Mailbag: Listen to Scott do a complete 180. July 20, 2025

24:25Ask kids, ask your parents what a phone book is. It's just, yeah, your very point is exactly right. I don't, again, do I think we should get rid of all legislation and regulation? Of course not, but there's smarter ways to do it. Very quick story. So I got an AFSL, Australian Financial Services License for the business. Congratulations. Years ago. Well, it's a long story there. The point is, I reckon in legal fees, in ASIC fees, in the res, it's something like 80 grand. And time. $80 ,000. Let me just, 8-0-0-0-0, right? And they put together, again, this document, I didn't even read it myself, right?

25:02It was just like, whatever, I have to say. And the things that I put in there was just like, well, what do you want me to say? Yeah, that's what it is. What would I answer? I'm putting stuff in there I fundamentally disagree with. That's wrong. I would never give that advice. I would never say that because I disagree with it. And I think it's, but, but I know that's not what you want to hear. So I'll just put what you want me to hear. And so I went through this, this massive, expensive, drawn out, costly process. Part of the AFSL requirement is you must have personal indemnity insurance. That was a whole thing.

25:28There were 4 ,000 different snouts in the trough. And it's just like, you know, Storm Financial had an AFSL, right? Like every dodgy, you know, Commonwealth Bank has an AFSL. You know, there's a Royal Commission with them and all the other major banks. Like, it just doesn't, the intent is good, but it doesn't do anything. And the bigger point here, just to get a little conspiratorial, is that. Oh, dear. Well, it's not a conspiracy, but it's just. But it is, the biggest advocates for this are the large incumbents. Yeah. Because, like, we talk ad nauseum about when you're looking at a business, you want a moat.

26:06You want a competitive barrier to entry. There are a few barriers to entry that is better than a regulatory moat. It's like we can limit our competition by putting really arduous regulatory barriers in there. So Scott working at his home in Barrow, he'll never compete against us because he doesn't have the time, the resource. He doesn't have a floor full of high-paid lawyers and auditors and everything to check the boxes. But we do. and so all it does is limit competition and you get these big entrenched groups. Again, I know I say it a lot. It's called regulatory capture. Once you see it, you see it everywhere.

26:44It's like, how come none of like, you know, the big insurers all suck? How come all the big banks all suck? Because there's no competition in the space. It's a really cozy oligopoly. No one's going to come in and disrupt them because it's too hard to do. Unless you yourself are already a very big, very well capitalized entity, in which case you're already happily on that side of the fence. So the person who comes in going, wow, wouldn't it be really cool if we could do this and I can write a bit of code and then we'll just be 10 times better than what's out there. It's like, yeah, but you can't be trusted.

27:16Yeah. These guys could be trusted. It's hard, right? Like, I 100 % agree with you. And again, it's the what and the how, right? Rather than anything else. Do I think anyone... So here's the... You can both sides of this coin. We'll get back to another question at some point, but all we're off to watch. Not anytime soon. No. Here's the second point, right? If someone comes up on TikTok and says, I'm a financial advisor, I'm going to give you financial advice. There's nothing to stop them doing that if we have not got regulation to prevent that from happening. Sure. And accreditation of some, again, let's go back to the doctor example.

27:48You have to actually have a medical degree. You can't get the Kellogg's packet and put it up on the wall and say, I'd like to help fix your gangrene. So go for your leg, please, sir. There are licensing requirements to make sure you are capable of doing a job. And I think that's very, very, very reasonable. 100 % reasonable. I think we should have some degree of licensing or some degree of professional ability or something. Some way of, even your point about answering the questions you know you have to answer. You're doing that on the basis of what you know about it. You may disagree with it, but you know it, you've learned it.

28:17You know what the issues are and you know what the expectations are. Now, again, I would change it like you would because I think it's overdone. But, you know, the flip side of that is the Motley Fool has an Australian financial services license. I have I've passed the appropriate credentials to be able to give financial advice using the Motley Fool's AFSL if tomorrow I left the Motley Fool and we had this podcast I couldn't say some things I say now I'm no different I've still got the same skills and experience and background and abilities or lack thereof as you might decide as listeners um but as as someone you know lift you stop working for the Motley Fool I can't say the same things I can say now when I say can't There's nothing conspiratorial about it in that case either.

28:55Just I won't be covered by the AFSL. And so I'm now giving, if I give financial advice, doing it unlicensed, and that would get me in trouble with the corporate co-op. And so am I less capable after I walk out the door? No. But am I prevented from doing what I'm already doing today? Yeah. And so I'm arguing with both sides of my mouth here, mate. You are 100 % right. As with the financial service, as with financial advice stuff, the process, the time, six months on. I think in the Motley Fool, right, with our resources, not the way you know squillionaires took us six months and I don't know what the amount was but to get the license approved I'm sure it was well over six figures I would assume seven figures yeah I don't want to have been seven but it would have been over six in any case that's reality when you factor in the costs in house of your staff you know they're real costs like you add it all up yeah that's probably right anyway so I don't know the answer but I do I do want I do want accreditation and licensing and standards I don't want anyone to be able to say they can give financial advice like I don't want anyone saying they can practice law or cut off legs.

29:57I agree so here's the thing, here's Scott Phillips giving people advice who might have 10 grand to put into some shares we need you to jump through all of these hoops that's right I'm going to give advice on a 5 million dollar property saw that one coming you don't need it, for general property advice there are no there are no licensing conditions Or crypto, right? Same thing, yep. And it's just sort of like, well, why with shares? And you should buy this$5 million house. You should buy$5 million worth of crypto. Okay, sure. And you should buy$5 ,000 worth of shares. Oh, you can't say that, Scott.

