Soul Patts and Brickworks tie the knot. June 6, 2025

23:48Will it maximise your returns? Yes. Will it add some risk? Yes. Do you need to? Depends on what you're starting with and how long you've got to compound, as always. The maths of compounding is the maths of compounding, right? You're right, if you're comfortable, don't do it. I would argue if you're young enough, again, do you need to do it? No. just because time will look after itself, right? Save enough, invest enough, have a long enough time horizon, get a decent enough return. Could you get more? Yes. Is more always better? Well, yes, at the same level of risk. And I say that deliberately because I'm not taking that approach.

24:16So, like, you know, we're both arguing our corners to some degree. Could I do it? Yes. Would it be a horrible thing to do? No. Do I want to? No. Why? Because I think I can get to my goals without it. And so my, you know, I'm just not, I'm not a risk minimiser, or otherwise I'd be in cash or I probably wouldn't be. We've talked about that. No, that's risky as hell. But I am happy to get to a reasonable eventual level of wealth without taking unnecessary risks. And for me, debt is an unnecessary risk. Again, silly no. When I say risk, I don't mean capital R risk, you're going to blow yourself up, you're going to get a hell risk.

24:51I just mean if I think I can get there without it, I'm not going to do it. And that's just a risk tolerance and a risk. And again, I invest in individual stocks. right i'm happy to buy stocks that's riskier than etfs you know could i could i is more debt and only etfs less risky probably actually yeah i guess at one level um so part of it's just natural inclination and habit and worldview and and how we get here all that kind of stuff um as again is a silly note i want to be really really clear i'm not saying it's a silly idea i just i don't think it's necessary for most people um and the chance that it goes badly in one of two directions is just not for me.

25:28So again, that's all other people should do. I'm not doing it. I'm not taking on more debt despite all the things you just said. Even if you're right because I think the assets will grow themselves. Long-term company will look after itself. And I'll do that. If I do that without taking on debt to do it, then I'm happy to do that. If I had that, I wouldn't be unhappy about it. Because again, I want to be really clear. I'm not sort of, there's no extreme here. I'm on the no debt side of zero, but I'm not out there saying, you know, this is madness or whatever. And I'm not saying I don't have a silver spoon.

25:56I don't have a trust fund, so I'm compounding the same as everybody. That's why every now and again someone says to us, why are you still doing that job if you're so smart? I'm like, well, because I didn't start with a trust fund. I'm compounding waiver and all sorts, right? I'm saving a bit of money every payday. I'm putting it away. Eventually, I hope I have enough to retire. That's the plan, right? You can be good, but it's just like I'm not getting 800 % per annum here. Exactly. I didn't have 20 grand to start with. I had zero, so I'm going to add that and pull that together. All while paying rent and the rest of it, which is so.

26:22That's it. That's it. Exactly. So anyway, look, again, is it silly? And if you're going to have some sort of debt, debt against a dwelling, a reasonable level of debt against a dwelling is smart. Without a margin call is smart. There are better and worse ways to use debt, absolutely, as I know you know. So, yeah, do I have a strong issue with it? No, I'm not doing it. I wouldn't. I wouldn't recommend most people do it because they don't need to. And every time you add a degree of difficulty, you increase the risk of something going badly. Now, are you going to get a margin call at 5 %? No. It's a terrible no.

26:53Do you, though, invest that money, freak out about it? You know, and I'm answering partly myself, partly half of myself, partly half of our listeners who were like, you know, the chance they do something silly with debt and then wipe out their own equity because they go down 10%, they sell everything and say, that was a stupid idea, and now they're 5 % worse than when they started. It's all that stuff. So, you know, it gets very close to the people don't kill people, guns don't kill people, people kill people thing, which is always dangerous. But at some level, it's like, can you use it well? Yes.

27:18Can you use it badly? Yes. If you don't use it at all, do you minimise the risk of using it badly? Yes. So if you don't need to, don't do it. I don't know. Sure. That's just my right answer. No, no, totally fair enough. Totally fair enough. But I guess the other points we can at least agree on though, right, in terms of how do you deal with all of this? Let me reframe that actually by saying what you shouldn't do in this kind of scenario. So you shouldn't take on extreme amounts of debt and put that into overvalued negatively cash flow assets. Like I think, call me crazy, I think that's something.

27:50You know, certainly don't do that when you've got an income that isn't reliable. If you objectively sort of look at it and go, gosh, I work in a hypercyclical industry, you know, maybe I'm in construction for a big infrastructure project that I know is going to end in five years. There are certain things that you can just sort of, you look at and go, well, that's obviously dumb. I can certainly do things in the interim that have a shot at really, you know, giving me a nice healthy payday if everything goes right. in the short term. And that's the person who always gets blown up and that's the person who always after the fact goes, oh, poor old me, why didn't anyone stop me?

28:30It's everyone else's fault except my own. So I'm just making that point really is just sort of like, don't be that person. Do not be that person. And if you are, at least acknowledge the risk that you are taking. And that's a riskier in this environment than it has been for years. Yes, absolutely, absolutely. Absolutely. So it's sort of like it's the whole Charlie Munger, tell me where I'm going to die so I don't go there kind of thing. Yeah. But it's hard. And again, it's easier to say for different people. I really, I definitely, from experience, I definitely feel for the younger people who are having to basically spend virtually all of their disposable, all their after tax income on just on rent.

29:12You know, it's just like, well, how do I ever even leg into this so I've got an asset that I can lend against? You know, how do I possibly get ahead in this kind of environment? I'm also entering a workforce during a massive period of disruption. You know, AI is one, but there's a whole other range of features as well. It's just sort of like I feel as though the ultra prudent person in that scenario, it's almost as risky as the, not as, but, you know, there's something to be said against that being overly conservative is taking on some unnecessary risk. You've got to, I guess you've got a really difficult hand to play and I'm trying to tread really carefully here, But it's sort of like, okay, let's look at it again as what you don't do.

30:05I don't take on any debt and I'm just going to put every dollar I earn, I'm just going to put under the mattress. Now, in a lot of ways, that's a super, super conservative and quote-unquote safe play. Yes. But I think you and I would both agree. It's actually, no, that's the dumbest thing you can do as a 20-year-old because all you're going to do is lose purchasing power on that, probably at 3%, 4 % something percent plus, I would argue, over the next sort of 10 years. all while property prices and equity prices run further and further ahead. You know, it's just sort of like, and you turn around, you go, but, but, but, but I did the right thing.

30:40I did the conservative thing. It's like, yep, sorry, life's not fair. And so it's just a, it's a hyper difficult scenario. So the right move, just subjectively, in my opinion, is not to be at that extreme. is you want to lean a little bit into what you might call prudent risk-taking. Yep. I think that's absolutely fair, actually. I think that's 100 % fair. And as much as I don't love property as an investment, I've said before, I don't just like the asset class. I just can't make the numbers work at the moment. It's a brilliant asset class. Let me say that for the record too. It's a great asset class, but every asset can be overvalued and structured poorly.

31:20Even then, my view, and you may disagree with this actually, it's going to be fun, but my view right now is if you're in a position to borrow to buy a house, despite everything I just said, if you're in a position to borrow your own house, do it now. Now, I don't say do it now because the market is going to go up. I don't say do it now because the market can't fall. You talk about asymmetry. The reality is that if prices rise from already extraordinary levels, they simply get further and further away from your capacity to afford them. And if they fall in half, then that's going to really suck and you're going to throw things at me and I'm going to get tomatoes in the mail and so be it.

