The economy is sputtering September 8, 2023

32:17I don't disagree. It's just a dumb system, right? So I was like, are they acting in the way that is appropriate given the circumstance they find themselves? Probably. And the government's doing too little given they say they believe in this orthodoxy they're choosing not to then do anything to address. Yeah. Sometimes it's worth saying, we take too much of this stuff as like anointed from the heavens above. Yeah. And we forget that it actually, the vast majority of human history this wasn't the system that we had. And even in modern history, a lot of the, like, as I've said before, the idea of inflation targeting is only an invention since the 90s.

32:56It's a very recent phenomenon. In New Zealand. Well, that would have been the first inflation target set, yeah. It was just like a guy said, yeah, it feels about 3%. That's what it should be right. Exactly, yeah. Yeah, there's nothing scientific about it. It's just basically, how much can we steal from people without them noticing? And like, about 3 % turns out to be about right. We would just dilute you by that amount each year and no one will complain too much. So it's sort of, I mean, you've got to remember too, we're not trying to debate the gravitational constant or anything, you know, or Maxwell's equations here.

33:28We're debating things that are entirely made up by these hairless apes that wander around the landscape. Which is money in general, right? We're trying to create a system that allows for progress and the exchange of value. Yes. And work out how you best create some common stories that allow us to achieve those things. Oh, 100%. Now you're talking my language. Yes. Money is the economic medium in which we swim and none of us understand it. So, yeah. And fundamentally - You're going to lure me towards Bitcoin. No, no, no. Careful, mate. Not at all. I'm not saying what's better or worse. I just make the point to your - just to illustrate your point, which is, you know, we say I've got some time and some stuff.

34:10And you've got some time and some stuff. Yeah. And we simply say, the very first specialization was, I can't plant wheat and make shoes and pull a cart and whatever. I'll tell you what, I'll make your shoes if you take my stuff to market. Okay. And then it goes from there. The money becomes that thing which says, well, I don't want to use shoes just now, but I'd like it later, please, if you don't mind. So I'll store it up for later. Or I'll use that money. I've got shoes already, but I'll buy a pumpkin. That stuff is fundamental. Hey, let's move on. Can I just say, I've got one more thing. one more thing, one more thing.

34:43And it's not on that kind of stuff, but one day we should just do a topic of that because I can talk about that all day. But - Well, I'll pretend I'm recording that one. I never said lie today on our listeners behalf. You know, I can talk about that because we'll enjoy it, but it'll drive everyone else nuts. Go on. It's so, it's like fish debating water. Like we're so immersed in it, we can't see it. Anyway, but I wanted to touch on your point of productivity. And it's such a good one because productivity is – there is some processes, like just more – like McDonald's make hamburgers very quickly because they've worked out that you put the stove here.

35:22I don't know if you've ever seen the movie with Michael Keaton in it. It's excellent, by the way. They talk about the early days of – Such a great movie. What's it called? It's the one about McDonald's and it's great and really, really good. Gone blank now. It's not that old. Anyway. Yeah, it's really good. They basically just sort of production-lined burgers, right? There was no real technology breakthrough there. There was an organizational improvement. So that's one thing with productivity. But the massive gorilla is technology. That is going from the spear to the net to the trawler. Right?

35:58Yes. And by the way, that's technology, right? Technology isn't just computer chips. I mean, that's a modern version of technology. technology was just the thing that helped us do those things better it was the wheel like the wheel is the prototypical technology ah you know it's gone from uh a pointy stick to like dig a hole for me to plant a seed to a uh trowel to a ox strong player cut to a to a massive like you look at farming is the most interesting and obvious example i think less obvious to us today but in the grand arc of history, like you look at modern agriculture and you can have a family, you know, probably and a team of people, I don't know, 20 strong producing more food than like, you know, all of the farmers in ancient Rome did, right?

36:46Like it is just phenomenal. And I think that this discussion that we have around productivity drives, here's another thing I scream at the TV a lot about. Productivity is not improving. It's like, well, I actually think that makes a lot of sense to me because we have very much become a service economy. Yes. Because so much of the stuff we just import of the manufactured goods. And manufacturing is largely done either by egregious slave labor in developing nations or by robots, right? And so we've sort of pushed that as far as it can. And that's been wonderful because I can buy a really crappily made t-shirt for$2 at Target now.