30:33Yeah, you'll get fined. You'll get sued. Like, what? Yeah, mad. And it's just so at least be consistent in it. Like, it's a madness. Yeah. It was so far off your original question, Jeff. Oh, yeah. We're miles away. There you go, Jeff. You're welcome for a tangent. You didn't say there were strain or other things. Scams? Maybe. probably not quite we did decide hey let's go to a question from Brent who you'll have to sit down for this one mate Bonjour Scott and Ram Lena Wood Woodley Clark and Dore Statler and Waldorf Matthau and Lemon the list can continue thank you what was the last one Matthau and Lemon Walter Matthau Matthau or Matthau the odd couple Jack Lemon and Walter Matthau there we go I understand I must never look Scott or Ram directly in the eye when speaking to them says Brent so I respectfully take a solemn bow to request my questions for the pod machine.

31:24God damn it, you're a hundred... If more people were like you, Brent, there would be a much better place. They understood our greatness. Yes, that'll do. We'll grant you an audience. Well, we might. Let's not promise anything. Just a quick preamble says Brent. I had a lot of success in my early investing journey with a number of stocks doing extremely well. I didn't expect this type of success to happen to investors all the time, but my personal hit rate was 100%. Wow. With the common theme. I know, right? Being the story of the company was a compelling one. Then COVID hit and after a period of time I had a bunch of stocks in my portfolio that all had great stories and very high potential outcomes but I didn't know much, if anything, about the fundamentals of many of my holdings.

32:05Don't worry though, I never bought any bored ape NFTs. Well done Brent, there's that. Good work. Had I sold my portfolio entirely in September or October 2021 I would be better off by around six figures. I didn't, but I learned an incredible lesson. Know what you own and why you own it. That's a randomism right there. It's one of my tattoos. That and the tramp stamp. Since the dizzy heights of 2021, says Brent, I've become much more risk averse and included a few more stable stocks in my portfolio. Although I have avoided the top 20, 50 or 100 as my 20 % holding in the Vanguard ASX shares ETF can cover those companies.

32:47Interestingly enough, he says, it's one of my best performers. Yeah, the index will do that to you sometimes. My problem is I still feel extremely attracted to a great story and great potential long-term success. This has gone from question to confession, I think now. But I'm currently well overweight in those type of stocks for my liking. On the contrary, I'm almost completely bored by almost all of the larger cap companies, although I do value how safe they are. So a couple of questions, if I may. One, are there certain skills, apart from patience, that an investor who mainly invests in small cap companies should seek to acquire.

33:22Let's go with that one first, Ray. Yeah, just one quick pushback. Big doesn't always equal safe. I always hammer on this point. I hate it. I hate it so much because it's sort of, I mean, we could bring up the ASX50 here and we'll pick out a dozen that I just think are a dog's breakfast. And like, yeah, okay, they're big and they've got revenues and probably even got some profits. but I wouldn't call them great businesses. As sample sets, I think it's fair to say they are safer on average than small caps on average, but you've got to be careful. Some people say, I've done statistical analysis and low PE companies do better than high PE companies.

33:59So if we're going to buy one low PE company, it's like, well, on average, maybe, maybe. And you may even disagree with my average about that. I think it's right, but you can disagree. But it doesn't mean you buy one low PE stock, you're going to win, right? The average is the average by definition. So yes, large companies are safer than small cap companies on average? Probably, at least in terms of strike rate or hit rate. Does that mean you should, that any large cap company is safer than a small cap company? Absolutely not, to your point. Yeah, and I guess they're 100 % safer in terms of risk of insolvency and those kinds of things.

34:29Yeah. But I think you've got to be careful in the definition here. I guess where I'm coming at it's like there is absolutely nothing to stop those companies dropping 50 % and staying there for 10 years. Correct. Like, I mean... Yeah, 100%, yeah. Yeah. Between 2015 and 2019, Telstra dropped 50%. It's a four-year period, the bluest of the blue dividend-paying stock, and you cut your returning up. Now, I don't think the pub test would say, oh, that's a safe investment. Well, you know what's funny? If you didn't tell people the name, they would say it wasn't. Yes. If you then said, is Telstra a safe investment?

35:05Would it have been over those five years? Oh, yeah, yeah, Telstra. Yeah, 100%. So it depends on how you sort of define it. I've forgotten the question, mate. You're going to have to remind me. What skills do small cap... I was just thinking... You haven't thrown a square in the circle in for a while. I thought you were going to go there. Are there certain skills, apart from patients, that an investor mainly invested in small cap companies should seek to acquire? Yes, yes. There definitely is. The first is... Actually, you just demonstrated so wonderfully well, mate, and I'm very jealous and impressed.

35:33The ability to change one's mind is a very important skill. An extremely important skill because they all look good. They all look good. They've all got a good story, at least for a while. And hope springs eternal. And your ego never wants to admit that it made a mistake. And yet, as we've said so many times, if you're good in this game, you're right, 6 out of 10. So you're going to be wrong a lot. Almost 50 % of the time, you're going to be wrong. And we've talked about some really great investors who are wrong 60 % of the time and still get incredible returns. So that's fine. No problem. don't care at all.