31:52but the simple reality is if you buy a house you can afford now and they have, you've still got a house you can afford and you've got shelter. If you buy a house you can afford now, price goes up 20%. If you don't do it and go up 20%, you are royally messed up. So the asymmetry of the outcomes for you, and it sounds weird to say that a 50 % fall is better than a 20 % rise. I mean, objectively, it wouldn't be except that your ability to afford that and your ability to get in those, it's a risk. If you can afford it now, lock it in because at least you know that you know that you've got a dwelling.

32:24If you can't, now you can rent long-term forever but you've been through that ram and you know how awful that is. And again, in the range of things that people should fix, parliamentarians should, that's an easy fix. That's another easy fix, my God. But that aside, if you're not prepared to or want to rent forever, then buy a dwelling when you can afford to buy that dwelling because the downside, if it falls in half, if you still get a house or a unit, if it goes up 20%, you are absolutely stuffed. And so in terms of the outcomes there, as much as it pains me to say it. And I'd make no prediction.

32:53I'm not saying because I think house prices are going to go up or because I think anything other than dwelling is a lifestyle asset. It's shelter. And as much as it sucks, then, you know, again, you will - It's more than lifestyle, right? It's like an essential, non-discretion. I want to live in a tent, then it's a necessity, right? I say lifestyle is separated from an investment asset, but you're right, there's probably a better word than lifestyle. well, yes, it's a non-negotiable, right? So, yeah, and if it falls in half, you'll curse yourself and you'll curse me and, you know, I wish I'd waited, I wish I'd waited, I wish I'd waited, and I get that.

33:29But in terms of Jeff Bezos, he talks about his regret minimisation framework. You will regret never being able to afford a shelter more than you regret buying it and the price halving. And so for me, I'm talking to, frankly, my young blokes. One's got a mortgage in a house, the other one's too young to do it. But I think I've said to you before, maybe even off air, part of me is like, should I just take on debt, buy an investment property now? Actually not for the investment property returns, but because that locks in a price for my young bloke at some point where he can say, well, at least I got that dwelling before.

33:59Man, take 10, 15 years in the future. He's 27, 15 years' time. How much are prices then? And will I look back and wish I had put my foot on something on his behalf now? Fortunate that I can. I'm going to have to, you know, it impacts my ability to save and whatever. But again, that kind of trade-off is a tough one. It's super tough. I mean, I'm speaking from experience here and I've laid it out on the pod a little while ago now, but it's like, you know, we, I bought a house. When I say I bought a house, I put a 20 % deposit down and the bank bought me a house. That's right. The bank bought four-fifths of your house.

34:34They did. They did. And we paid it off really because it was a really crappy house and we paid it off, not paid, a good chunk of it off. And then I thought, wait a second, I'm a super smart finance bro. What am I doing? I could make my money work so much harder in the share market. I'm going to sell my house. I'm going to put it all into the share market. By the way, housing is ridiculously overvalued. It's just trees don't grow to the sky. Look how clever I am. What year is this? Oh, 2012, something like that, maybe. I should look into that. Don't do it. Don't do it. Don't do it. And I was convinced that property was overvalued then.

35:13And it was absolutely the worst thing to do very quickly. One, because the idea that I could rent a dwelling for as long as I needed to was flawed because we had seven houses in 11 years, something like that. We just kept continually getting kicked out because there's no rental, there's no protections for renters in that kind of regard. The other one is that I did the Steve Keen mistake. I looked at the situation of the property market as in isolation, not factoring in all of the distortions that would be thrown at it to keep it going. So maybe this is just me trying to make my decisions seem smarter than they were.

35:52Maybe they were just stupid decisions. But I still to this day believe that if you didn't have all of the aggressive, either direct stimulus or indirect stimulus thrown at it, it would have actually corrected a long time ago. And that's where I'm kind of with you on this thing now. It's sort of like even now, as ridiculous as it is, I mean, again, people will debate this and it's Australia's favourite debate. But, you know, Annie, you choose the metric. I'll let you choose. You choose the metric, you know, price to income, price to interest pay, whatever it happens to be. We are world leaders and on the historical context, it's just like it's a bubble.

36:27It's a bubble, full stop, period, like end of story. Well, I've said the bubbles pop, right? I don't think as we know it's a bubble until it pops. It may just be elevated forever. Ponzi, sorry, is a better term. Sorry, Ponzi, because it entirely relies on the creation of new capital to continually flow in to sort of prop this kind of stuff up. And so even now, I wouldn't do it because of the asymmetry. It's kind of like heads, I kind of muddle ahead and get a bit of protection. Tails, I completely get wiped out, particularly with enough leverage. But I'm still of the view that I could absolutely see it going ahead because, as I said before, it is too big to fail.

37:04No one, no politician is, well, when I say let it fail, there will be a point where there's nothing you can do about it because it just will collapse under its own gravity and that might be a good distance off. But it will. Which is the worst case outcome, by the way. Yeah. I mean, if we get to that point, having let it run hard and go whatever. But we will get to that. I will make this statement as a definitive statement of objective truth. Again, you can debate where the line in the sand is, But if just extrapolate it forward, I mean, just to make it as a ridiculous example, it's just like just grow property values at 7 % per annum.

37:40Now, at a certain point, it's going to be worth more than the entire GDP of planet Earth. And incomes aren't growing that fast. I mean, does it collapse there? Nope, we can still keep going up because there's more demand than supply or some stupid argument. Like at a point, it's just so mathematically like the weight is so heavy that it must correct. And if it doesn't, and the only way to really sort of avoid that is just to engineer it so it looks like it doesn't correct, but it's correcting in real terms. It's just not correcting in nominal terms. So that, yeah, it's an incredibly difficult problem.

38:15And it's a problem that's going to get worse, actually, for the strategy I outlined before, because those that can have a little bit of, who've got that toe in the water, that can access some pretty decent debt because it is secured against the collateral of property, will find that they find a little bit more refuge in this bizarre, bizarro world that we find ourselves in, while those that without that toe in the water continually get left behind. Mines are going to have an increasingly wide wealth disparity, wealth inequality, and all the time just continually leveraging things up against an asset that is just so cash flow negative in real terms.

38:53It's just, it's very, very, it's a rock and a hard place kind of situation. But I take your point. Maybe that's the sensible thing to do. in a world gone mad, sometimes you've got to play that game a little bit just to, particularly when there is an asymmetric outcome there, just to not be left behind in the insanity. I don't know. That's exactly it for me. It's exactly that because when I say left behind in the insanity, it's stupid that people have to make this choice. Again, I'm with you, but let's be really clear about it. But the crossover is just, it is that asymmetry. And asymmetry, not even, like it's almost existential asymmetry.

39:38It's not like, you know, 40 % upside, 20 % downside, okay, I'll do it. It's not that. It's the, that's a general asymmetry. Like you make that bet as often as you can. Sure. This is literally, you know, for some people, every time the price is up another 5 % or 10%, a whole cohort of people go from I could possibly afford it to I can never afford it now because my income is not rising enough. They literally are being priced out of the market. We're seeing that in falling home ownership rates. And if you're going to earn half a million dollars a year, you can afford to wait because you'll be able to buy a house.