37:24And, you know, whereas in the past it would have been a lot more. You kind of push that as far as it can. It's like barring some big breakthrough, maybe AI is the next breakthrough or something like that is going to plateau, right? And when you look at the, what is it? Australia's economy is like 60, 70 % services base.

37:44There's not actually a lot of productivity gains. And so the government sort of waves its fist in the air and we need to improve. We need to improve. It's like, well, A, you can't, a bureaucrat can't mandate that we improve. Like, just like, here's the other thing. do you think there's any entrepreneur or business person out there who's going, wow, there's a process or technology I could use that would make me like 100 times more productive, but I'm just not going to use it. You don't need to be told. Business is business and capitalism is – if you and I are in competition making shoes and there is a better way for me to do it, I don't need a government agency to mandate that I'm just going to do it.

38:21You really should make more money by using that machine. Oh, okay. The government said I don't have to. It's the dumbest conversation ever. And it's just sort of like, I'm not that I'm disagreeing that it would be great to have more productivity because that just means that we're all richer because we all get to make stuff with a lot less input. I'm all for that. Sign me up. But where I rail is where we feel as though it needs to be something that is mandated from on high and without that people wouldn't do it. And also just understanding the structure of the economy and that, you know, technological improvements in robotics is not going to help a lot of people in the knowledge economy.

38:58It's just not, right? Because if your job is to make PowerPoint presentations, I don't know, whatever people do in a lot of these white-collar jobs, it's not and it can't. And it is going to plateau. And technology as a phenomena never is a linear progression. It is a stepwise thing. We go sideways and then someone invents electricity. And we go sideways and then someone invents the transistor. And then we go – it is a stepwise thing. and to all this gnashing of teeth and that, and oh, in the last three, four years, you know, productivity. I just feel as though people are right to try and improve that, but we're all having this discussion without ever understanding fundamentally what it is we're talking about.

39:43And it just drives me a little bit crazy. I agree, and I'm glad to hear you finally say, oh, it's not going to be a big deal. You've been banging about this AI stuff, telling me it's going to change the world. Apparently, no, it's not. I'm glad to hear you finally agreed with McNamkey. No, it is going to change the world. Well, it's going to, you know, yeah. Well, I was going to just politely disagree with you. Not actually disagree. Hold open the potential that I think, you know, the guy in 1960 who's even done six computers in the world, right? Yes. Because they couldn't see. I'm loathe to say we are at the end for productivity.

40:17I think I would go, I would take a slight 90 degree turn from your point, mate, which is to agree with you in a lot of that. Disagree with some. I think there's, you know, the PowerPoint is going to write itself at some point, so the person can do something else. So, you know, there's some options around not write itself. You know what I mean? I think it's the personal services stuff where I think the biggest challenge for productivity is going to come. The hairdresser, the nurse, frankly, you know, how many patients you want the nurse to look after? Yeah, you can plug some machines in, but they're still going to have to be around and do the things.

40:45Teaching, education, the same thing. The masseur? Exactly. You know? I mean, I can't afford that, Andrew, if you're spending straw man's money to do that. But it's just like you – it's a great example though, right? Like you improved their productivity. Totally. How? So personal service is the area I think we're going to have – I think it will improve slightly. Maybe if you're paying a cleaner, use one of the robot vacuums or – I mean, there's ways it will improve slightly. But you're right. Going from, you know, putting the – well, frankly, driving a bullock to using a motor car to a faster, cheaper, lower fuel, more efficient, Those improvements are really obvious to see robotics in factories.

41:26Can you replace robotics with more robotics? I suppose. Can the robots move a little bit faster and be a little bit cheaper in time? Probably. I think the curve is still going. I don't think we're plateauing anytime. Oh, yeah, absolutely. But it's a much better chance. Our ancestors, well, not our ancestors, our descendants will look back in 50 years' time. Yes. Can I tell you something? You mentioned robotics. I had a fascinating podcast the other day. So Tesla's got its Optimus program. Optimus is its humanoid robot named after Optimus Prime, of course, which is pretty cool. So you know what the interesting thing is there?