36:12I tell you, I list 50 stocks right now that it worked out terribly for me. It's only a problem when you don't admit that it's a problem. And so I like the story. Everything's lining up. Okay, I'm going to make an investment. And then bad news. And I'm talking, forget the share price for a second, right? I'm talking the company itself has just got bad news, but there's a delay. There's a cost blowout. Sales didn't meet whatever guidance they sort of put out there. There's a million things that can go wrong and you'll rationalize all the way down. So I just think that I'll throw it back to you as other things you could say here, but it's just like, I think that is the key one because that money is tied up there in this dog of a stock.

36:55Like press a button on your phone. It's so liberating. You know, you now got a capital loss to offset against all these wonderful future gains that you're going to make. And you can pick up the jockey mid race and put it on the horse that's doing much better. and so yeah that's the one I'm going to go with I like it other than you slandering jockeys being little people which wasn't very nice of you I never said that you pick one up I mean that can't be very heavy sorry I'm in that sort of mood today well you did accuse me of having a tramp stamp as well accuse is only if you don't know something's true isn't it I just wonder what I would say

37:33love mum something all right risk does not equal return I like it very much I might have to get that done now I appreciate you still pretending this is a hypothetical so it's nice you're consistent so Brent a couple of things Rams nailed it with the ability to change your mind I think that's really important cast on something for volatility is number one Yes. They are almost, again, we're averaging, Ram's point of averages is 100 % right at the top. So I'm going to keep averaging, but please take that into account as I talk. They're going to be more volatile than large caps more often than not.

38:16The average large cap, not any large cap, not any small cap, blah, blah, blah. Probably going to be more volatile. I need to be ready for that.

38:25Valuation matters, which it always does, but you kind of talked about it. I'm still going to be a bit of a thunder for your next question, but valuation matters, right? the understand the business for sure as Ram said but then work out how much you're paying a small cap is more likely to more often than not compared to a large cap company have more hype in the share price when it does now it's also true you can get some great discounts because no one's talking about it once someone starts talking about it because of the weight of money and the the hope that springs eternal no one's really hoping Telstra's going to double so well it halved and Ram was right no one's buying Telstra for the 10 bag right but if you can grab a good story as you did Brent and go wow this thing could do really well and if it does then wow imagine having there's possibly a lot in the price so just valuation matters it always matters but just keep that in mind i won't even say versus large caps just just understand how you're valuing these things and what you what you're working out um and the last one is probably a variation that which i mentioned which is the hype thing and just the ability to um well you kind of alluded to getting carried away brent saying grounded right in either direction and that kind of goes back to the patience thing you mentioned but and it kind of goes back to the something for volatility but it's almost you need to you need to be i'll say contrarian but i don't mean opposite i mean well i'll i won't say i'll say you need to think independently right so you've gotta even if the story is cool and that's what we all get caught up with stories um so i'm not saying you shouldn't do i mean you shouldn't but we all do being able to separate the story from the reality which is kind of what you mentioned but just that idea of where's you know what what is what is really going on here when people are when people are all excited about this thing, oh, is that right?

40:02When people are miserable about it, is that right? Separating the price from the story in terms of not what you buy and how much you pay, but is this going well or is it going badly? That comes down to the business itself, not the price, which is your point, mate. But the flip side I'm trying to bring here is you've got to be able to ignore the hype or take advantage of it, by the way. Sell it at great prices or buy it at dirt cheap prices. Ram does that a lot. Some of your buyers, mate, you're looking for stuff that no one's talking about. It's like, man, this thing is doing this thing and it's cheap.

40:28and a lot of people will walk away from that because they're not going anywhere, doing anything. So just keeping that in mind. Well, it's actually, yeah. And then the worm will, well, no, I shouldn't say that. Sometimes it turns and it's like, I really like this business, four cents. My goodness, that's so cheap relative to their current revenue and what they're likely to do, et cetera, et cetera. And then another couple of periods come out and the market gets a whiff of it. It's like, yeah, this is really great. Yeah, isn't it great? The share price goes up and then a lot of people who just watch the little wiggly lines go, oh, the line's going up.

40:56And then they buy more. and it gets so far as like, that's exactly it, right? Well, when I said it was cheap, I thought it was probably reasonably valued at 10 cents or 15 cents. I never thought for a second this thing was worth 40 cents. Not that I've got any ability to time it, but I mean, I did rather well out of Pointera, which is a business that's really interesting. I won't go into it, but it's just like got to, it went from four cents to 90 cents. And I didn't get anywhere near the top there. But it was just sort of like well before 90 cents a few years ago. It was just stupid. Like, yeah, really interesting business, but like no way.

41:30And I think it's probably four cents now if I look at it, right? So that irrationality is a really, really good thing. There's nothing wrong with the story, right? Like everything in the human realm is a story, I would strongly argue. And it's just a matter of trying to – you've got to play detective here. Do the facts match up with the alibi here? You know, like this is what they're saying. and we're lucky enough that there are reports that get delivered all the time it's like yes wait a second i saw your presentation from a year ago you said all this was going to happen and it wasn't even close now sometimes things come out of left field and it's nothing to do with the business's fault but but also like gosh that's a big miss you know for me once you know shame on you for me twice shame on me type thing there's a point at which it's sort of And it always surprises me how often people can play this game and get away with it.

42:28It's like this team has been saying this nonsense forever and they just keep bleeding cash and raising capital, bleeding cash and raising capital. There comes a point where it's just like, I am nothing other than impressed that you can do that. You're a scumbag, but you're good at it. Yeah, it's just like you're able to convince people to give you money after like being consistently wrong for four years and like just completely diluting everyone into oblivion. Like, yeah. So it's just like, okay, that's why I always say write it down. What do you expect the businesses is going to do here? And it's sort of like, well, it's two years in and their revenues haven't grown at all.