40:06If you're on an average wage trying to buy an average house, those people are the ones who are being sliced off and sliced off and sliced off over time. And it is a stupid situation. You talked earlier about what we can do. And you talked about saving and compounding and buying productive assets. We're talking about houses now. I'm very, very mindful that we are also talking to a privileged group of people because there are people are already left behind from housing. Whether housing goes up or not from here, they still can't afford it. They would need to come down to afford housing. And that's the problem.

40:37The only reason I pause, mate, is because we're talking from that position of, I know privilege is one of those words that gets thrown around and, yeah, it's woke and anti-woke and all that kind of rubbish. But I mean genuinely privileged, i.e. we're talking to people who can afford to buy that house and or put some money aside. And we talk about solutions, what can I do? And you kind of say, well, you can vote, but personally, what should you do? I think that's right. but I do kind of want to hold out a little bit of space for, we actually need to fix the public policy problems because, yes, the haves can protect themselves more and if you are a have, why wouldn't you?

41:07Because, again, that's the right advice for them. If things don't improve, at least be prepared. You're a million percent right. But I am still just kind of a little bit, it makes you a little bit uncomfortable, more than a little bit uncomfortable. We're kind of saying, well, everything's going to hell, so at least if you've got a lifeboat, kick the other kid off and make sure you've got one, you can get to the other side of the lake, right? And again, yes, that is the right advice, honestly, because if you can, you should, because if it's every man for himself, then at least make sure you're in a lifeboat.

41:32But I only pause, I know you don't disagree, but I only pause just to kind of go back to, there are solutions for the haves, and these are, you know, buy assets, buy a house, you know, look after yourself. That is absolutely the right advice on a personal level for the haves. But also if you're a have, maybe have a, think about the have-nots and maybe, you know, make your voice heard. We're another three years away from the next election. Yeah, but no chance. No chance, because thinking about that not-haves is basically saying, yeah, oh, I'm happy if my assets go down because that's good for everyone else.

42:04I agree. I'll be 100 % clear. I'll make it abundantly clear. It's what needs to happen. I hope it happens. And as I've said, for those that are just buying a house to live in, it probably doesn't actually make that much of a difference. But no one's going to vote for that. No one's going to enact. No one's going to cheer for that. Like, it's a mugs game. Like, no one. I don't even think that's me being cynical or even sceptical. It's just like that's just being real about things. Yes. Maybe 0.0001 % will go, yes, I will happily advocate for the destruction of my wealth for a fairer, flatter society.

42:41Yeah. But 99.999 % aren't. And it doesn't matter if they're right or wrong. They're wrong. Of course they're wrong in a lot of ways. Well, I shouldn't say, of course. It's a subjective view. But the reality is, and this is why, this is why when you distill all of this down, is it's just we are on a path that will only resolve itself in the most painful way possible because no other solution will have the teeth or the political will for it to happen, the societal will for it to happen. It just won't. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

43:26Man, let's move on to some other stuff. We've spent a bit of time on this one. There's a couple things we want to talk about while we were in the pod, so let's kick on with those. Yep. Let's say macro for a little bit, and we'll try not to get too bogged down. A couple of interesting things out of the US this week. Interesting in air quotes, right?

43:45Donald Trump. This week we've heard he has decided to double steel aluminium tariffs from 25 % to 50%. By the way, that's despite the fact the US can't produce enough steel aluminium to look after its own needs. So he's literally locked in a price increase for US consumers and companies. It's just stupidity. And, and, and, and, he's going to, this big, beautiful bill, so-called, apparently going to add$3.7 trillion to US national debt. massive amounts of spending and kind of it's echoing all things we've just talked about um so i don't know really there's much more to do we've talked about tariffs before we've talked about debt we've talked about both u.s debt but local debt um we've talked about the the the difficulty of trying to work out how we get through this what's on the other side of that um it is absolutely ludicrous and i don't know mate you know what i find most astonishing and maybe this is just i don't understand the the egotistical narcissistic mind well enough Trump is not going to be around for many more than a few years, right, because he's old and everyone's old dies.

44:47It's not a prediction. It's life, right? He's not the Messiah. He's just a very naughty boy. He's going to shuffle off his mortal coil. He's got enough money. I can't ever quite get my head around it. I hope this reflects well on me. I can't get my head around why you would put the country in such an awful, awful position against any degree of common sense. There's three people in the US who think what he's doing is a good idea and they're all working for him, the rest of the US, every single economist and decent person with any sense of the economy is like, you're doing what? For why? What do you think comes from this?

45:21So I don't know what we have more to say about it other than to acknowledge those things are happening. Do you have any particular thoughts? Yeah. I mean, it's, yeah, it doesn't have to make sense. It just has to make sense to him and he's got the power to do it and he's going to do it. He's forever talked about tariffs and this solution and I'm sure a million people have sort of said he's sure and he's like, yeah, and that's kind of it. Might makes right. That is the one lesson from history, right? But, but, but, you know. I mean, far from being offended to defend Hitler, but he was trying to conquest.

45:53There was something, you know, the might makes right is more, I'm going to go and expand my horizons, my territory. There's something in this for me. I just, I can't, I still can't quite work out what Trump thinks he's doing in any reason, either he's completely deluded or he's been set. Okay, maybe there. Yes. And he's got the might to make it happen, right? Of course, of course, yeah. I mean, I don't know if that's controversial, but, you know, if it is, whatever, who cares? I've never shied away from it before. It's stupid. He's completely deluded. That's what it is. But it is what it is. Again, we can shake our fist at the sky, and so what?

46:28Well, so in terms of the steel and aluminium exports, again, we've made this point. It's not great for us, but it is 1 % of our exports or something like that. So it's not. It's a flow-on effect, mate, that worries me. It's not in the second... Australia sells a lot of stuff to China. China sells a lot of stuff to the US, so that's an issue. And then it's generally, if the US has a recession, to imagine we're going to escape... We might have hit recession, but it was the largest economy. It's not in the direct... I don't care about the element of steel. I mean, I do on behalf of the steel workers and steel companies in Australia.

46:58It's just terrible policy. But the broader impact is not just that. It's what that signifies and what it typifies and what it exemplifies. That's another I's word for you. in terms of what it could potentially cause for the global economy writ large. That's what I'm worried about particularly. Oh, it's absolutely going to be negative. And it's not, so the tariffs are one thing. The spending is just of such an astronomical number. Let me try and, I've heard it phrased this way recently, which I think helps sort of get the idea across because you hear like, oh, the$3.7 trillion, like that seems like a big number.

47:33So a million seconds is a little less than 12 days. A billion seconds, which is$1 ,000 million, is 32 years almost. A trillion seconds is 31 ,709 years. Like, it is such an insane amount of money. And again, people who listen to this podcast will know better than most of the power of compounding, right? So this is, of all the things that Trump is doing, and as dumb as they are, I would say he is only extending what has already been in place ever since Clinton, really, since the turn of the century, which is profligate spending, an out-of-balance budget where the debt is just growing to such a degree where the interest is now the second biggest line item that they've got to do, and now you're adding more and more to that in an environment where the bond market is telling you we want higher rates to compensate us for all the inevitable inflation.

