay compared to what they've got and you're saying that you should get more, even more take-home pay versus people who are actually genuinely struggling and I'm on a decent wicket. You're on a decent wicket. I can't with any good conscience say I should pay less tax while someone over there can't afford to put bread on the table or put the heater on.

43:30It's just, and it's not because I don't, I want to pay more tax or I like paying the amount of tax I'm paying. I just can't on a distribution basis look around and go, that person should pay more so I can pay less. Or even that person should pay no more. I should pay less and we should put more debt on the balance sheet for our kids. I just, I just, and again, should we cut spending? Yes, of course. But until and unless we do, running up a deficit and then saying, well, we wouldn't have a deficit if they cut spending so the deficit's okay. It's not how it works. The money's got to be paid back.

43:58You can't just say morally it should have to be paid back. Sure, maybe, but financially in the real world, we've got to pay the money. Yep, 100 % agree. I mean, the only part I would add to that, which is not at odds at anything with what you said, is that the real key thing is, I mean, here's the thing, right? They will always, it's impossible for everything to be purely even. And if you orchestrate it in such a way that it is, then the whole thing collapses because there's no incentives. Correct. I mean, if I have this station in life, regardless of what I do, I won't do anything because I'm a rational thinking person.

44:31Like that's not lazy. That's just sensibleness. Like you're not going to do anything differently. So things are always going to be uneven. And that's not good or bad. It just is. Yes. What I care about is upward mobility in the sense that – and even in terms of the – Opportunity. Yeah, opportunity. So it's like, yeah, I mean, those with the better means should probably shoulder more of the burden, particularly because their success didn't occur in a vacuum. 100%. You know, the reason that your business was successful is because there is a government that enforces property rights. You know, there are regulations.

45:12There's a whole infrastructure around you that stops the bandits coming and looting your premises. There is a whole apparatus around you. Maybe you went through the public school system that educated you. There's a whole apparatus around you that meant that if you broke a leg, it was somewhere you'd go and get fixed and you could drive on a road and you could do it. You are a product of your society. We're all in this together, right? Like it or lump it. And so it's not to take anything away from you. Yes, you worked hard. Yes, you took risk. And congratulations to you. As I just said before, you deserve all of the success you've got, provided there wasn't any sort of crony capitalistic dimensions, which unfortunately there very much are in the structure.

45:51But we're talking about on paper. That's fantastic. And because of that, then I think, yes, it's fair to pay a little bit more tax because always put this to someone. What would you prefer? If you don't like paying tax, the very easy solution is to donate half of your income to charity because that's a tax deduction. You've just solved your tax problem. It's gone, right? No, no. Oh, but I've got less money. It's like, yeah. No, what do you want? Do you want to do a Freaky Friday and swap with the other person? You know, it's just like you will pay less tax, but you'll also have less money. Like what I would much rather be really, really rich and pay a bucket load of tax, but still be top of the pops.

46:31Right. Like that's that is that is definitely where I want to be. But to my original point, I really, really, really want to live in a society that if I just have I just don't win the genetic lottery or whatever. and mum and dad aren't happen to be super rich and send me to the best schools and have the best network of connections and know the people who sit on the board of BHP and are going to make sure I get a cushy job. That's the stuff that sickens me to death. But the person that can lift themselves up because they don't have those barriers, then it all just swims. Again, on paper, things are more messy in real life.

47:04But on paper, it's music. It's beautiful when that kind of thing happens. We're still left with an uneven society. But again, as I say, my starting point is that will always be true. I just hate it when what really gets my goat is when you see the incompetent, the evil, the, you know, inept succeeding by virtue of dumb luck and just where they happen to be born and who they happen to be born to. And then for that person to turn around and whinge about it, you know, there could be a leader of the free world that could be described in that way, by the way. I don't want to mention names, but there was a lot of wealth that was bestowed that was there and subsequently sort of lost and now complains about the rich paying too much.

47:48It really boggles the mind. But anyway, we're so far off the original question that I'll shut up. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener. A question from a listener who doesn't give their first name, so I won't share their details. But what I will say is, Scott and Ram, a question for the podcast machine. Oh, no, pod machine, actually. Sorry, pod machine. Great discussion come rant on how the banks will grow earnings over time and how it's linked to Australia's great property bubble and where the next leg will come from. You called it, Scott.

48:23You can't get a third income. Now, I think that's true. More seriously, what are your thoughts about a bow wave of cash coming out of super, providing the next sustained leg up for house prices? As the boomers and those who've had compulsory super for a large part of their careers start to die, they will pass on significant balances and properties to the next generation. I haven't done the maths on the magnitudes, but it feels like a flood of extra liquidity into the Australian economy. And we all know what happens when that happens. Doubles every seven years. Wouldn't it be sad to see the savings of hard work nozzies over decades delivering nothing more than house price inflation and entrenched inequality?

49:04What do you think? Is the magnitude not that significant? Maybe population will level out or even tilt downward and offset the impact. Maybe death taxes or other policy changes can manage the super transfer process more effectively. And this is, again, a listener who doesn't leave their name. I've tweeted before, Ram, sorry to jump in ahead of you, but I've tweeted before. I think inherited inequality is going to be one of the largest policy challenges for the country, possibly only second behind climate change, maybe third or fourth, if you want to throw other things in there, over the next half century.