43:08It's like, it's time to call it busted. Yeah. Like, you know, or they said they were going to bring Cross under control. and wait a second, they've just taken on, they've acquired some other business and they've employed, you know, 20 new sales staff or whatever it happens to be. It's like, it's just, when you see, and you'll see them all the time, look for the inconsistencies. And it just means that you can have, like interpersonal relationships. Scott's a pretty upstanding guy. 99 % of the time he says he's going to do something, he doesn't. So next time he says something, he's like, yeah, I'll probably do it.

43:41There's another person called, I don't know, Jeff. and every time Jeff says something, he never does it. And now he's telling me this again. Not the Jeff at the start of the show, by the way. And it's the same with companies. It's the same with companies. So, yeah, you don't want to give too many people, you don't want to give them too much rope. I think it's really important. Last one, actually, for me, I'm going to jump on yours, Ram, and we'll move on. But you're going to be wrong a lot. and so what your job is to do is think probabilistically rather than absolutely because you're going to sell the point where the thing goes up higher right are you wrong to sell it at lower prices no yeah was the shit it just went higher that's going to happen right are you go is the cheapest going down after you buy it maybe are you wrong to buy it well maybe maybe not depends what the business is doing but you're going to have to make your piece of that and same you gave some of those criteria there will be a company that promises four years breaks the promise for four years and in year five goes spectacularly well right so you can't then say well therefore or I'm going to keep every single company for five years just in case possibly one of them works.

44:45And equally, you can't keep yourself saying, well, I sold it after three years. Year five went well. I should hold it for longer. It's a game of probabilities. And I'm not going to say there are, I haven't done the, I haven't anyway, the work to know whether statistically five years is the right number or three years is the right number. What I am saying is just think probabilistically. Be prepared to miss some winners. Be prepared to own some losers. Because if the thesis or your process is right, that 6 out of 10 or 4 out of 10 you mentioned, mate, that's what's going to come to the fore. Yeah.

45:13Hey, Brent's second question, and probably as a result, he says, I'm a little paralyzed with buying anything at the moment as I seem not to be able to focus on the positives as much as I do the negatives. This is me too, Brent. I'll talk about that in a sec. How do you weigh up an investment where both the bull and the bear case can be made? I've just put those types of stocks in the two hard basket, but I've missed out on some magnificent gains in companies like Life360 and Telex.

45:40Sorry, I don't understand the question. So he's saying he's paralysed, he's not buying, because he's seeing all the good stuff. He's saying, well, there's some negatives as well, so I won't buy because there are too many negatives. Or the negatives are outweighing the positives for him. He's saying doing that has been missed out on some big gainers, like Life 316 TX. Oh, yeah, no, I don't see any problem with that. That happens all the time to me. How do you weigh up the bull and bear? His key question is, how do you weigh up investment where both the bull and bear case can be made? How do you balance those, mate?

46:07or how do you try and find where the bull case overwhelms or overcomes the bear case? I don't know if I can systematize it, but it's just reading as much as you can about the business, finding out as much as you can, thinking a lot about the business. So I always like to say, you should be able to, it's a Charlie Munger thing again, you know, you should be able to articulate the bear case better than the bear. So here's a stock that looks interesting. Here's why I think it's good. And then I should try and figure out why it's bad. But one is just going to resonate more. Now, none of us are like this, but if you are perfectly objective, one will just resonate more.

46:48And hopefully one will, like the bull case will be a lot more compelling. They're the ones you really go at hard. But yeah, most of the time it's like, yeah, maybe. Looks good. Goes bad. Too hard basket. And I move on. And yet, all the time you look over your shoulder and go, uh. Should have bought that one. Should have bought that one. But that's, oh man, that is a path of misery. You can't beat yourself up about that stuff. Everything looks obvious in hindsight. Everything looks obvious in hindsight. So just, I mean, the advice I have is just get over it, if I can say it in the nicest possible way.

47:28I don't think you did, no. It's hard to, I get it, right? There's nothing more painful than watching a stock that you thought about buying going to the moon. I should have bought that one. There's a great meme that was going around on Twitter or something a while ago. It's like, the stock I sold, and then you see the share price going up. The stock I was going to buy, but didn't the share price. The stock I did buy, and the stock price goes down. No matter whatever decision you make, the opposite of what you want to happen, happens. But it is, I mean, welcome to investing. I always look forward.

48:00There's that great Roger Federer speech where he's talking about how he won 80 % of his matches. It was a university speech. And he said, but I only won 54 % of my points. So in other words, I'm the best tennis player of all time. My words, not his. And yet it was a coin flip as to whether I got one right. And he says, so what's the point of what I'm trying to tell you? The point is every point matters massively. When I'm throwing the ball up in the air to serve it, like this is everything. This is all that matters. But the second it's over, whether I've won or whether I've lost, it's over. Like there is zero value in dwelling on that.

48:48Yeah, take some lessons from it. Absolutely. But don't just, I mean, it's just always focus on the next thing. And so, yes, we will all have these experiences and they will always be frustrating, but you really do just have to shrug your shoulder and go, oh, well, do a bit of a postmortem. Like, is it something that I reasonably could or should have seen, you know, without the benefit I now have of hindsight? Yeah, you might figure some stuff out. You might grow and learn and all of that kind of good stuff. But yeah, don't worry about it. It's all the time going to happen. All the time. I love that.