48:31It's just, it is, it is, this is why I think you can make a statement that inflation will run hot, hotter than we would like. I'm not saying hyperinflation, not saying 20 % inflation, but certainly well above the 2 % target that the US federal, like just to me, it's sort of like, what else do you do? Do you let every, do you have a massive deflationary bust and just let everything collapse and salt the earth and see if we can rebuild from there? Yes. Or do you run it hot? And they're going to run it hot and they have to. Even when Trump came in under this promise, I'm going to drain the swamp and they had this big bromance with Musk and Musk, oh, fantastic, we're going to fix it, we're going to cut all this wasteful spending out.

49:11And he had this, I forget the target Musk had, but he's like he got nowhere near it. Not close, yeah. Not even, and plenty of people saying, well, how are you going to do that, dude? Because most of the, all of these things are just fiddling at the edges. the big, big items you just cannot touch. And not only that, it's okay, Trump's gone out. I mean, yeah, he's gone out and he's done what? You're making that work? Which is why Musk is so upset with him at the moment. But what he fails to understand is just how impossible a situation is and why it will continue to get worse. We can talk about predictions and they are just predictions, but some predictions are better than others.

49:50It's a pretty good prediction that the sun will rise tomorrow, just as it's a really good prediction that the US debt burden will continue to grow. And if Trump wasn't in power and there was someone else there from the opposing team, guess what? There would still be a massive deficit. Would it be slightly less massive? Maybe. I don't know. But it would still be a deficit. It would still be large and the debt pile would still be growing. And this is the... And, again, the fact that you've got people like Musk and Trump saying what they're saying and them now delivering these kind of policies just shows you how inevitable it all is.

50:28So, yeah, we're in for some interest. We're getting to a stage where we've had it a few times over the last century. We need another monetary reset. It's going to happen because it has to happen. I don't have much to add to that other than I only... By the way, if you disagree, please talk me down off this ledge because I would love someone to go, well, what you're missing is X, Y, and Z. And I've searched for it, right? I think inevitable is the one that would I just always get stuck at. It's probably just a philosophical approach, which is it is not inevitable in a sense of physics. Well, I presume your assessment of inevitable is unless something changes, this will be end up.

51:14And I guess that's my only, you know. And the thing that needs to change, though, is exceedingly unlikely. Yes, exactly. But I want to make the point there are other off-ramps. Yeah. And so choosing not to take them will end up in that place, as you say. If nothing changes, this is where we go. I think that's 100 % right. I just want to kind of, again, mostly because I'm an optimist, but also because I'm by far listeners, we're not saying there is no alternative. There's nothing that could be done. Your effect is nothing will be done, and so that's where we end up. And, again, I'm not trying to be pedantic.

51:44I think I just want to make that point because nothing can be done says, well, screw it, why bother thinking about it? Why bother worrying about it? Why bother? It is what it is. The thing that can be done is, no, it may not, but that's, to my mind, that's the difference between inevitable physics, i.e., you know, oxygen plus or hydrogen is water, it just is. But, you know, if you change nothing else, you're right, that's where we end up. That doesn't mean nothing can't be changed and maybe it won't be because of X, Y, and Z. I am... It's like saying if you put a junkie in a room with unlimited heroin, it is not impossible that they choose not to touch it.

52:22And you're right, you're right. But I also think at a point you just kind of go, yeah, but 99.9999999 % of the time that's not going to happen. It's just not, right? And so you're right. I should be careful to say it's not impossible. Oh, I wasn't being critical. I'll take your point about the junkie and turn it to an alcoholic, right? Some will drink themselves to death. Some will stop drinking when things get bad enough. And I guess I'm allowing for, hoping for, Pollyanna-like, desperately optimistically thinking maybe some point. As things get bad, when you see the train coming the other way, you can get off the tracks at some point, as painful as that might be.

52:58And, again, it's theory because whatever happens will happen and we're just going to talk about the options. But I suspect, you know, does the junkie or the alcoholic, like are they likely to drink themselves to death or shoot themselves up to death? Probably. But some won't. There are options on the way through. As painful as going through withdrawals are, it's better than keeping going. At some point you get to a, hey, this is going to get bad. I can see the end here. I've tried four times, but the fifth time I finally managed to make it work. Yes. Again, I think I just need to believe. I think I need to hold out that hope.

53:26As unrealistic as it might be, as things get worse. And, you know, it is the history of humanity, right? There are courses we're on. Ozone layer, we stop at some point and go, okay, Well, it's going to cost more to make the fridges without chlorofluorocarbons. Hydropluorocarbons? We don't know what it was. Chlorofluorocarbons. CFCs. Yes, but we'll do it. Yes, but we'll do it. Again, maybe we don't, mate. The climate change stuff doesn't give me much hope. There's no sign that anyone would be responsible for it. But a movement at some point with enough people who just say enough's enough, let's change course.

53:55I have to believe it. I don't want to say have to. I think I literally just personally have to believe it. Otherwise, I end up in dark and despair. But, yeah, darkness and despair. But, yeah, I guess I'm just holding out that. I don't want people to think there is no, there's nothing, there are no alternatives, there's nothing can be done. Your point is there's nothing that will be done, so that's where we'll end up. And that's a very, very, very justifiable and reasonable view. I just want to kind of, again, just for the sake of the pedant in me and the semantics, we can and should make alternatives which would avoid that outcome.

54:26The question is, will we? It's actually a good analogy, the junky one, because the solution, although highly improbable, even if it was taken, it's still painful. Yes. And that's why it's such a good analogy because, like, it's easy to sort of say in a position of comfort, well, we should just do this and we could go through that. We don't have time. But we go through it. We've done it before. We go through some things and I think it would fix it. I think it would very, very definitely kind of fix it. But I'm under no illusions that it would cause a huge amount of pain for a lot of people. So there's no good outcomes here.

54:58It's just I lean towards that, again, if I was emperor of the world, only because, yeah, it's going to suck. Hey, everyone, this is really going to suck. However, it's going to suck less than the alternative. Yes, yes. And that's the junkie analogy, right? It's like, yeah, detoxing, going cold turkey, man, you're in for a really rough time. But I promise you, you will come out of it better, happier, healthier, and things will be much better. Yes, exactly, exactly. And it's a hard sell. It's a hard sell. What we want, though, we want to have our cake and we want to eat it too. We want to fix this really difficult problem.

55:31we just don't want to have to suffer in any kind of way as a result of it. And it's just like, yeah, me too. I'm all ears. Let's hear the solution here. Unfortunately, we tend to, what's particularly scary is, and again, I just feel as though every economics course should at least mark the history. Oh, absolutely. Right? It really should. Yes, yes. Because we've tried stuff before. We've got lots of different test tubes. We've done lots of different experiments and lots of different epochs and geographies and the rest of it. And so we've got a pretty good idea of how things go. And you're already starting to see it.

56:11You're starting to sort of get a very redistributive solution put forward. Otherwise, it's happening with super now in the tax. It'll have manifesting itself in all kinds of different ways, which is this is really crazy. It's really crappy. yeah, tell you what, let's just take all the money off the rich people and give it to the poor people. And, and this is a very difficult conversation to have, right? Because all of a sudden you start getting labeled with things. And even with those few words, I would imagine 90 % of people listening have already pigeonholed me in terms of my ideology. And I would say you're wrong.