49:35I think the reality is, first we had mum and dad, then we had the bank of mum and dad, then we're going to have the inheritance of mum and dad. And that just magnifies the inequality that our questioner asks about, that entrenched inequality of, you just mentioned opportunity and opportunity. If you are born to a family that can help you buy a house with bank of mom and dad or leave your house and or leave your house, because frankly, if they can help you buy it, they've probably got their own because they're probably in that position already. And so if you kind of fast forward, we're in the bank of mom and dad phase now.

50:04I honestly think, mate, 20 years time, and I think our questioner is right. You do end up with the inheritance of mom and dad and the ability to either simply inherit the house outright or to use the proceeds of the sale of that house to buy or buy more or buy higher. it does meaningfully start to change the means of different groups in very significant ways now i will say that most couples have more than one kid so it's not quite it's not quite one-to-one but then if you've got a mum and dad and live money to two kids it's one house going two kids are kind of split still so it's not it's not necessarily a one-for-one generally speaking with most families most families but it's not miles away i really do think i i am very concerned let me annoy some other people.

50:48I think we actually should start looking at inheritance taxes, honestly, which, you know, death duty is one of those things that gets horrible, you know, aghast reactions from everybody. But if you're leaving millions of dollars behind and your kids get to inherit that and then, you know, give them... And by the way, if the bank of mum and dad's helped out the kids, the inheritance of mum and dad might help out the grandkids anyway. But whichever way you look at it, think about the multiplication of that down the generations. Unless you're splitting among seven or eight kids, I don't see how. Let's just go to the other side of the group.

51:16the mum and dad that rent and get a pension, who don't have a banker mum and dad for their kids or an inheritance mum and dad for their grandkids. The grandkids starts with, the kid starts with nothing. The grandkids starts with nothing. Meanwhile, two or three generations later, the inheritance mum and dad have become the inheritance mum and, of grandma and granddad and down through the channels. I don't see how it's not meaningful. And I guess the only thing I probably, and I don't want to get back to your argument because we've had to talk about this before, but your way of taxing versus my way of taxing.

51:43But I think if you, I suspect a large amount of this is untaxed primary residences. And I suspect a large amount of this is concessionally taxed capital gains tax. If it's not an inheritance tax, it's reasonably taxing one or both of those things. Because otherwise, the size and scope of the compounded gains, if you don't tax it during the compounding or at the point of disposal, I don't know where you end up, mate. But I suspect that our email is right. Your thoughts? i don't have any i don't know it's a hard one i i don't think i am in favor of a death tax but i'll put that to the side and only because i'm not strongly against i don't i don't know if i've thought it through enough to have a strong opinion and but so just quickly it comes down to what we just talked about not not deliberately but about that distribution thing oh yeah who should fund the stuff if someone dies with 10 million dollars in the bank you know if they benefit from the as you said the the the luck and skill and hard work and everything else does it go completely untaxed or does some of that go you know what let's let's pay that back to the country death death tax feel weird because you tax a dead person at its funerals and it's a bit icky but i and by the way i'm happy with higher capital gains tax in the meantime to offset that it doesn't need to be a death tax and frankly the better option is better tax capital gains but you could go well with the land and consumption tax it's all mute right doesn't matter because the land is being taxed continually anyway

53:11I'm really stumped with this one, to be honest. I think there is definitely a massive problem. The wealth divide is absolutely growing. We touched on this for Friday for reasons that were articulated then. And it really is. If you are 20 years old today and mum and dad don't have any serious equity or money, you're screwed. Sorry. Correct. Your only option, your only hope is that you are some insanely capable entrepreneur or brain surgeon or investment bank, something where you're just going to be able to generate an incredibly large income. if you're not in that situation, which definitionally 98 % of us are not going to be in it, like you've got no hope.

54:02You might work your guts out, even on an average salary, till you're 45 and then you might have a deposit and then you've got to spend, and by the time that happens, I'm sure mortgages will be out, 50-year mortgages, right? So it's like it's a huge problem. In terms of the wave of liquidity, I just, the trouble with it is like, there's a point with, to be made with that, but it's kind of like we keep having to reach further and further down into the barrel to keep the whole damn thing going. So, you know, at first it was sort of like we had banking deregulation that helped a little bit. We had a multi-decade structural decline in interest rates that helped a lot.

54:44We had the rise of the second income family. That was brilliant. We then had the introduction of government policy with first-time owners grants and concessional tax treatments. And that was really handy. We had self-managed super funds, which allowed the investment into properties. That was handy. We were talking about reducing buffers. And I was like, oh, that's kind of cool. And we're talking already about extending the longevity of mortgages and reduce buffers. It was like, okay, that will help. The problem is, is that it gets harder and harder and harder and harder each time. So it's like, oh, but now when they die, we'll then get the money.

55:19It's like, okay, but then what? You've always got to ask, and then what? And what really matters is not whether something can occur and occur for a long time, but how sustainable that is. And what's that actually going to mean for the structure of the economy? As I said, on my farm example, we as a nation could have a 10 year party, the likes of which humanity is nervous. every Australian doesn't have to work from now. Every Australian gets, you know, 18 cases of champagne delivered to their house. You know, we can sell off the farm in our attempts to sort of do all of this kind of stuff, but it's just, it's clearly not sustainable.

56:01And so, again, I know I'm, it's a total non-answer because the answer is an interesting one. And yes, it's a problem, but I always step back and go, yeah, but even if that is a factor, then what? And then what? And then what? Logically, rationally, just think inductively, push that forward and go, okay, well, that'll help. Back to doubling every seven years. Well, again, by definition, that happens once as that generational wealth transfer happens. Correct. From this very big population bulge to the Gen Xs that don't have the population bulge and the millennials, et cetera, et cetera. So then we just need to keep finding another rabbit to pull out of the hat.