49:25I've had, I've had, I have issues still with a little bit of this Brent where I, unless I know, I struggle with business to business companies, for example, because I can't really touch and feel and know. And so I'm kind of relying on management's view or some, they call it channel checks, a horrible jargon, just checking for myself and trying to work out, do I think that's a business that has that? Can they keep doing that and all that kind of stuff? And it's harder because you can't, I don't only buy retail stocks I like, for example, I happen to buy others, but I can see the appeal, I can see the transaction, I can see what they're offering, all that kind of good stuff.

50:00Where our struggle is, well, they say they're going to do this, maybe it's going to do this, is it going to work? I'm not sure. Is it going to go well? Who else in the space? Where are the competitors? I can find a lot more reasons not to buy than to buy for some of these things, and I've missed out as well. But to Ram's point, I've kind of made my piece a little bit of that. I'm trying to widen my circle of competence. That's the other answer. it's just you know get to a point of of you know where the bear the bull case seems overwhelmingly better than the bear case and if you can't get there it's completely okay to leave it on the too hard bar if Life360 Intellix did well I bet you if you thought about it you could find and you won't remember them as easily because our human brain really messes with us I bet you there's another two companies that have done terribly you missed out on and the downsides were right so you go okay Life360 Intellix done well but company A and company B they've lost 80 % of their value we don't remember those we kind of chase the ones we missed and that's again to Ram's point that's the psychological or something we've got to overcome.

50:46Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

50:56Brent says, last question. If a lot of my small caps were overvalued four years ago, which I now understand in retrospect, and I believe many of the same stocks are undervalued now, have I learned the lesson I should have sold at the very high prices? Otherwise, he's saying they were overvalued. The only thing that's undervalued, maybe he's making the same mistake. Considering many of the companies are arguably closer to achieving their goals now than one, two, or three years ago. Is there actually a lesson to learn from this at all? Yeah, there is. It's hard to do. I actually made the point recently on Strawman in regard to a company called E-Road.

51:28So these guys do, they have things that help essentially fleets of trucks be managed. It's a very basic description. I lost 80 % on my initial purchase price. It wasn't a great investment. And usually when things like that happen, it's like, never again. You are dead to me. I will never look at you ever, ever, ever, ever again. Once bitten, yeah. And then someone on Strongman posted a case for it the other day and go, well, actually, so this has happened. This has happened. They've right-sized this. There's a new CEO in. And there was always a decent little business under there, right? And it's like, huh.

52:05Oh, yeah. And it's like in the last month, it's gone from$0.80 to$1.40 or something like that. It's like, huh. No. And now, again, hindsight's easy and that doesn't guarantee anything. Maybe it drops back to 50 cents tomorrow. I don't know. But my point is, is that it is a special kind of skill to be able to not be weighed down or influenced by prior experiences. And after all, you have put a lot of work into understanding a business and didn't work out. But here's the thing, as long as you can be reasonably sure you're not conning yourself and you're not trying to force the square peg through the round hole here.

52:40It's sort of like, well, it didn't work out previously for these reasons, right? However, that was then, this is now, the story is different. You know, so for example, this isn't the case of the ERA, but, you know, for example, they had a pile of debt. They've since done a capital raising. Yeah, diluted the existing shelves. I wasn't one of them. Balance sheet is massively stronger. Oh, since then as well, they've gotten huge traction on their product and sales have lifted 50 % and they reckon they're going to grow at another 30 % this year. Oh, and over the last three quarters, costs have actually declined as they've rationalized the cost base.

53:15It's just a different beast. It's totally a different beast. So yeah, you can absolutely go back to a past investment and reformulate a bear case and you may find that it's actually an incredible investment. That was my story with Catapult, honestly. I mean, I'm very happy to tell anyone who'll listen now because it's worked out really well. Yeah, yeah. But, and it's, you know, I'm really not being smug because it was a tale of misery and woe for the longest time. I said to you the other day, I got a spiffy pop, right? But it was like 10 years in the making. That was a hell of a journey, right?

53:50But I think one thing I did right there, I was able to tease apart my personal experience and all of the missteps that they made there for a time and the rest of it and go, no, it makes sense. It makes sense. Yes, I got it wrong before, but now it makes sense. And it's hard to do. And I'm not going to pretend it was easy or obvious. And there's other things where I've done that and it hasn't worked out. But yeah, Brent, I think you can absolutely come back to previous investments and look at them anew and make the right decision. Yes. A couple of thoughts from me on this last one. We'll move on.

54:26Valuation matters. I kind of mentioned at the top, Brent, until I kind of saw my own thunder because that's, you know, whether... Now, so yes, if the mistake was the investors, not the companies in particular, it's a great way to go back to it. If the company has lost your faith and it should take more to earn it back, you know, the old thing about reputations, Buffett says, a lifetime to build them and five minutes to ruin them. So if they haven't proven themselves, maybe be wary. But if it was a valuation mistake by you or the market, then don't compound the mistake by not learning from it and buying when it's cheap.

54:57that being said my only other suggestion is just you're saying uh they were out of value four years ago which i now want to send retrospect and my only my only stop there is do you want to send retrospect because you read the valuation you realize they were too expensive or because the share's price has fallen since and so don't fall into the trap of letting the market tell you they were obviously are of value because they're cheaper now now maybe they were maybe they are maybe they still have a value now by the way the price might have fallen but they still might be too expensive or it's actually possible that something falls 50 % and was cheap then and cheap now because it goes up 100 ,000 % from here.