56:47I would say you're, you're very much wrong in terms of what you're probably thinking. Yeah. It's, it's, it's not that, cause it tends to, tends to sort of paint you as someone who's against social security or, you know, that those with more privilege and wealth should shoulder more of the burden. I'm actually 100 % all of those things. What I am very against is some of these revolutionary kind of ideas where it's just sort of like, yeah, eat the rich, because what it does is it absolutely decimates capital formation, productive capacity, and just it makes us more even, but in aggregate it makes us much poorer.

57:24and that's not the solution. We need a solution. There is a problem. The problem is not commun - The solution is not communism. That's where I'm really getting at here. And it feels like funny that I have to even say that argument because it's kind of like, how many times do we need to run this experiment to know that it just doesn't work? I always think people who put it forward really have their hearts in the right place and they really kind of, it makes a lot of sense, doesn't it? Right? It's like, well, the problem is wealth disparity. This person over here has got more money than my business.

57:55This person over here is barely scratching out a living. Why don't we just take some from there and give it there? And that's really good. And it's like, yep, it is, except the devil is in the detail. And every time that's been tried, it just has not worked at all. And at the end, when the dust settles, those are the rich end of the spectrum are still rich. They're just less rich and everyone else is less rich as well. And that's what I would, for what it's worth, I would say if you're thinking along those lines, be careful. Capitalism isn't the problem here. It's implementation and it's the political interference that goes with all of that kind of stuff that's really making it bad and all the other stuff that we've often talked about.

58:37So I feel as though that's a, actually you're seeing it around the world now in terms of the polarization of political parties. You're either getting extreme right or extreme left. Yes, yes. Hardcore socialists or hardcore libertarians, that's the choice. And they're both dumb. They're both ridiculous. And they're both missing the point, I would say. It's just to try and instill some balance here. I'm not trying to particularly advocate for one thing, but it's just sort of like it's not, again, I feel as though I'm not just saying this because I feel as though that's right. I think you can point to as many examples as you want that sort of says neither of those solutions work very well.

59:13So if something's not working, let's not do it. Let's try and come up with some other different ways of approaching it. Mate, can we change tack massively? We want to talk about Solpats and Brickworks. Oh, man. So let's get back to companies because it's a useful conversation, I think, and I hope. And by the way, we intend not to bring mailbag questions into this Friday episode, but we had a couple of questions about it, unsurprisingly. And it sounds surprising, I suppose, because I've talked about Solpats in particular and Brickworks quite a bit. so have you I own shares in both it's been a regular recommendations for some motley full services I run so if there's a crossover there between our listeners and our members they're probably also across I think we had three questions in the last week about it which we won't ask in the future I've got some questions for you too you've got some questions so we'll touch we'll spend a whole lot of time talking about individual companies is interesting we'll try and make it interesting rather than just about the companies themselves because if you don't own them it's one of those things well what's in it for me I'll kind of turn off so we'll try and make it interesting and try and make it relevant to as many people as we can by principle and by illustration rather than talking about specifically this particular one.

1:00:20But it's got some interesting bits and pieces to it. So the two companies were individual businesses. Brickworks has been a brickmaker for a million years. Sol Pat started as a chemist chain way back in the 1800s, believe it or not. And then it was a merger. Washington H. Sol and Louis Pattinson were the two business or two men who joined their business. so hence Washington H. Sol Pattinson. And Sol Pattinson Chemist was the one that most people will know. I don't even know if the brand still exists in any meaningful way anymore. Sol Pattinson doesn't own the Sol Pattinson Chemist, hasn't for a little while.

1:00:54But, yeah, so they started as that. They started to kind of make some money running Chemist, which was actually a pretty good business. So they put the money aside and kind of decided, well, what do we do with it? I guess we'll buy other assets, right? We'll invest the capital we make. We won't give it back to shareholders. A bit of a Berkshire Hathaway-style approach, even before Berkshire was doing it. and they kind of make it, well, let's start, you know, investing in other stuff. So it became an investment house, not exactly the state investment company the way we know it, but a business that went from the primary business being chemists to very quickly the primary business being investing, including in chemists for most of its history.

1:01:27In 1969, the two companies decided there was a lot of corporate raiders, one of those great jargony terms that we like, people trying to find cheap businesses, buy them, split them up, make some money, you know, do all that sort of stuff. Unlock value is the term. These days, yes, synergies. Yeah, so that was kind of, yes, a corporate rate. They kind of went and bought cheap stuff and kind of, you know, sold off the assets and made some money. Nothing necessarily morally wrong with that. It's a way to make some money. If the business is there and it's too cheap, you buy it. If you can make more value for shareholders by splitting up, selling it off, I guess you do it.

1:01:57Those two companies at the time, hang on, we don't want to be broken up and sold off. We don't want opportunistic buyers, particularly when the prices are cheap. And we know that sentiment is all over the place in the share market. So we love buying stuff where they're cheap. If you're someone who's selling cheap, you don't want to be that person. You don't want your business to be taken over when it's too cheap and have the crown jewel stolen out from under you. So they said, you know what we should do? We'll buy some shares in each other. We've got some capital. So they each bought about 40-odd percent of each other.

1:02:23I don't know the exact number, 44 or 46%, something like that. We'll buy a chunk of each other, not more than half, but enough so that if someone wanted to take over Sol Pats, they couldn't buy Sol Pats because Brickworks had a controlling stake. And they couldn't buy Brickworks because Sol Pats had a controlling stake. So the idea was basically this mutual defense idea, you know, building a fort around the combined business. If you want to take over one, you kind of had to take over both at the same time. No one was going to do that realistically. Even then, it might have been hard to do because each could vote against the takeover of the other.

1:02:51So it was a very early kind of defense mechanism for these sort of takeover offers. Subsequently, by the way, it was outlawed by ASIC and the ASX. I don't specifically know which of those entities it was. I should probably. Yeah, but they kind of went, well, you guys can't do that because in theory, it doesn't allow for efficient allocation of capital. The regulators basically went, well, if people want to take you over and you share as a chip, they should be allowed to. There should be no artificial impediments in place to stop that happening. So they outlawed the cross-shareholding, but they allowed existing cross-shareholdings to remain.

1:03:20And to the best of my knowledge up until now, Solpats and Brickworks was the last one still in existence. And they'd become kissing cousins so much so that Robert Milner, who was the executive chair of Solpats, was also the chairman of Brickworks. They shared some directors. They shared a lot of shareholders. they kind of were two arms of the same business, really. Pretty much, yeah. And a lot of shareholders said, well, there's kind of locked up value there. There is a lazy balance sheet, as we like to say. Oh, I just like to say we like to poke fun at it. And over time, Perpetual, the fund manager, and Mark Carnegie, the venture capitalist, tried to basically take court action and tried to convince shareholders to take action to stop this.

1:03:58So unwind, as they say, the cross-shareholding to, what was the phrase you used to? Unlock value. Unlock value, thank you, that's right. So that was tried and the board said, nope, we don't want that to happen. There's a big tax bill to pay. The tax bill would effectively undermine the opportunity to do that. Shareholders were happy to take the company's own recommendation. Again, a bit like Berkshire, a shareholder resolution four or five years ago, maybe longer now, to get Berkshire to pay a dividend. And Buffett went, well, you could, but I think you shouldn't. Leave the money with me. And 95 % of shareholders went, yeah, yeah, Uncle Warren's got it.