56:39Structural insanity. So it probably will. It probably will help kick things along and give us another kick of the can. I don't know what happens after that or after that. We'll find, we'll get desperate. We'll do things, but it doesn't lead. Financial engineering never solved anything. If it did, we'd be all super rich. And as you said before, financial supports work to get through crises as long as they are then appropriately withdrawn and paid back. And that's what, you know, we've argued about Keynesian economics. We discussed Keynesian economics before, and we're both fans of it. I just, I land on let's do it better, and you're like, let's get rid of it because it's not going to be done better.

57:18I like the theory. I wouldn't say I was a fan of it. I like the theory. But we don't think it could work. It's just, it's the issue of if you don't, we have, that's our thing. You're talking in FATICOM, please, mate, and you're not necessarily wrong. I'm not a criticism. I guess I'm just for our listeners' sake saying none of this needs to be the case. Ram's forecast of the future is not this is inevitable because it's economically inevitable. Your view, and I don't want to speak for you, but my understanding is your view is it's inevitable because it's politically inevitable, and then we're going to have to deal with the economic consequences we create.

57:50In other words, we could solve for this now, not painlessly, because we have elevated our living standards to a level they probably aren't justified because we've used debt and we've used financial engineering, as you say. No more with financial engineering if it's used responsibly. And that's what deficit surplus budgets do. That's precisely what they're designing. That is a form of financial engineering. Let's make sure we have extra buffers in place when things get rubbish. We'll spend some money. When things get good, we'll take extra money off the table and we'll level those out. And so over time, we're no worse off.

58:18We've just helped not create too many booms and help fill in some busts. And that's a beautiful way to do it, I think. Anyway, it's a beautiful way to run an economy and run a government if you can do it. And I know the economy is not a thing. On paper. Well, but that's my point, right? So it's the execution that's the problem. And you come down on, it sucks because they're not going to execute it properly. Point to one point in history where it's ever been done responsibly. And it's going to end up in tears because politicians can't help themselves. And so that, but yeah. That is my view. I'm illustrating that as a point.

58:44Just to kind of draw that, because it's worth saying that, you know, the concepts themselves aren't bad. I don't want to go for the guns, they kill people, people kill people thing, but it's not miles away from that, which is you can have a thing that is a really useful tool. The tool misused ends up with terrible outcomes. not because the tool is bad, because the misuse is the problem. Now, at some point you say it's going to be misused, let's remove the tool because we can't trust you use it responsibly, which is your argument, and that's not an unreasonable one either. The other point I would make is more well beyond the initial question here.

59:13I often think when we have economic troubles, we go, well, how can we, what can we do to fix this, which is very understandable. I think what we have to understand is that the damage is done. something has happened. Usually what happened is we have drawn a whole bunch of consumption from the future via debt. We have not used that money appropriately. And when there's no one there to pay the piper at the end of the day. So it's gone. I mean, value has been destroyed. No matter what your accounting statement says, you can do whatever you like on your little ledger, on your little profit and loss, value has been destroyed.

59:55The only question then is like, well, how do we navigate our way out of it? But we have this thing that's like, well, no, actually if we do this, it's like it never happened. You know, and it's like, yeah, but it did happen. It's really just a question of who do we put the pain onto. In my world view, we put the pain onto those who actually took the reckless risks and caused the problem. in the way that the world is, no, we socialize it and we push it onto everyone and we mainly push it onto the poor. Because there's a lot more... The thing you've got to remember with poor and rich, right, is that rich people...

1:00:33Here's the obvious statement of the day. Rich people have more money than poor people. That's remarkable. Did you know that? Put that on the business card. But poor people in aggregate have more money than rich people. Do you know what I'm saying? So in other words, if you take all of the poor people... I don't know, like, how do you define it? You know, I'm not talking about below the poverty line here. But, like, you know, let's say - Mega Rich versus the rest of us. Let's say you take the top 2 % of - Actually, I know this. I saw this figure recently, so I'll use the US. The US was something like the top 10 % own 80 % of the equity market.

1:01:12type thing. No, I'm getting this right. live podcast. Still alive. I'll just go with hypotheticals because that's easier. Yep, yep, yep. If you add up the wealth of the top 5%, it might not, and include, this is where I got wrong, and if you include in that the income generation capacity of everyone, the bottom 95 % in aggregate have more production capacity, more earning income generation capacity and assets than do the top 5%. So individually, rich people are big, richer than than poor people in aggregate they're not so that allows you to do things like quantitative easing and and all and all the rest of it it's kind of like and it feels like it's kind of a bit sucky but everyone in our social sphere is all feeling the suckiness at the same kind of level and it's like it's just it's a just a little bit don't worry bro it's only you know it's only just this little bit of pain whereas it it shouldn't be that way in my in my very strong I think that's fair to say.

1:02:15Yeah. Anyway, I'm going way off tangent. No, it's good. Not even on topic. No. We've already gone off topic, but now I'm off tangent. So, yes, question I agree with you. I think it's a massive concern. I don't suspect anyone's going to address it, but I think it needs to be addressed, and I think we end up with more inequality. And the more inequality you have, the more social unrest you have. And even if you are rich, you should really care about that because it ends up being a sucky country to try and live in. And, yes, you can lock yourself away and you go to the community if you want to, but it's not a way to live, not a society any of us should want to have.