55:31And was it ever really overvalued at any point? Well, no, not in hindsight. So just be a little bit careful with using the movements of share prices to teach you those lessons. If you go back and say, well, actually back then they were earning this much and their price range multiple or price sales multiple was this much, that seems overvalued. That should have seemed overvalued at the time. That's fine. Just don't say the share's down 75 % since then, and therefore they were overvalued then. And why do I say that? Because you don't also want to make the mistake of saying, therefore they're cheap now because they've fallen.

55:58Because plenty of companies fall and keep falling. AMP is a great example. I spent 25 years just falling. Was it overvalued the whole time? Probably. Was it undervalued at any point in that time? Probably not because it kept falling. So just be careful you're not learning the lessons of the market telling you what prices should be rather than learning the lessons yourself of how much something's actually worth. Classic blue chip quote unquote AMP, right? Yep, yep, yep. 100%. What a dog's breakfast.

56:26Yes, Brent finishes with, guys, this is undoubtedly my favorite pod machine of all, which, Brent, to be fair, is a tautology. It is the only pod machine, so by definition, it must be your favorite pod machine of all, but I understand what you're saying. Many thanks again for the resource and particularly for helping this unsophisticated investor on their merry way. All most regards, Brent. Thank you, mate. Appreciate it. Thank you. Here's a question from Scott, who then at the end says, Scott, not my real name, which makes it maybe you're gonna have a go at me we'll see i've been listening to your podcast for some time now says not really scott recently i realized how one can define or classify a member of a disciple of a cult i know right no no we define a recession as two quarters of negative growth this definition is easily quantified on this occasion defining a cult member is not as clear-cut as the members will deny association by the way cults are quite topical at the moment one marker is a disdain for alternative views or data however i have another theory of how to spot a cult member simply ask them a reasonable yet critical question about their particular topic and watch their response look more importantly their physical reactions if they become agitated louder talk faster their blood pressure goes way up then i think you have a member i think you know where i'm going i know where you're going i know where you're going scott not my real name there you go should we take that as a comment i'm taking it i'm taking it's you know i'm pretty sure that's a reference to the bitcoin thing it may be oh then again i could talk fast too so it's probably both well that's the thing right when someone christian's like well i'm just talking about me they're probably not but if it sounds true maybe it's true is all it's yeah definitely i mean guilty definitely guilty uh definitely cult-like elements uh yep nothing to say here's one from stephen dear fools I keep hearing fund managers bang on about the supposed evils of ETF investing, which they typically call dumb investing.

58:21Part of their thesis seems to be that passive flows just end up inflating the price of stocks in the index, as there is no higher power, the fund managers themselves, to sort the wheat from the chaff. In support of this argument, they typically cite the case of the ballooning Commonwealth Bank share price. But help me out here. If it's true that these flows of dumb money just keep boosting the share price of companies in the index, then how to explain the falling prices of companies like CSL? If the fund managers were correct, then CSL should be at$400, not closer to$200 a share. These falling prices indicate to me that there are other market forces at work.

58:56What do you think? P.S. I forgot to include the usual praise, but I figure you no longer need it. Stephen, how long you are. Yes, we do. You're getting away with this once, Stephen, because I thought it was a good question, but all I'm saying is, you know, no, I'm kidding. But yeah, come on, seriously, to get a talk. I think Steve's got a point. What do you think? Yeah, I mean... Not about the price. We need the price. Oh, yeah, definitely wrong about that. Yeah, I mean, never ask the barber if you want a haircut. No active fund manager is going to go, yeah, you should just buy an ETF. Like, this is never, ever, ever going to happen.

59:33I mean, there's nuance there. I'm sort of in the camp where I feel as though you could say it's a factor amongst a variety of factors. And we could probably argue the toss as to how big a factor it is and how dominant it is over the others. But it is a factor, but it's not the only factor. You know, I used to really lay awake at night wrestling with these kinds of things. You know, other things like high-frequency trading and all this other sort of market mechanics-y kind of influence on share price. And I just don't lose a second sleep about it anymore. And I don't even think about it anymore.

1:00:16And partly it's really just an acknowledgement and an admission as to, I don't know. And I don't think I can know, right? Like these debates have been going on. Even in academia, people are trying to figure it out. And then it just real, and you realize, well, I did anyways. Like actually doesn't matter. Like all that matters to me is, do I like the thing that's on sale? do i like the price and if the answer is yes then i'll buy it now whatever is going on behind the scenes to to give me that that um setup it's kind of irrelevant like you might say yeah but if but if there are these things maybe it will distort the way that value unfolds in the future and yeah that's that's probably true as well but you just you gotta you gotta look you know god give me the serenity to know what I, what's the saying?

1:01:07You know, the... Change what I can change. Let's really know the difference. Yeah. Thank you. The Desiderata, I think it's called. Anyway. Yeah, it's... Google it. Yeah, don't... It's an interesting sort of navel gazing. I wonder if that's it, but just... I just don't lose any sleep. Is it a good company at a good price? Yep, I'll buy it. Couldn't care less. The point to some degree is you need a fund manager and you can't use ETFs because they're somehow broken, I think, is the kind of angle he's kind of pushing back on, which is, you know, passive energy is bad. Therefore, you have a fund manager to help you invest actively so I can solve your problem.

1:01:43The old self-serving fund manager who wants to blame the other thing and take back some of your money. It's so funny, right? Because it's like, well, if you really are the master of the universe and this is really some big distortion that only you have clued into, well, maybe you could use that to your advantage. Show me the results then. Shut up. Shut up. and deliver on it. It's just like, stop shaking your fist at the sky here. It's sort of like, no, no, no, no. Oh, there's all these distortions that happen and I can see exactly how they work and how they influence prices. Sounds to me like a massive edge, if that's true.