42:00In terms of the actuators and a lot of the mechanical componentry, it's actually got the tech. Actually, the limiting factors has often been things like batteries, but more importantly, the brains. So what you have is you have a lot of bottlenecks in technological progress, which hit a sort of local maximum that requires breakthroughs in other areas for there to be massive progress. so we we would still be using right by this style planes if it wasn't for it was great it was actually breakthrough metallurgy and and and having uh aluminium which provides very light frames you know oh actually now we can have much bigger aircraft and oh and jet engines and these these enabling kind of technologies and anyway this is a long bow here but i'm just saying is that the i If you've ever seen iRobot, read the original book, which is fantastic.

42:58Have you read the Smith movie? You know what I'm talking about. But that actually, that could be something that is the next sort of wave where we see these breakthroughs in AI and processing sensor technology that actually enables that. There's no reason why we can't have those kinds of things. And now you take the robots out of the factories and things get, now you've got a productivity enhancer for the mass error. for the hairdresser. Exactly. For the plumber. You know, and that's, anyway, I'm thinking probably a few decades ahead here, but anyway, I'm a technologist and I'm here for it. You are, you are.

43:35So I think, and I've got to say, I've had lots of great, I'll mention Twitter again. Honestly, when good people are on Twitter, it is just a fantastic place to exchange ideas. Oh, yeah. It's an absolute sewer other times, but it can be great. It's a mirror. I've had some really good conversation here. I've had some really good conversation this week with people about, you know, how much is too much? How much growth can we have? Is growth overall? that kind of stuff. And you and I have talked about capitalism before. To my mind, is there a limit to growth? Yes, by definition. But to assume we're there yet and should stop trying, I think is a mistake because, as I said, could have been a 1950 with six computers.

44:09That's, well, it's probably not more growth. Let's stop trying to grow because we could probably do X, Y, Z. Was it 1900? Was it 1800 with a steam engine? We've got steam, that'll do. Now, I will say, for those who are yelling at the pod machine, yes, it's caused environmental damage and it's caused some social issues and we you know we shouldn't overlook those and i would like to be able to go back and undo some of that stuff or not have it happen absolutely but it's one of those things where you want to be careful what you wish for right because if you like living past 35 with and you like your kids actually making it through childbirth you know you can't say well if we never had progress we wouldn't have climate change you can say that actually that's absolutely true but you know how many more people would have died at childbirth how many more you know do we want women back in you know in the kitchen um there's a whole lot of stuff that you know has come via progress and i think it's a massive mistake to say there are negative outcomes therefore the whole thing was bad there are negative outcomes so the negative outcomes are bad and we should fix those and stop them happening again and we're not doing enough for that either by the way for anyone who's wondering my thought um so it's really it's a real issue but i just just you just want to be very careful when you say should we stop trying to grow just in case we can't keep going after that it's like well how far back do you want to go in history and say when should they have stopped and i don't know where frankly if anyone's enjoying this podcast um if you're not enjoying the podcast stop listening seriously what's wrong with you uh it's on you it's on you totally right yeah no one's making it but if we'd um but you know the podcast doesn't exist without technology right so you know would i would i happily kill a podcast for no climate change yeah of course that you know but but overall the advance in health the advantages in longevity the advances in the the human experience and the comforts that we have how many of those do you want to give up You can go back and live in caves and humanity could live in caves.

45:49We have no climate change. Just careful what trade-off you want to kind of bring to the table. You're talking about, I think it's termed the Malthusian fallacy. Right. This idea that there is sort of we will run out of stuff. There is huge abundance of resources that we will unlock with creativity and technology. And I think we should. I think we should. But at the same time, I think we should do it in a very sustainable, environmentally aware way, right? So I think too often the debate gets too simplified. So there is, you know, hundreds of years ago, people were saying, oh, there's going to be too many people on the planet.

46:29We're all going to starve to death. And it just turns out that productivity unlocked. We basically, we just unlocked all of these step changes that allowed us to do so much more with what we have. and there is no limit to the resources that are available on earth the solar system and beyond and yep and i'm hopeful that we can sort of get there but just just let's not kill ourselves on the way through yeah that'd be that'd be and again that'd be good no one i am the last person and let me really million percent clear i'm not defending the excesses of capitalism in the slight the slightest but i am defending capitalism as a great way to allocate scarce resources for the best possible outcomes it's the only way the the job of the job of governments a plural both present past and future as well as you know state local national and then you know international is to regulate the negative outcomes so there aren't there are fewer or preferably none but you know let's be let's be real let's live in the real world um that that's the job of government let's harness the power harness the power of capitalism and carve off its excesses that's that's how we that's how this works yep um those who want to strong agree thing and you know hey if we just get rid of capitalism we'll be fine um i don't know what do you want do you want bread lines Go move to Cuba.