1:02:46Again, which is not an anti-capitalist, anti-getting-ahead, anti-anything. It's just when the distribution gets that long and that unbalanced, we've got to know we've got a problem. By the way, we've already seen the rate of home ownership that continues to fall and has for 40-odd years. I suspect that accelerates and something else changes. Absolutely. Again, it's just math at a point. And by the way, you can very much do this as a practical experiment. If you like the idea of being in the top 1%, you can emigrate. There are no shortage of countries. Again, we are so insular in our thinking and, you know, we look around.

1:03:26Like Australia, like the poorest Australian is super rich compared to most people around the world. I don't want to name countries because I'll unfairly tarnish them, but you can think of them yourself. There are any number of places around the world where you can emigrate to. Any developing country in the world, you could take the average Australian's household wealth and be the top one when you got there. Sell your house. Sell your one-bedroom unit for$28 million because that's what they go for. And then move to country X and you're in the top 1%. Do it. If it's so good, do it. And you're like, well, no, I don't want to live there.

1:03:55It's like, exactly. Exactly. And that's why it's like even if you're very wealthy, you should want some of the – all the good stuff we talked about before, which is upward mobility, fair distribution, you know, fair contribution to all of that kind of good stuff. So, like, I'd much rather be a middle-class person in a prosperous country than the top 1 % in a failing dictatorial, you know, banana republic. Yep, I think that's perfectly fine. Let's finish with a question from Jackson. Why don't companies for a change? We had a lot of macro conversations the last couple of weeks. Oh, that's right.

1:04:26That's what we meant. That's very interesting. Jackson, I've got a question for the pod machine. Why are airlines such bad businesses? In particular, why are they so bad in Australia? I've learned a bit about Southwest Airlines recently, and I wonder why a model like that wouldn't work in Australia. We're a massive country that kind of needs airlines to get around. We have isolated cities like Darwin, Perth, a growing North Queensland. Surely this is an opportunity. What are they doing wrong? Further to this question, I've read about business models in general. Do you have particular business models you like?

1:04:58I've read investor letters and took lots of interest in business models. As part of your investment research, do you look for certain business models or try to identify the model a business is running? Is a business model a way of describing how a business makes money? I'd appreciate your feedback and comments on this. Full on. Jackson. Thanks, Jackson. Awesome question, mate. Airlines first, mate. Why are they such bad businesses and would Southwest work here? No. No, no, no. They won't. They're bad across the board, generally speaking. And that doesn't mean that they're not worthwhile, and it doesn't mean that you can't make money with them.

1:05:26And it just means that, you know, all else being equal, they are a more challenging business to run. You and I will always, I think I'll speak for you reasonably here, is that we will always prefer a company that has some kind of pricing power. Yep. You know, something like Apple is the biggest company in the world because they can charge whatever they want their phone. I bought a phone for the kids the other day. And there was one that I, me, tight-ass dad, I was like, 200 bucks looks all right. And the kid's like, yeah, but the$2 ,000 iPhone is much better. Now, before the Apple fanboys come at me, oh, well, actually, of course it's better.

1:06:00I'm not saying it's not better. Is it 10 times better? I don't know, right? But the point is they've got pricing power. And the reason they have pricing power is because they're not a commodity because there's only one company in the world that can make an iPhone. There's only one company in the world that can make Coca-Cola. I don't know. Pick your favorite brand. Those companies have an incredible pricing power. You know who doesn't have pricing power? Commodity providers. Iron ore is iron ore is iron ore of a certain grade. I've got to be careful before the geologist. Gold is gold is gold. So I don't care.

1:06:33It's fungible. I don't care where the gold comes from. Fungible means perfectly interchangeable. Yeah. One 10 cent piece is identical to another 10 cent piece in terms of what it represents. And so where am I going with all of this? So if you're a commodity provider, whether it's wheat, whether it's iron ore, whether it's oil, your price is set at the margin, right? So you don't have any pricing power. Imagine if you and I established an oil well and we said, we're going to sell ours for$500 a barrel. It's like zero sales. Yeah, that's right. Zero for an equivalent barrel of oil, you know, the petadruel of energy.

1:07:09It's like, I'm not going to do that. And just to extrapolate that, for every new no-name mobile phone manufacturer that comes onto the market, Apple still sells this product for exactly the same price. Exactly, of course they do. Look, one of my favorite sayings is, in the long run, everything's a toaster. And we've already seen that. Samsung's made some really serious inroads. And I do think that in time, you know, actually, we're getting close to this point with the commodification of mobile devices. Like it's, you know, a pretty good mid-tier phone ain't that mile away from the top-tier iPhone.

1:07:42The new things being added are incremental rather than revolutionary. You know, back in the day, oh, my gosh, night and day between the iPhone and the Blackberry, right? It wasn't even worth making the comparison. Anyway, this is a very long run up as is my one. Is that airlines are commodities in the sense that for most of us, we just need to get from Sydney to Melbourne. We need to get from Canberra to Perth, whatever. And a seat is a seat is a seat. It takes the same amount of time. It's just as brutally painful going through the airport security, you know, the seats are the same size and you might go well there's first class and business class yeah but there's first class and business class in every airline so it's it's a pure commodity so if Qantas came out tomorrow and said we're charging three times as much as Virgin for an equivalent seat they just won't they won't sell a cent so so they're a commodity so they've got so anyway zero person I could go on and on about that obviously but they've got no pricing power they're a commodity provider that's the first thing they've also got an insanely capital intensive business model like Like it costs a lot to buy an Airbus or a Boeing, right?