1:04:30So a little bit like that with Solpats and Brickworks, The shelves were very, very, very supportive of the current management structure. It said, no, leave it as it is. It all works. Fast forward to 2025, only literally this week. The company's unveiled an agreement for them to be effectively merged. So it wasn't that they were unwinding the cross-shareholding, selling the shares in the other or anything like that. It's a relatively clever deal. Now, the ATO may still knock it back, but the company's very confident they won't. Normally in a merger or an acquisition, one company buys the other.

1:05:00So Solpads would buy Brickworks, pay brickwork shareholders out that would result in a meaningful capital gain for brickwork shareholders and a bill a tax bill to pay similarly if it was done the other way same thing if they sold the shares in each other in the public market same thing a capital gains tax bill the the solution for sold hats and we'll get to kind of the why i just want to kind of tell the story a little bit first was a reasonably clever one they're effectively creating a brand new company which will buy both of the others and they're calling the business top co as in top company and topco will acquire what sopats and will acquire brickworks and then they're going to rename topco washington h sol pattinson and the combined entity will then go on essentially as a single business so that's what they've proposed this week the shares shot up i think solpats was up 10 massive works up 27 or so 20 something 25 um as a result so that's that's kind of what that's kind of what's happened the business the guy's basically look we get the Crossy Holding is old.

1:05:58We get, we probably should unwind it. We think we can free up some capital in doing so. And we think it's better as one single business. We're now big enough and ugly enough to fight off any takeover on our own back. And a little bit like Berkshire, they have enough loyal shareholders, I think, that unless the takeover was at stupid prices. It's very hard to pay a stupid price for a really big company. You can pay a stupid price for a little technology company if you think you can make something of it, right? But buying Solpats and Brickworks combined, it's the 40th largest company in the ASX.

1:06:25To buy that outright without a meaningful premium and against the wishes of management and most of the shareholders is still really, really difficult. So I suspect they've kind of decided we're big enough now. The compound growth, by the way, both have been astonishing, which is how they get so big. The long-term outperformance has been really, really impressive for decades. Yeah, so that's kind of the deal. There is a little bit of capital being raised to make TopCo exist. So they're raising$500 million of new capital. Just a little bit. It's all relative, right? I was going to say, this is a$14 billion business.

1:06:55So in any meaningful sense, it's pretty bloody small. Solpats shareholders remain the dominant shareholders. The Milner family have a pretty large chunk in probably not exactly a controlling stake but enough to see their will be done. And I said because they've done so well, shareholders tend to appreciate and support ongoing success and ongoing management. So that's the deal. Solpats will become, Solpats, effectively a brand new list, a brand new corporate entity, but for all intents and purposes, a combination of Solpats plus Brickworks plus a little bit of extra money from some funds that are tipping in to make this thing happen.

1:07:30And that's kind of the story. And as you say, yeah, the share price jumped on the news. That for me is what I wanted to ask you about. Why? So a couple of things going on. But largely the view is, and it's – so I'll take half a step back. This has always been stupidly difficult to value. Oh, it's so hard. How do you value Solpats? When you say, well, how much Solpats is worth? You pick all the assets and the earnings and everything else. and then you've got the Brickworks shareholder, so you add that in. So, hang on, but Brickworks owns Solpats. So, I'm counting my shareholding in Brickworks, but the Brickworks value has shareholding in Solpats and the Solpats has a holding in Brickworks and so it's turtles all the way down.

1:08:05Where do you draw that line? So, it was always really, really complex to do. On top of that though, you've got the reality of this time around when they merge, at the moment Solpats owns, for the sake of, I don't know what the numbers are, I can't remember, 40 % of Brickworks. Now, if they sold those shares, which they're effectively, they're not quite going to sell them to TopCo, but because the businesses get merged, the cross-share holdings effectively become eliminated. So the view is that there's capital now. Solpats, Sheldon and Brickworks are worth X billion dollars. I don't know what the number actually is.

1:08:34And Brickworks, Sheldon and Solpats is worth X billion dollars. Once you merge those two together, you kind of free up that capital because you don't own, the Y entity doesn't own shares in itself. And so in theory, there is more capital liberated, if I can use that phrase, from not having to be invested in each other's shares because they get consolidated away. Now, on one hand, a bit like the valuation, what's that actually worth? And there is no easy answer, but effectively Topco owns both. And so the cross-sharing is eliminated and there's more capital left over to be invested by the new combined business that will be called Solpats at that point in time.

1:09:12So that's kind of the complex mess behind it. Now, Brickworks goes up because the merger actually implies a premium. So the merger implies a 10 % premium for Brickworks shareholders to be part of the merger. So that makes some sense. The mix of shares they will get is worth more, and that's why Brickworks was up 25-odd percent, Solpads was up 10%. The other reason, so you say, well, that's 10, why is there more? Because you get a fixed number of Solpads and Brickworks shares. So if Solpads goes up, Brickworks is worth more and vice versa until that merger is actually consummated. Does that make sense?

1:09:47It's hard, right? It messes with your head. It's like a lot of things. It's like, yeah, I get it until I think more deeply about it. It's really hard. And then the other thing that's always been interesting of these two companies, because as you say, they're big companies, but they weren't in a lot of the indices. That's right. And they weren't in the – so we usually say, well, how do you get into the A6200? You've got to be of a certain size. It's like, well, that's true. Well, they meet the size threshold. Yes. You know, but they don't meet the liquidity threshold. That's the other less talked about feature of indices.

1:10:22It's like you can be as big as Christmas, but you still need a certain volume of shares to be traded on average. You need that liquidity there as well. And they didn't really have that. So I think that this might rectify that and that might be part of the premium. We'd be not surprised, yeah. Which is not a silly thing. Honestly, if you've ever had to try and buy a private business or more. If you've got a business and you've tried to sell it and you kind of think, well, what's the difference? Why does liquidity make a difference? Why should I pay more for something that is liquid? It's like, well, we'll try selling something that's not liquid.

1:10:57And so, you know, like all the same, same kind of business, same kind of revenue, same kind of earnings. One, I can sell by pressing some buttons on my iPhone. The other one, I have to go through four years dealing with all kinds of business brokers, accountants, lawyers, and maybe get a price. And, you know, it's sort of like, yeah, yeah, liquidity matters and it matters a lot. And so I feel, as though there's that component to it. And also that you'll now get a lot of passive fund flows that will just be directed into it. All of the ETFs and a lot of the, even the active funds that have certain mandates will just be forced buyers and price agnostic buyers.

1:11:31It's like, well, 3 % of the index now, I'm making that number up. So we're buying 3 % of the shares. Correct. Anyone go, yeah, but, but, but it's, I'm not saying this by the way, but you know, the value, the PE, the yield or whatever is like, doesn't matter. We got to buy it. and every dollar of money that comes into our fund forevermore will buy that component as well. So it makes sense in that regard that the price would go up and there would be a bit of an extra premium on that. How you calculate this thing, that's where I struggle though. It's like what's the objective? You know, it's sort of that's hard.

1:12:03And also I suspect the increase for all of the justifications are just that people expect it's a bigger, a better business as a result. And it's a bit of just kind of, you know. So the only other benefit really is that the earnings from each other then can effectively flow internally into its other structure effectively tax-free. Yes. So if you pay a dividend to someone else, then you carry frank credits and stuff, again, around and around the circles. But the idea of, and a buffer story of this before, having a conglomerate structure means you can take excess capital from one part of the business and deploy it to another part of the business without needing to pay it as a dividend and pay taxes on that dividend or that kind of stuff.