47:41Right. See how it works out for you. Exactly. Right. And it's just, again, you know. There's a whole bunch of crappy stuff about it, right? But it's more, I think they are, I would argue they are more perversions of a more pure form of it. You know, it's not this, it is where you have the crony capitalists that come in and bribe and corrupt. And that's where things get really bad. But in terms of it, it's just, again, bring it back to simple levels. These hairless apes that walking around, hey, you've got something that I want. You've got something, you know, I've got something you want. Let's trade and let's both be richer and better off as a consequence for it.

48:22Let's just, that's capitalism, right? So if you, it is a natural emergent phenomena where people, I think, forget that. That it is, there's experiments with chimps, right? Where they do basic capitalism. it is and there are birds that do it it is just a transactional kind of thing yeah that a species will do to now it just it just needs to be held in check i'm the biggest environmentalist you'll you'll find mate i'm i'm very concerned about global warming and and all the rest of it but i just think the i i don't know how we we are so off topic here but i but but you know to to think I think that it is quote-unquote capitalism that is to blame, I think, is a massive misunderstanding.

49:10I'm actually just like to disagree with you in one sense where you said that the crony capitalism is the perversion of capitalism. I think that's true. But also capitalism in its purest form doesn't consider externalities at all. I think we need to... Oh, yeah, we need guardrails. We need to pervert capitalism, right? We need to pervert free markets because free markets don't value pollution. they don't value that the crappy stuff that comes from you know i i will make more money if i tip my sludge in the sewer or on the on the street or in the oceans right i will make more money that's what capitalism would drive given its choice so pervert is obviously a pejorative term i just want to make the point that i don't think we need we don't want we i'm sure we don't want unbridled capitalism we want well bridled capitalism we literally want to say hey do your thing but just maybe don't put stuff in, you know, don't put your sludge in the sewer and maybe don't employ kids and maybe make sure your workers actually aren't exposed to, you know, irradiated uranium.

50:06You know, there's some rules that we might say, you know, the societal benefits to having you do your thing and I want you to do your thing. I'm just going to ask you to do it by a certain number of rules that actually make sure that we get the best of it and we don't have to deal with the worst of it because the system doesn't allow for those externalities. Yeah, you've got to be aware. I mean, And what's frustrating is that these concepts are well understood and known for like hundreds and hundreds of years. Concepts such as the tragedy of the commons, you know, externalities you mentioned before as well.

50:37And the power of incentives and all the rest of it. I've got to tell you, this is why I find economics, markets, money, I think too often it's like when you're a little bit obsessed by it all, as we are uh you come across as like a money hungry uh you know it's a greed kind of thing yeah and don't get me wrong like every other hell of aip i i do want to better my my my position in in society more stuff sure but i i think that it is fascinating not from that but from if you want to understand anthropology and and society and civilization and this great journey that we're all on like you you have to understand it as much as i'm a very keen student of science and and i love i mean i love watching physics youtube videos and all the way because it just you know you need you need these to you know throw in the obligatory charlie munger quote you need mental models right to sort of understand the world and i don't think you can possibly have any sensible political conversation yeah uh without having a decent grounding of economics i don't think you can have any possible view on you know some of the challenge the grand challenges of humanity without understanding basic economic challenge it's not about trying to pick a stock so i can buy a lambo it it's it's about how does the world work yeah and that's what we were saying before economics is applied psychology yeah it's literally i think the mathematicians when they said here are the formulas do do economics a massive massive disservice because a they're wrong because yes the things you have to assume are constant to make the models work is fine in theory but in practice it's just useless so it is a waste you're sounding like an austrian economist all of a sudden well no uh but my point is the the you know it just it describes the interactions it describes the interactions in the world and yes it does it through a business and money lens because again we talk about the store of exchange the sort of sorry the sort of value and the the medium of exchange those are the things that do matter so economics is just describing the interactions that we have effectively in total i mean there's no reason economics needs to actually to you can do economic study can include things that are done for no money we exchange time we volunteer those things have you know is it psychology is it economics i'm i'm convinced the two two disciplines are the same thing yep one just happens to say i'm going to use the interaction of uh you know broader uh manager in fact take away money and psychology economics are the same thing.