1:08:48Like in fact, you don't even buy them. You lease them because the things are so damn expensive, right? So you've got massive capital outlay just to stand it up. So again, you've got to spend money today for an uncertain return tomorrow. That's much easier to sort of, you know, try and be a podcaster and just shout into the internet and see if anything sticks, right? Then you've got ongoing very high fixed costs, whether it's just airport terminal fees and all the rest of it. Then you've got industrial action. Then you've got the fluctuation in fuel prices. It's just like when you go through and you look at all the various things, it's super hard.

1:09:28Now, that in and of itself is fine. There's a lot of tough businesses where companies do well, but the really hard thing, sorry, man, I'm sucking the oxygen out of here. Do it, do it, do it. The really hard thing about it, it would probably be okay with all of that. But throw that, throw into the mix what you call the irrational competitor. And the irrational competitor is someone that doesn't play according to the same economic rules. And what I'm really getting at here is just like you can be the most efficient airline in the world. And then you go up against airline X, Y, and Z that is funded by some petro state who just throws a million dollars of, a million dollars.

1:10:06I say a million dollars like it's a lot of money. It's like the Dr. Evil thing, like one million dollars. It's nothing. Yeah, you throw, you've got government supported airlines, so they can actually run at a far greater economic loss and still stay in business because of that. So for all of those reasons, and probably a ton more that I forgot. They're just a very difficult industry to make money. Yeah, I love that. Yes, you have more capacity than you have demand. And whatever that's true, you make money on the margins. You said, Ram, can a lower cost business make money there? Yeah. If we look at the likes, you mentioned I know, Fortescue, BHP, Rio, and some Fortescue shares are very, very profitable, but because they're lucky enough to have a low cost production rather than because they have anything.

1:11:01No one pays 10 % more for Fortescue than iron ore because it's from Fortescue, right? They don't pay anything more for it at all. Fortescue only makes money because it happens to be a lower cost provider than the average iron ore miner. Otherwise, the pricing would be on the margins. So that's kind of the story that we find ourselves in. I think when you think about the airlines, so a couple of things, firstly. Ram's covered it beautifully in terms of why they're issues with airlines, why they're terrible business, they're capital intensive, They have no pricing power. Their competitors are super irrational, and there's lots of them.

1:11:33If you don't believe me, look at Rex going broke. Look at bonds are starting up in Australia. Despite the fact that Compass started three times, I think, Ausjet's been here. There's been, you know, sometimes I say to our team at the Motley Fool, sometimes, you know, if you've got the theory and the evidence, go with the evidence. And so, you know, if you might want to argue that airlines were good businesses, like, well, I'd like to see where that's been proven because Rex has gone broke. So Virgin itself went broke, by the way, may we list, may not in the next couple of months, but what hasn't been broken in Australia as an airline?

1:12:06Ansat's gone. So yeah, the evidence, frankly, is a bit kind of, that's almost the only proof you need, Jackson, to some degree, I think, in terms of how you think about that decision. In terms of Southwest, there's a couple of things there. And there are some important things. So Virgin, I mean, it went broke in the end, so maybe it's not a good example, but Virgin disrupted an industry. And so Southwest's success has actually been in the disruption business, not in the airline business. And I don't mean to be cute to make that distinction, but if you think about what's disruption look like? Well, they brought a new model to the airline industry that the established incumbents just didn't or couldn't replicate.

1:12:48And so you can do that. You can disrupt an industry. And so your point is, could Southwest do something here? Maybe. I don't think so. I'll tell you why in a second. But that's why I think if you look at Southwest's success, it's been very successful from startup. Absolutely true. The thing is, I also checked the data. The share price has gone nowhere in 10 years. So as much as that's success, again, I'm not being critical of your question, but Southwest has carved itself a niche. But the problem with some of these businesses is you're a disruptor and you grow really strongly and you make some money.

1:13:20And then all of a sudden, you find yourself in line with everybody else doing the same things and trying to fight for the same consumers with the same market dynamics RAM's already covered. And that bit, that bit is where it's particularly challenging. Once you mature, then are we saying, is Southwest a good, are airlines a good business because Southwest is a good business? Or are we saying, while you're disrupting, you can grow. Once the disruption finishes, once it becomes old hat or normal or whatever you want to call it, then we kind of level off to exactly the same position we started with.

1:13:49And I suspect for Southwest, that might be part of the story. Here's the other quick one. We have a very, very different geography to the Yanks. Now, I think we all know that, but it's important here because the Americans run a heap of what they call hub and spoke airports. And I can't do off the top of my head, mate. I'm not sure what the specific airports are around, mate. I don't know. But there are some airports that basically people – there's not many – proportionally, as a percentage of their total flights, there's not as many direct flights in the US as there are here. There's a heap of two-league flights.

1:14:22Why? Because you fly from your home airport to the hub airport, and then you take another spoke from the hub airport out to somewhere else. I've flown in D.C. before, in the U.S. before. I flew from D.C. to Omaha when I went to the Berkshire Annual Meeting, which was awesome. I own shares, obviously, as everyone knows. I think there was one flight from D.C. to Omaha, Nebraska. Most of the flights were D.C. to, I think it was Dallas. I think I'm right. And then from Dallas, Chicago's another hub and spoke airport, I've just remembered. But yeah, DC to Omaha, there was more than one hub and spoke option, but they were all two-leg flights.