1:02:14Sounds to me like an incredible edge that you could exploit for unfair gains. But it's like to sort of say, oh yeah, I see exactly the world as it is, but there's nothing I can do about it to take advantage of it. It's like, really? Investing is the place you can. You can complain about politicians and other things, but literally investing is the one time you can put your money to work wherever you want. You can short it. You can go long. You can hedge it. You can do an iron condor spread option strategy. Whatever the hell you want to do, you can play. You can prosecute your view. And so I just have very little time for them.

1:02:45And I would even say this, even if there was a bigger degree of truth to it than what I'm giving, it's sort of like, well, that's just the way the world is, right? Again, like just adapt or die. is I guess my strategy. Stop whinging about it. It's like, what made you think that you deserve some... Sorry, definitely not state it. No, the funding is like that the world and society owes you a living with your chosen profession. So what are you saying? We should ban ETFs or something so it'd make it a bit easier for you to make money? It doesn't make any sense to me. I suspect they're trying to do it to convince people to invest with them rather than invest in ETFs.

1:03:26That's exactly what they're doing, yeah. No, but Steve, you're 100 % right, by the way. If ETF buying is to blame for higher prices, it will affect all prices equally in market weighting by definition. It is mathematically disprovable, that assertion. If people are buying the index and Commonwealth Bank goes up more than CSL, then they're not buying the index. That's not how it works, right? They go up in proportion to their prices. When one company goes up more or less than the other and you gave two great examples, CSL and CBA, that's not index buying. It may be big investors buying CBA as a proxy for the Australian market, There's an argument for that, particularly international investors.

1:04:00I think it's possibly true. Although, again, they're smarter than just buying one stock because that's all I can think of. They've got the data. They've got the tools. They buy whatever they want. Say, oh, yeah, I'm really smart and well-resourced, but I'm not going to buy CBA because that's easier. It's just silly. Yeah, no, I think that's nonsense, Stephen. You're 100 % right. I'm going to move on to it. Who cares? Right. Well, I'm going to go to a question for Trevor about ETS. Different sort of ETS. I love this. I'm going to rant on this one. Greetings and salutations, says Trevor. And then in square brackets, It's insert here whatever suck up is required to get this read.

1:04:30They're not trying anymore, mate. What I've said, you can't just do that, Trevor. You've actually got to put the effort in. Move on. Next question. Okay. Let's go to a question. No, I'm kidding. Tempted, tempted. I continue to be frustrated slash amused, says Trevor, which kind of defines you and I, by the slow but inexorable slide away from the purity and simplicity of the original passive index tracking ETFs to the plethora of thematic ETFs. Me too. In my view, the emergence of thematic ETFs, says Trevor, is simply the empire striking back with fund managers faced with the shock horror of having to give up one of their golf club memberships, cleverly repackaging managed funds as thematic ETFs with associated active management and exorbitant management fees.

1:05:11Call me cynical. Can you explain how a thematic fund differs from a managed fund focused on the same industry? Or maybe we should both give up trying to prevent those in the industry who will always find a way to get their pound of flesh. On a different rant, I now hear fund managers claiming on various other, brackets less reputable, closed bracket podcasts that a fund being actively managed is essential for a particular asset class where they claim to easily outperform the passive alternatives. Trevor leaves one last word. Comment. Trevor. You go first, mate. You're a teed up for it. Go for it.

1:05:42I have said this for ages. Trevor, I've written about it a million times. I think thematic ETFs are not miles away from equity crowdfunding in their attempt to appeal to the know little, look little research not never group of people um and it's it's and it's entirely entirely cynical almost entirely cynical the difference is if people genuinely wanted what the fund managers have to offer those those thematic etfs then provide them is no you know if people if i'll still a ramism if the ducks quack feed them um if people want to buy a ai bitcoin robo crypto lithium ETF because they just think those things are cool then are the fund managers doing a terrible thing providing it no are they doing a terrible thing marketing it that's where we start to have a different issue and I start to agree they've also got these really cute ASX codes so that it sounds kind of cool you've got the robo for robotics ETF and there's I can't think of the others I don't care they will say well people want to buy and we're just providing the service which is true that's true it's just a rubbish product and it's a rubbish product because, well, sorry, I shouldn't say that.

1:06:53Robbish investment idea for most people. Why? Because let's use the robotics ETF. And again, I don't know who provides a robot, so my apologies to the fund manager I'm talking about here. Most people will buy them because they will say, robotics is going to be big. There's an ETF. ETFs are good. They're diverse. Therefore, I'm going to buy that. And that's okay as far as it goes. But we just talked about Brent's question about valuation. How many people have done the valuation of that ETF to work out whether it's cheap enough to buy? How many people understand how many companies are in that ETF?

1:07:21or in some of them, you know, are they actually even in robotics or are they in some tangential industry that they've, if I manage to put in so they can bulk it up and sell this thing as a robotics ETF. Again, I shouldn't pick on the robo ETF. I don't know who provides it. It's not a dig at them specifically. There's no ACDC for electric vehicles or lithium or something. Great ticket. Again, right? But that's the thing, right? So, yeah, goodwill buy that. So no, they're doing it deliberately. They're not calling it something obscure, right? It's not YVX. You know, it's like, oh, it's that thing.