1:12:36Yep. So effectively this gives, and, you know, So it also, yeah, I mean, I don't know how they'll manage it. It's going to be a fascinating thing to see because Solpac's moving into kind of funds management, moving into private credit. At the same time, Brickworks has been all about property development and the brick business kind of going into that area. So, yeah, it's going to be a fascinating thing. I will say, as much as it pains me to say this, because I like the fact that the share price went higher, I think there's a little bit too much excitement in the increase in the share price. I don't think you can justify any of those.

1:13:05The freed up capital, the now it's in the index, all that kind of stuff, whichever one you want to go with, I think it was just too much. I don't think it's justified. There are benefits to the merger. The simplification is probably useful. They don't need to be separate companies. But was it worth that much more? I don't think so. And again, I love Solpads. I think they're a great business. I own them. I like the fact the share price went up. Objectively, is there enough justification for it? No. The only one thing I will say for what it's worth is, and this is why Brickworks was kind of acquired at a premium, Even though Brickworks is largely property plus a brick pit plus the Solpats shares, it always, well, not always, recently traded a meaningful discount to what I think was fair value and frankly to the Solpats share price.

1:13:46And there may be some element of even though they're paying the 10 % merger, Solpats effectively gets a very good deal by picking up the Brickworks business. And there is a little bit of, one-on-one can be more than two if you're buying one but the current price is 0.8 rather than one. I'm touching my metaphors here. But effectively if you're buying cheap assets, You get all the assets, you can now carry them at the value you think they're worth rather than the value of the market thought they were worth for that period of time. I think that's probably positive. So I think that's useful. There's also probably some element of revaluation because of that structure, the complexity of the valuation of the structure we just kind of started by talking about when that goes away.

1:14:26Yeah. And it shouldn't, right? It's a bit like we say, you know, we'll just split off some property at one point and the two together are worth more than the one alone. Yeah. which is dumb. There's no justifiable reason for that except that if it makes it easier for shareholders to value and they're more likely therefore to want it, then there's some natural kind of, and again, it shouldn't happen because, you know, objectively they're the same businesses, the same assets worth the same thing. But if investors think they're worth more because they can think about them differently, then that makes some kind of sense.

1:14:55Yeah. Yeah, it's fascinating. so a couple thoughts is one that I think it's another example that even though it can take very very very long time value does out eventually and value was suppressed for all of these reasons that you were there you know not that I don't think anyone would have bought I know you didn't buy shares on the assumption that this was going to happen but it was a pointer to unrecognized value which is always nice if you can spot that right Like it's not that it, as I've often said, the market will immediately agree with you the moment that you make your transaction. And it can take, in this case, a very, very long time.

1:15:36But it is another reminder. I mean, eventually, you know, it's the weighing versus voting kind of thing. It does come out. The other thing I ought to say quietly is that I think Brickworks is just a brilliant business. Oh, it's a great business. Like, and it's sort of like, it's sort of, there's no high tech, there's no AI, it's just like, it's bricks. It's bloody bricks. Like how boring can you get? and yet take a step back. Super simple to understand, right? I don't need a PhD in advanced, you know, computer science to get my head around this kind of stuff. It's also almost impossible to disrupt.

1:16:10It's hard to, I mean, bricks have been, we've been using them for thousands of years, right? For a reason. They're really cheap. They're really strong. They're really long lasting. You know, they look good. They're also super heavy. So even if China says, oh, we can make bricks much cheaper than yours, It's like, yeah, but then you've got to put it on a boat and ship it over here. And that's going to add a bunch of cost because the heavy things are really expensive. So it's sort of like, so you've got a geographic moat on it. You've got a technological moat to some degree that's on it. Will bricks be in demand 100 years in the future?

1:16:44I think so. By the way, they've also got a cross-sharing or a-sharing in the fast-buck robotics. Yes, they do too, yes. There's no AI in the raw business, but they've actually got a finger in that pie at least that if there is a meaningful move to prefab construction or on-site construction, they're involved in that as well. 100%. Yeah, and that's an interesting story in itself, Fasper. Don't lure me into that. And the best of all, right, so you've got to dig a giant hole to get all this clay out, right? And you do it hopefully near where all the construction is happening. You do that deliberately because bricks cost so much to transport.

1:17:22That's all you can do. You have to do it. You have to. It has to be close. Look at some of the old ones in, is it Alexandria here in Sydney? Yes, yes, yes. And stuff is like, it's a pretty nice suburb, pretty expensive suburb to live in. Used to be a giant brick pit. Did. And so once you've extracted all the material out of it and sold it at a profit, made a good money, it's like, oh, now we own and developed all the land around it. It's like now we own a patch of prime land that's all been developed. So there's a value uplift there. I guess we can benefit from that as well. And they do. And it's like simple, easy, non-disruptible.

1:17:58Yeah, it's just, it's not sexy. And it's also the kind of business that you say it's done well. Yeah, it's done well. But it's never, you don't get 30 % compound per annum. But it's just that quiet achiever that just compounds away year after year after year after year. and it's like, you know, if you could go back 30 years and buy a portfolio of stocks, something like this would have to be without the benefit of hindsight, right, like in the sense that, oh, well, obviously I would have put it all at REA Group or Xero or something. You know, it's just there's a lot of lessons in brickworks and sometimes boring is beautiful and this is a classic example of that.

1:18:38Yeah, I think that's absolutely right. I think the other thing, I'm going to go up on a limb here. I don't do this very often but I'll do it for fun. I suspect, oh, yeah, go on. So when they join, if and when they join, they will become the 44th largest company on the ASX. By the way, I'll just pull up the numbers now. Where is the number? Hang on. Brickworks, I'll just put max on Comsec, right? So it goes back to 1995 or so. Brickworks is up 1 ,257%. The ASX was up 336%. 36%, both without dividends, by the way. So take that with your compound. But a massive, massive outperformance over time. I don't know how long it will be.

1:19:22I will confidently predict in my lifetime, Sop Hats is a top 10 ASX listed company. Yeah, it feels like it's got a good chance, right? Which is not, which would be reckless about most businesses. And this is not because, as you're like, REA is going to do revolutionized classifieds. This is just a straight out, they've just, to your point about compounding, it's like Berkshire. Berkshire is top five, I think, at the moment. And it's not Nvidia, it's not Facebook, it's not Tesla. Why? Because it's just compounds at slightly above average rates for a bloody long time. And so Solpads had started as some chemists.

1:19:52I mean, think about that. Think about it. If you invent electric vehicles, if you invent social media, you are going to do really, really well, right? Yeah. And there's easier and quicker ways to make money than having a chain of chemists and keeping some of the retained earnings and reinvesting those in something else. But the grinding away, again, I draw too many parallels to Berkshire. I don't do it. I don't want people to think saltpats is Berkshire or vice versa, but Berkshire was a couple of failing textile mills. Buffer took them over. They went broke within 10 years. Saltpats was some chemists it no longer owns.