1:14:54I think it was like one a week out of American Airlines, something like that, whatever it was. And that's kind of the picture. If you think about how that plays out, how that kind of works in geographic terms, Southwest works beautifully because they basically did more of that. They started doing more of that, actually. They used something that they were in the Southwest of the US, no surprise. They started doing the hub and spoke stuff more than others did and using other regional airports more than the others did. If anything, Bonza kind of tried to do that a little bit, but even then it was still point to point.

1:15:27It was Sunshine Coast to, was it Bendigo, I think, somewhere like that. It might have been Geelong, wherever it was. Apologies for not knowing the Victorian airports. And that was, it wasn't even hub and spoke then, it was just kind of regional to regional, trying to take advantage of, they hoped, enough people who wanted to fly between those two things and didn't want to do the hub and spoke. You know, for us in Australia, I guess the hub and spoke, the hubs are all the capital cities, and the spokes are largely, not entirely, but largely the regional cities. That is much, much smaller. Think about Mudgee or Orange in New South Wales.

1:15:55Think about Mount Isa or Kananara in Queensland and WA. They are kind of hub and spoke. You spoke from those places to somewhere else, but the volumes are really, really tiny. There's not that many flights. There's not that many planes. There's not that many passengers. And that's kind of just the way it works out. So, by the way, South is great. The disruption story of Southwest, Jackson, you've probably been reading about, which is awesome. the disruption of southwest is brilliant they they looked at an industry a new way and i love disruptors um the the challenge i think for many disruptors and it's you know netflix has disrupted and has gone to amazing things so the disruption is real disruption is important disruption changes the game it lowered prices for consumers speaking of competition that was really really good so lots of lots of really positive things that airlines have been able to do and they've done those in in southwestern so it's done it really good ways like the ways that the ways that make they made it work were really really positive the idea of the the um the hubbid spoke they didn't charge for baggage much lower prices much faster turn around at gates any new any new competitor we talk about some some um telco competitors or nbn competitors right if you're competing with telstra your your your opportunity is just you're not telstra you're not old and calcified and active and problematic, right?

1:17:08So Southwest was not American Airlines. It was not Pan Am. It was not United. It was not whatever's out there still these days. It started from scratch. Virgin was the same. I mentioned Virgin before. It started with one model of plane. Cross had, I don't know how many, four, five, six, seven. And they only chose some routes they could make money on. And Aldi did the same. They came to the Australian market. They went to startup, but they were disrupted. They said, well, we're only going to sell 400 products. We'll sell them cheap. And we'll have tiny stores and three people working in them. If you don't shop here, that's okay.

1:17:33We're going to make money doing it. So that's the Southwest model. And it's been fantastic. Just once they get to a certain size, if you can't keep growing, can't keep taking share, then you're kind of still stuck of, well, now I'm competing with American Airlines who are trying to do it my way as well. And the market comes to meet you. And back to Ram's point, you need to have pricing power or it doesn't work. So that's kind of, I don't mean to poo-poo your question, mate, because you're right about Southwest. The disruption is fantastic. Now, if you're an investor, investing in disruptors at some point is really great.

1:18:00Investing in Netflix early and Southwest early were both really, really great investments. At some point, the Southwest story seems to have played out. The shares, as I said, have gone nowhere in 11 years. So if they've played out, well, okay, that's cool. You take your money, you say, great, I was right about the disruption. That doesn't make them good businesses now. By the way, the shares are where they were 10 years ago. The PE is still 44 times. Wow. Right? Now, I have not paid 44 times for an airline. Maybe it's a cyclical low. Maybe next year earnings are likely to – I mean, look, the market will have a rationale for it.

1:18:33Yeah, true, true, true. And I haven't longed out, you know. But yes, at face level, like, no thanks. Can I make a confession? I've got a small stake in an airline. Oh, look out. Yeah, very small. So do as I say and as I do. Is this the Warren Buffett Aeroholics Anonymous intervention? Yeah, I think it might be. So every, and I've thought this for a long time because Buffett said it and I just, you know, wrote, learned it. And then. And by the way, he then broke his own rule and then came back and said, I remember, well, that was stupid. I lost money. He didn't actually lose me. He just managed to make money.

1:19:06But it was like, you know, I should never do this. And he did it. It's like, I should never do this again. Yeah. Which is like, sometimes you've got to arrive at something yourself, right? I think there is, particularly he was much younger. It was like, oh, Buffett said it, therefore. And it's just like, I will actively push back, even on some things that he will do another investment. It's the beauty of investing, right? It's a personal kind of thing. Anyway, there is a listed company. When I say it's a very small part of my portfolio, it's called Alliance oh I was going to guess that one that's what I thought it might have been good one now what I like about they've got all the same well some of the same kind of issues but what's really cool about them is that they've got this they focus they started as like a fly in fly out service provider for the mines that's right and so they had this market which they kind of had to themselves so they didn't have the competitive dynamics to it they also had massive tailwind in their industry and that's all good and well you know, Johnny on the spot kind of stuff.

1:20:02But then you get a very, I will say, look, a very capable management team. I'll be at operating in a very tough sector, but they have been really, they do all kinds of cool things with like what I call wet leasing, where they'll like lease out their idle capacity to the major airlines. It's like a win-win there. They long into long-term contracts. They've had businesses that they've spun off, not spun off, but have started up within the wider business in terms of aviation services. They provide services to other airlines, parts and stuff. They've just found, oh, we're doing this and we're doing it profitably and actually we can do this for other people as well.