53:08The only difference is that one chooses to say, I'll use the, you know, the exchange of value as the starting point for the analysis. That's literally all it is. That's fascinating. Fascinating. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

53:31Qantas this week ditched old mate Alan. He's gone. apparently two months early and 24 million dollars richer and the Qantas board is desperately hoping that a new CEO investor Hogan and and a little bit of a what do they call circuit breaker in the news cycle might cauterize the wound and let them kind of just get off the front page for a while is this the is this the solution to Qantas's problems getting rid of Alan Joyce no no but it keeps it keeps the punters happy right it's like we're ancient Rome someone say a sacrificial lamb yeah this is like throw him into the throw him into the Colosseum and nothing's gonna change let me let me be Mr.

54:13Cynical for a second here nothing will change whatsoever right so he is he is one person he's employed by the board I would say if you're angry fire the board right they're the one who hired him they're the one who enabled him no one's sitting in front of him saying well he only did what we told him to do oh he got this bonus like Alan is never gonna say no I don't want to correct The board authorized it. I had someone actually say, someone said to me on Twitter, he's got enough money. Shouldn't he have said no real bonus? I'm like, well, he'll be the first person ever. Whenever you have a system that relies on the good grace of a human being to not be greedy, then you've got a bad system.

54:46Like there might be one in a hundred who is that noble, but most of us won't be, you know? And so you don't have to like him. Like, you know, I'm no fan of him, but it's sort of like, well, blame the people who made the decision. He made the operational decisions, but the decision to pay him the bonus, the people who signed off on his strategic vision and plan are the board. They are the representatives of the shareholders. They're the ones to blame. And this is brilliant, right, because no one knows. It's the Wizard of Oz behind the curtain, right? So I get all angry at the big face on the screen and not the diminutive man behind the curtain.

55:30They are the ones that need to be held to account, in my simple take on it. I'm not even sure we're accountable for what. I'm not going to defend Corners or Alan Joyce, but I am going to say, and I said this during the week, I keep saying that. I apologize if I just say people are already watching Twitter. They'll know my view on this stuff. Joyce made$2.5 billion for the airline last year. I mean, speaking of capitalism, speaking of, you know, sorry you made some money, i'm not entirely sure what people think alan joyce's problem is or what was wrong with what he did now in time it may well be the case he's under invested in the replacement of planes the fleet is getting old and we might back in look back in five years say yes obviously he made a mistake he customer service is crap yes yes it is bags getting lost yes yes they are and yet quantus is still making two and a half billion dollars a year now if you're in charge of making people feel good about Qantas, you're doing a bad job.

56:26If you're in charge of, don't worry about the profit, Alan, just make sure that we have people singing, I still call Australia home in the streets, then yes, he's failed. If his job is to make as much money for shareholders as he can with an appropriate, and I'm not saying what the answer to that is yet, appropriate allocation of resources or not, the appropriate staffing or not, appropriate plain age and safety or not. Again, I'm not saying he's done the right thing. It's very, very possible, maybe even likely, that in five years time, Vanessa Hogan says, I had to spend$14 billion replacing the fleet because Alan didn't do it.

56:58So I'm not saying it's not the case. I'm just saying for all the things we think Alan Joyce is guilty of, he might just be guilty of actually making a lot of money for the airline and actually reducing what was over-engineered, over-resourced areas of the airline didn't need to be because where else are you going to go? You're going to quite a lot of version. If they're both offering the same level of service and same pricing and same flights, why would you over-index it? just what just to feel good just to make you know customers feel better um i i'm not i'm still not entirely sure at least on the evidence we have in front of us not not the potential outcomes on the evidence we have right now explain why allen just has done such a terrible job i can't give you the answer i genuinely can't give you you got some money out of the government for nothing which as a as a taxpayer and as a policy nerd i'm roper about chef chef kiss though right right so you know like we're the idiots we're the patsies like bloody scomo just giving him free like okay a terrible but from from in terms of like the ability to negotiate that it's like like yep like good on you or my i mean i think it's sickening but like well that's what exactly on behalf of quantus as as the person whose job it is to run the airline tell me exactly what he's done wrong not what he might have done wrong not what you're annoyed about as a consumer but on behalf of the airline what has joyce done wrong i'm not here to defend him at all i you know i i hate that i took the money it may well be that in hindsight we i think was mark mcginnis at david jones that under invested in it and customer service the uca had to come and fix it and that may be the same at qantas but right now i i don't want anyone to say joyce deserves to be sacked because he did this that hurt the airline is the brand worthless yes okay but the companies make more money so which one do you want i i find it really difficult i'll give you i'll give you Yes, I think you're right on that.