1:20:26There's a lot of lovely parallels here. If you compound faster than the market average over an extended period of time, you will just slowly pack man up the market levels because you just get a little bit better than the other guy. They compound at 9, you compound at 10. They compound at 10, you compound at 12. They compound at seven, you compound at eight. Over time, do that long enough and you just slowly, really incrementally, almost unnoticeably, year by year, month by month, day by day, week by week, just creep up and creep up and creep up and creep up. And that's how these things happen.

1:20:57It's just important for people, I think, to just keep that in mind because you're right, they're not sexy, they're not exciting. By the way, Sol Pats over that same period of time up 2 ,000%. So you're 2 ,000 for Sol Pats, 1 ,200 for Brickworks, 3 ,30. I know him in 995. Unfortunately, I wish I did. I've owned Solpats for ages, but not that long. You know, will it happen forever? No. Is it a guarantee they'll do this well? No. Do I want you to buy shares just because I said so? No, absolutely not. Don't need those things. Just recognise, in my opinion, that if they can keep compounding at slightly above average rates, they would just rot.

1:21:27And big companies will do better, but do I think Solpats can compound better than the banks? Yeah, I really do. Than the miners? Probably. I don't know what happens to commodity prices. Maybe not, but probably. Telstra? Yeah. Yeah. Yes. Niscorp? Probably. Yes. I mean, Niscorp is a PE kind of business. You know, Rupert or Lockwood can go and do whatever they want with the money. So is it absolutely short? No. CSL may be harder. Cochlear may be harder. But, you know, to get from 44 to some miners in the way, would a compound more than Woolies and Coles? Probably. Again, I'm not saying buy it. I'm not saying sell those shares.

1:22:03There's others that will do even better. To your point, mate, there'll be the next REA, the next whatever will do much, much better. You pick some small caps. I'm sure we'll do better than saltpats on a compound base for the next 15 years. But over 50 years, if I had to buy one investment out of all of those, you know, for me it's a reason. Because it's internally diversified, again, no guarantees, no promises, but I think it's got a very, very good chance of being a top 10 ASX company. Yeah, and there's something to be said for when you're trying to make the bull case for a lot of these other companies, it does rely on, well, they will invent it and it will be great.

1:22:34Yes, that's right. And if that's true, then, yeah, great. But with these kinds of business, Brickworks, a classic one, it's just like what do they have to do? Just what they've always done. So nothing else different. No, just keep doing what you're doing. And there is something beautiful in that, right? Like it's sort of, it's unglamorous. You're not going to win any awards. But you don't have to imagine a radically different future where things look very different and when the dust has settled, they're sort of like the last one standing in the arena or, you know, one of the few surviving ones that have prospered.

1:23:07It's like, no, people are going to need bricks and they've got a real advantage at doing that. They're just going to keep doing that. That's the thesis. They're just going to keep doing the same thing. And it's sort of like nothing's guaranteed, but some things are more guaranteed, as I said, than others. And it's worth a lot, I think, just not to really make it about these companies, but any business that you look at is that, you know, So if your thesis is, I see it a lot, actually. It's like, oh, this company has got this really interesting cure for this weird disease that, you know, 500 million people suffer globally.

1:23:47It's like, wow, if they get that, you're going to make a fortune and we're going to look back in five years and it's going to be the best performing stock on the ice eggs. But they kind of need to cure cancer or something or whatever along the way. It's like, that's a big if in that. Another business is just like, yeah, we just do this really simple thing that we're really experiencing with a lot of competitive advantage in and we're just going to keep doing that. It's just something, and I've often said it with my investing, I'm really not a smart man. I want something where I don't have to, I don't want to, there's no extra points for degree of difficulty in investing.

1:24:17Correct. And it's just sort of like if you can make something, if you can make your, if you can rely less on very difficult to pinpoint forecasts, you're doing something right, I would say. Yeah. Yeah. And look, yeah, yeah. I mean, it's worth talking about these companies for that reason. I think there's something to the well-run conglomerate. Funnily enough, I noticed in the reporting this week, Solpats does want it self-referred to as conglomerate, largely because it doesn't run large operating businesses as its core. You know, Westfarm is another conglomerate, but it's a collection of operating businesses.

1:24:51Yeah. Solpats is kind of half conglomerate, half – I think they protest a bit too much, and maybe because they don't want to be called a conglomerate because it carries baggage within some investors' minds, and I get it, but they have a combination of wholly owned businesses. They'll hold their own brick business, for example. They have their own internal investment bank. They own large stakes in things like New Hope and TPG. Does that make them an operating business? Not really because they're run by separate management teams, but they're pretty involved and engaged in that sort of stuff. The label doesn't really matter.

1:25:22They were the listed investment company, the ETF, before those things existed. And the question is still a bit of, again, I really, really don't want, you're right, I might make it about the company. I don't want to overdo this one at all. I'm not saying you don't want to do anything with them. I have a large chunk of shares in both. I'm very happy with those shares. I'll keep them all once they merge. That'll be a very large percentage and uncomfortable percentage for most companies. But the internal diversification is really important when you think about what you own, think about what's inside those businesses, right?

1:25:53If I only owned shares in Woolies, I owned shares in a supermarket. Solpats is a wholly owned or partly owned share. They've also got an equity portfolio. They're doing private credit. There's a massive, big, diverse business there, and I think that's useful to think about. But, yeah, interesting story. Mergers still hasn't gone ahead. It's got to be voted on by shareholders. It needs the approval of the ATO. Anything could happen, but I suspect it'll go ahead, and if it does, I'd be very happy to keep those shares. Just keep in mind that any share price is volatile. The future is unknowable. Don't be over concentrating on anything.

1:26:25just, yeah. The other thing, one last one, very quickly, culture matters. And I think culture matters in general. Well, the Woolies culture is brilliant, right? The supermarket culture, I used to work there a million years ago. They know their stuff. They do their stuff. They have this really ingrained culture, the Woolworths way. They used to call it it if they still do. And it was really important. For saltpats, a bit like Berkshire, the culture is in the capital allocation. And that's the bit you're buying into, right? So, yes, the businesses they own are important. A bit like Berkshire, the more businesses they own internally, the less exposed you are to the investment decisions because there's just a larger chunk of internal value generation, whether it's the brickworks property portfolio or the brick business itself, the investment bank, so Pat's got their own property thing going on, which is how they deal with that moving forward.

1:27:14But the corporate culture matters. In this case, it is the capital allocation culture. The people running the place, what they're doing, what they're thinking, how they're putting that money to work really matters a lot. there's so much to be said for just doing the simple thing consistently for very long periods of time that's that's that is that's the key takeaway we got there an hour and 27 minutes of the pod that's exactly what it is yeah and it's honestly it is the secret the secret to wealth is that and it's not that much of a secret it's just like but can i do it quicker i was like well you can if you're very lucky or extraordinarily smart or some combination of the two but generally speaking, just do the right thing and do it for a long time and you just can't help but get rich, right?

1:27:54I wish I knew how to do it earlier, right? I don't but it's kind of like, and what you notice too is this is like, you don't notice compounding until you do and then you can't help but notice it, right? And it's just, so yeah, hair and the tortoise. Love it. With that, we should finish this up otherwise we'll still be talking tomorrow. Thanks for listening. Thanks for spending some time with us, mate. Actually, if you're not talked out, you'll come back on Sunday? You know I will. I'm glad you will. Until then, have a great weekend and full on. Cheers. The Motley Fool and people appearing in this program may have positions in the companies mentioned.

1:28:29General 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.