1:07:49I know what I can memorize. eyes i can use it um yeah i i hate i hate thematic etfs because they are not because again guns don't kill people people kill people whatever the use of thematic etfs is far and away more likely by people who say i think a thing will be big think about an airlines etf right i know i use the example all the time i'm going to keep using it 1970s someone released an airlines etf because air travel is going to be big okay i'll buy that sounds great did i understand the mechanics of the industry the value chain who's in it how many how big how valuable no it meant airlines more air travel good therefore buy etf go fishing stupid stupid thing to do um yeah people are absolutely and and by the way i if it was up to me speaking of being nanny status versus whatever i would not let them use the the um the acronym etf now that's not going to happen could i could should i should i be able to ban them for using that probably not the reality is the other problem with these etfs is they are taking the good the good uh name to your point trevor of the pure and simple etfs you mentioned the vanguard etf so vanguard says here's an index fund.

1:08:47I'm going to list it on the stock exchange. Therefore, it's exchange traded fund. Therefore, ETFs are good, which is perfect. And then when I say I'm going to create an ETF, which all this is a managed fund, this is on exchange, and I'm going to use 10 times leverage and invest in the worst speccy mining stocks I can find. That's also an ETF. I wrote an article a few ago called ETFs ain't ETFs. So those who remember the Castrol oils out of the distant past. Yeah, you're 100 % right, Trevor. It is, they will not say that, no ETF pride will say they're deliberately misleading anyone and if i claimed it i would be in trouble because i couldn't claim it with any degree of evidence but are they are they benefiting massively from passive simple etfs that got that good name yes absolutely and it's also by the way the other problem is in doing so they're undermining and reducing the appeal of the other etfs because people think they're all the same so why would i buy a boring index etf if i can buy a exciting triple leverage thematic etf instead they're all the same they're all etfs etfs are good scott pape says so yeah i had it go on ray nothing i mean you you've nailed it um i mean i there are some things where there there will there will be someone out there who really wants to take a position on i don't know oil for example you know uh or energy in particular um uh and i i don't begrudge the ability for someone to package up a product and for me to be able i feel as though that will scratch the itch and help me prosecute a particular view, fine.

1:10:16But to your point, though, it's just like what they sort of seek to do and what they actually do can often be very misaligned. And for most people, it is nothing other than that sounds like something that's going to be big. The one that came to mind when you were speaking was the cloud ETF. Oh, yes, I think so. So this was launched, I looked it up. This was launched back in 2021. Sorry, yeah, late 2020 or early 2021. with the idea that cloud computing and SaaS computing was going to be a big thing. It was already a big thing, so they're kind of a bit late to the party there, beta shares. But they got there, and it's like, now, I would say to you that the rise of cloud computing has continued unabated.

1:10:59Yes. No company since then has been saying, you know what? Let's just put a big computer down in the basement. We'll run it all there. Like, it just doesn't happen. Like, this is a one-way street. Maybe there are some weird, bespoke security-oriented firms that do require such on-site infrastructure, but mostly not. Anyway, the long story short is it's exactly where it was at launch. I guess it's given you nothing, even though the sector as a whole has gotten bigger. So, yeah, again, you can't prevent foolishness, but you don't have to participate in it. That's a lovely way to put it. i like that i like that very much um yeah and by the way i'm sure they already exist i haven't haven't looked up i don't know yet but i suspect we will also find that there'll be a whole lot of ai ets all of a sudden get rolled out because ai is going to be like there's not one already i'm sure it must be yeah i'll eat my hat but there will be and it'll it will it will well this is predictions that will end up with mud all over your face but i would be reasonably confident it won't do that well because what you will see with ai as you see with any sort of new emergent tech is that you'll see in 10 years time, there'll be a few massive, massive, mega, mega success stories and a massive, massive long list of losers that you'll never hear of again.

1:12:14The Ask Jeeves of the world, the Yahoo's of the world, the kind of, you know, things that just sort of went into obscurity, even though the industry itself exploded. It's just, it's just, life's not that easy. Yeah, exactly. Yes, I, sorry, the other question, obviously the managers are claiming to out out to passive by active management. I haven't heard that comment, Trevor, I don't know who you're talking about, which is bad because I don't like bagging other people specifically. Some people will outperform passive by active management. I mean, it is the only way you can outperform passive is by active management by definition because passive is the average.

1:12:50But it doesn't mean you... All the time, actually. It's not even that fringe. Like, I'm sure it's something like, I'm going to make it up, 20 % of active fund managers probably outperform. Yep. But, you know, credit to them. At a longer period of time the number goes down. It does. And there's reasons for that because you outperform sometimes in the short term for those reasons. Is it essential? No. It's essential to outperform by definition, but it's also essential to underperform. You can't outperform the index unless you try and actively manage your portfolio. So the other thing, by the way, as I'm sure you know, Trevor, is just thinking about the fees.

1:13:19It's all about the fees. So active management before fees, that number is actually higher. And it should be because average is average. And about half the money above average, about half the money below average, by definition, not exactly mathematically correct for the mathematician pedants out there. But close enough. And so, yeah, part of the underperformance is after fees. So again, it's the fees that matter. Yep. Mate, I reckon we've ranted enough. I feel better. Do you feel better? I always feel better. It's such a therapeutic time of the week. Love it. It really is. Hey, will you come back next week and have a chat on Friday about the goings and comings in the financial business?

1:13:52I would love to. And I'm almost certain there'll be a lot of interesting things to talk about because there's a lot going on in the world right now. There's a lot going on. We will look forward to rejoining you then. In the meantime, thanks for listening. Enjoy your week and 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. Subscribe to the free newsletter at fool.com.au forward slash listener. The Motley Fool operates under Financial Services Licence 400691.