1:20:39And so, like, yeah, it's a business. Oh, and they acquire parts and aircraft very cheaply because they understand the industry and they know that every night – as sure as night follows day, an airline is going to go bust somewhere and you're going to be able to go in there and pick it up for pennies on the dollar. And they do. They're very astute buyers. Now, I've got to be careful what you say because you sort of talk favorably about a company and people go, oh, Andrew really likes it and, you know, God forbid, follow me. Don't, for God's sake. But there are always exceptions to the rule. And if I was to ever endorse an airline, it would be something like that that at least recognizes the challenges and dynamics of the industry and then actively and sensibly can make the case that for us it is a little bit different.

1:21:30Now, it might not be. We might be laughing about this in a few years' time and it's like, no, turned out all of the problems that plague airlines are plagued alliance as well. Yeah. But, you know, they're a nice profitable company and I think they are a little bit outside. And you know what their PE is? Go on. Seven. Oh, that's pretty good. Yeah, they even pay a dividend, right? So one-sixth of Southwest, so take your pick. You know, what are you going to choose? I will say I'm not prepared to buy on that basis. I would not buy on that basis. No, don't buy on that basis. It reminds me of Mermaid Marine and Emiko.

1:22:05Do you remember both those? Yes, I do. I do. I remember it well. Massive amounts of owned infrastructure that all I needed to do was keep it busy and make a fortune. And, of course, as soon as you don't keep it busy, the cost of that CAPEX or the capital, sorry, equipment and loans overwhelms. I'm going to say it's Alliance, by the way. I can't remember if we actually recommended Mermaid Marine or almost did. and I think I got lucky by avoiding it. If I have done it and it costs people money, my apologies. We did that. It was kind of like, wow, they've got this great contract and they make all this money.

1:22:32And Emiko was the same. Emiko had a plant machinery, like big caterpillar tractory type things. I think it was in Indonesia or Asia somewhere. And all I have to do is this. It turned out at some point during one of the downturns, and I can't remember when I'm getting old. It was a while ago. At one point, I think it was almost literally every single machine was sitting idle because they had the mining customers that they just didn't want them anymore. It was like, but it was a great business. was all hired out. It's like, well, when there's no one hiring it out, this thing gets ugly real fast.

1:22:56So I'm not saying it's an alliance at all, mate, but I had a little shiver when I thought about Amaco and Mermembrun on that basis. I mean, speaking of Buffett, what's the saying? Like when a management team with a reputation for brilliance meets an industry with a reputation for mediocrity or something, it's the reputation of the industry that remains intact. Something along that line. In other words, what you want is you want a great business model in a great industry that's run by, you know, okay, people more than you do a genius at the helm of a business that's super hard to run in a mega tough industry.

1:23:31Like, you know, and that's why just to come full circle on the question there, like, yeah, I think you really do want to spend a lot of time thinking about the business model. Here's the thing. I think there's like, I forget the exact number. I think there's like 12 business models in the world, like broadly defined. Yeah, that's right. You know, there's a book I read yonks ago called The Personal MBA. And it just, it was kind of, had some less than great bits, but the good bits that I had, it was just basically said, you know, whether you're in Mesopotamia, you know, a thousand years ago, or, you know, the cutting edge of 21st century finance, there's really only 12 different ways to make money.

1:24:07You know, and it talks about sort of, you know, whether it's retail or whether it's service delivery. And it's a good book to read for that framework because once you've got that, you can look at any business on the ASX or in fact the world and go, oh, that's that kind of business. And from that, you can infer certain truisms, generally speaking. That doesn't mean that you're just all of a sudden going to be a brilliant genius investor. But it allows you to frame up the relevant question. So you just did a perfect case in point. So I've just said, well, actually, Alliance is a little bit different.

1:24:45You've got, yeah, except if this happens. Now, you didn't, no offense, but you didn't arrive at that first principles just then and there on the spot. Oh, yeah, exactly. That was a patent recognition from understanding. Hang on. So, yeah, that's right. Yeah. And that is like anything. You know, you do enough curls, you're going to get a big bicep, right? You look at enough business models, you're going to be able to spot these things really, really quickly. And in most cases, and I think this is an underappreciated part of investing, We all spend our time trying to find the next great thing. And I would argue very strongly that there's two ways to improve your returns.

1:25:18One is to add better stocks to your portfolio. The other way is to take out the bad stocks are in your portfolio. So sometimes the greatest errors are errors of omission, and sometimes the greatest errors are errors of commission. 100 % true. Yeah, you've nailed it. I think, look, back to the business model question, I don't look for certain business models around, I have to say. And I'm kind of a bit unusual in a couple of ways on that one. Plenty of people love these software-as-a-service business models, right? High margin, high customer retention, no, no, no. Software service must be good.

1:25:51And I say to people regularly, what do you reckon the customer retention of Woolies is? Or Commonwealth Bank? I mean, we kind of go, oh, customer retention is everything. It's like, well, are you buying Commonwealth Bank? She's like, oh, no, no, no, no. Well, is it software-as-a-service that really matters then? And I think it's software, i.e. the ability. So what's great about software, and I'm working through every business model here. We probably should have a different podcast, mate. Maybe that's an opportunity for us. Yeah, that's a good topic, actually. Maybe we're on a break. But software, if you can make once a million times, that's great.

1:26:20The other thing I think we often conflate, and this is why I don't always love just business models themselves, is there are software service businesses that have gone broke and some that have gone really well. So the model itself isn't enough, right? And by the way, back to Southwest, a lot of the software as a service stuff, I'm going to be a bit controversial here, at least among those who are accolades to this stuff. I think a lot of software as a service, so-called software as a service wins from investors have actually been just companies that grew and so they won. And so when Xero went from nothing to$100 a share, is it a software as a service company?