58:46I'll give some context, though. Over his tenure, I haven't verified this number myself. I assume it's true as reported in supposedly reputable media publications that if you add up all the profit and loss over his tenure, he's actually lost money overall. That may be more a reflection of how diabolically tough the airline industry is. As the Buffett famously sort of remarks, It was just like, you know, it is a god-awful business. Yes, correct. So he actually has like, yes, in any given period, there may be big sums of money that get thrown around. But on balance, actually didn't. The other thing I think you've touched on, you touched on this really well, and I suspect this is true.

59:33I put me in charge, I'll make you a squillion dollars in the next few years. Because I'm just not going to buy any new planes. Right, exactly, yes. I think a while ago they took the decision to write down the carrying value of a bunch of assets early. So there's an account, not anything illegal, but they took an accounting decision to write down a bunch of assets all in one fell swoop. So that is a god awful year whenever it was, I want to say seven, eight years ago. So you just get rid of your depreciation charges. So that boosts profit as well. So I need to dig into this. But I would suspect if you look at Qantas through a free cash flow lens, it's not nearly as good as people make out.

1:00:13And then I would say even that probably has been juiced by underinvestment. And others who follow the aviation industry much more closely have made that point. So the poor patsy who comes in and runs it, he goes, oh, I have to buy all these extra plans. Okay, right. Oh, we didn't do this. Okay, well, I'm going to have to spend. I've said before, and it's become a religious principle for me at this point in time. The key job of the chief executive is capital allocation. And the really good ones make long-term capital allocation decisions. By the way, it's really good edges to be had as an investor there.

1:01:00When you see some companies who have made a lot of big investment, their profits suck for a couple of years while they do that. But what people fail to miss is they've now built a foundation platform for future growth that would not have been possible without those investments. And then it's like, oh, look at all the money that they've made. Well, yeah, well, that's because of the tough decisions that they made early on. Anyone who's listening to this who runs a small business is going, yeah, this is no great epiphany, Andrew. It's what we do. Yeah, that's right. I'm flipping burgers here, but this stove didn't come from nowhere.

1:01:31This shop didn't just appear out of the ground. I spent all my money up front. Now I get to make the cash. And I can defer on all kinds of different investments that I want to. And this year will be fantastic. Let's get in there and let's fire all the baggage handlers. Let's get in there and let's not replace any of the planes. Let's get in there. A million types of things. And I'm going to do incredibly well this year. Is that a good outcome for shareholders in the business? No. let alone passengers, right? So that we'll have to wait and see. But I reckon when everything's tallied up, maybe give it another five years or so, we look back.

1:02:08I don't want to definitively say this is the case, but I'm open to that as a possibility that when we look at it through that lens, it's like, actually, he wasn't the rainmaker that everyone assumed. He just was short-term focused. And I think that's entirely possible. That was the point I was trying to make. We can't know now how well or badly he's done. But that's almost my point. If the board was going to fire him for not keeping the fleet current, they should have been doing that two years, three years, one year, 18 months, six months ago. The fact that he's gone now is all because people are whinging about the customer service and the fact that they canceled some flights.

1:02:42And again, I'm not defending doing that. I'm absolutely not. What I'm saying is his job is to maximize the value for the shareholders of the company. And frankly, if you've got a two-airline duopoly and you're over-investing in air quotes service with no incremental upside, it's only natural to say, well, hang on, we're wasting money here. If I can get the same number of people to fly with half the number of customer service staff, why the hell wouldn't I? Now, if it causes long-term damage, it's a problem. But for right now, I think we all, I want to love Qantas. I want it to be a brand I'm proud of.