1:26:55Of course it is. Was it that that brought it success? Well, no. It was an disruptor. I mentioned it was Southwest. a disruptor in the accounting field by taking things online. Now, yes, I like Xero a lot, right? I'm not criticizing the company or the manager or the... It's brilliant. But when people say, ah, see, all software as a service companies win, so all I have to do is find a software as a service company. It's like, well, partly, I mean, that's not a bad place to start looking because there are some wins there. But is that enough? Do I go by model? Not really. That being said, there are attributes I go with and rather than looking at business models, I'm looking for a source of competitive advantage.

1:27:28Now, the model can be that, right? So network effect is both a – it's not really a business model, it kind of is. It's more a two-sided online market. But effectively – so the model of Facebook is a two-sided online market or a multi-sided online market. Classified, same thing. But they also have network effects. Now, is it the model that gives them success? To some degree, yeah, because it's cheap and it's online and it's specific and it's all about the eyeballs. Yeah, yeah, yeah. But it's the network effect that makes it something. An online website – schoolfriends.com was way before before MySpace or way before Facebook, right?

1:28:02Yeah. It was the same business model as Facebook. MySpace, same business model as Facebook. Is that enough? No. So again, I'm not having a go at you at all, mate. It's a perfectly good question. There are some business models that help you say, I know what that is so therefore I can do X. Yeah. But I would defer instead to sources of competitive advantage. And maybe that's kind of the same thing in a lot of ways. It probably is. But I think rather look for a specific model. A business model will help you understand how a business makes money. And like you just mentioned with Alliance and Mermaid, I mean, you kind of go, okay, I see how they make their money.

1:28:31Here's the pros and cons of that. So it helps to contextualize a business. That's what I was just going to say. Oh, there you go. Sorry, I'll let you go. No, no, no, no, no. No, keep going. I mean, this is exactly the point. So it's not cart before the horse. You don't look for a business model and then invest. Right. You look at a business model so you can ask the right questions, so you can understand what kind of matters. And, yes, some business models on paper are more attractive than other business models. They are. But your point is an excellent one. It doesn't guarantee anything. Retailers, right?

1:29:04Premier Investments has made a fortune. Jeans West went broke this week. Exactly the same business model. Same business model, yeah. And airlines, even allowing for, you know, Rex went broke, Southwest kind of mediocre, Virgin went broke. Does everyone survive? Does everyone go broke? No. But if you have the business, you say, okay, well, there's, you know, I can know things. What do I know about retail? Super low barriers to entry. Fashion matters a lot. Scale matters a heap. Unit economics are important. So it helps me think about how to analyse the business rather than – maybe that's the better way I put it.

1:29:32I mentioned context before. I'll add to that and say it helps you ask the right questions and know what to analyse. So I'm looking at Jeans West and Premier. I am going to bring a retail business model mindset to it to ask those questions. But what I'm really looking forward to – or what I'm looking for, sorry, between them is which one has a – if any, have a competitive advantage? If so, how big is it? How sustainable is it? How much value does it create? Am I getting paid enough for it? Pepsi has a competitive advantage, so does Coke. One is stronger than the other, both are in the soft drink business.

1:30:01And Ram's Cola, obviously more expensive than Coke, but Scott's Cola, cheapest chips. I'd buy Coke shares. I wouldn't buy Scott's Cola shares. The straw man conglomerate that now has a bottling plant as part of its operations is really impressive, but I'm not sure it's enough. It's an excellent point. I mean, if it was that easy, I was going to say, if it was that easy, we would all be millionaires. If it was that easy, it would be recognized and arbitrage arbitraged away. That's the other thing. Good point. You just, you want the variant perception. That's what you have to have. I will repeat this ad infinitum because it's, everyone wants the great business that's super cheap, but everyone also agrees is a great business.

1:30:43Like it's an impossibility. You cannot square that circle or that triangle in this case. Now also as Buffett says, I'll steal a Buffett quote because you did it so I have to keep up. You've got to do it. You know, it's far better to pay a fair price for a wonderful business than a wonderful price for a fair business. In other words, you want to be able to identify great businesses, absolutely, but then they're only worth buying if their greatness is underappreciated by the market. In other words, they need to be better than the market thinks, which is implied in the price, for you to buy. And similarly, yeah, I think you're right, I've learned that lesson too.

1:31:16I've tried to buy fair businesses before and say, oh, it looks pretty cheap. Maybe there's better more in it. Maybe there's something there. They can do it. Buffett's not saying this is universally true. He's saying it's better, They're not, you can only make money this way. But yeah, so business models matter, absolutely understand them. Great question, Jackson. Find them, study them, learn them, know them. So you can apply them across the board. When you're on sale in retail, you can analyze almost any retail business using the same sort of approach, but that's about where it stops. Anything else from you, Ray?

1:31:44No, I think I'm good. All right. That probably - I've got to do a very quick thing, but as I'm talking to you, I'm looking out my window. We're getting our septic tank train. The dude is He's backing up the truck He's like an inch away from the garage This is going to be interesting We're not only going to lose our garage But we're going to be covered in Swingy ungodly messes Oh no dude Tune in next Friday To find out whether or not Until then, Fool on Cheers The Motley Fool and people Appearing in this program may have positions In the companies mentioned general advice only. Please speak to your financial professional to understand how it may pertain to your situation.

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