1:03:10We all have this really weird natural affinity with airlines for some reason. I think it's probably harks back to the golden days of aviation. We kind of inherited from our parents the thing about airlines are cool. And we feel like, I remember flying for the first half a dozen times like, oh man, this is amazing. Now I get a plane that's like, oh God, I've got to get another bloody plane. But it's just because it's right. So I get the vibe. I get the feeling that people want it to be a certain way. And if you want that, then argue for renationalization of Qantas and run it as a national trophy.

1:03:37Run as a trophy asset for nothing. If that's what you want, if you want to be really proud of - Don't advocate for that though, please. As a taxpayer, please don't advocate for that. But that's my point is like, that's not how this thing works. let me let me finish with uh with one question for you the old line to lose one parent is unfortunate to lose two is just careless comes from the importance of importance of being earnest uh to lose one executive is is unfortunate to lose i think at last count five executives over the space of a couple of weeks a few weeks that is uh well that's starting to look careless and that's what's happening with fortescue now listeners will know i'm a shareholder uh i don't have a particularly well i don't have any inside information or view on it but what i mean when someone leaves some of these four to you think oh two go you think uh three four what point do you start thinking man this thing's rotten or something's badly wrong or how would you as a as an investor look at a business like that and go nah here's what to make of fortescue's current travails oh it's not it's not a good look right like this you know it's it's they're always going i remember it's actually david gardner motley fool founder we were having dinner with him way back in the day someone one of our team members sort of said oh what do you think about you know politics you know workplace politics and he basically said it always stuck with me he said um as soon as you've got two people we've got politics that's so true right i think we sort of and and there will always be tensions between people and that's fine and anyone who's you know i'm sure everyone listening you've ever worked in a workplace of any description there's politics you know someone doesn't like cheryl from accounts and bob from the warehouse is a bugger you know don't no one likes him and and then you know and he parked in my spot there's just always these these kinds of things so you're always going to get that's why i actually feel investors put too much emphasis on this glass door nonsense you know it's like oh i got some great insight because i found here that people are unhappy and guess guess what only the disgruntled people are posting on glass door anyway but i'm going off i'm already skewing off here but i i think when you have you know one one is unfortunate two is a coincidence three is sort of like there seems to be something it's either there's there's two interpretations and neither is favorable one is you're terrible at hiring right you're just really bad at hiring people that are the right cultural fit or two the culture itself is just broken and um that's that's it is a it is a problem because businesses are just a collective of human beings i'll go with hairless apes again um who who need to get along and cooperate and these structures that we call companies are just a a formalization of a structure for us to all cooperate in an economically hopefully productive kind of capacity.

1:06:33And that's why I never used to – I always just completely used to dismiss any time an executive would talk about culture. And I actually think as I've gotten older, I actually think it's more and more and more important. So I said before that a leader's job, CEO's job is capital allocation. The second biggest part of it is probably culture. I think you drive the culture, you drive the big capital allocation decisions. all the operational stuff you sort of the generals and the that need to sort of do that underneath you i don't know my military rank so maybe generals is not the right the right one but do you know what i mean it's it i all i'm saying is i don't i don't i'm not close enough to it to have a firm view on it but from what you describe doesn't sound great it doesn't um i'm i'll make some i'll make some comments and you can add some thoughts i would be really really worried about it if it was any company other than a half a dozen that i can think of where the person who runs the business is the one who's the major shareholder and the brains the vision and the energy behind the company and that's that's the one if qantas loses five c five executives i'm like well you know if it's uh woolies i'm starting to get worried if it's you know pick pick your company um the i don't think it's any surprise that jerry harvey runs harvey norman his way I don't see any surprise that Twiggy runs Fortescue his way, just as Steve Jobs ran Apple and Elon Musk runs Tesla and Twitter and whatever else he's doing these days.

1:08:01And I say that because I think it's important from an investor's perspective, to understand the business that you're buying, right? And why you're buying it. If you bought shares in Fortescue, I own shares, so I might as well keep talking about it. If you bought shares in Fortescue because you liked the fact they had five great executives who were going to steer this ship and build long-term wealth despite Twiggy's volatility and rationality, then yeah, you really better save your shares. If you bought shares because you think Twiggy seems to have his finger on the pulse and he's going to use his energy and talents and effort and, frankly, money to build more value over time and hire people who he believes can help him do that, then if these five people aren't the right people, then that's cool.

1:08:43Now, again, maybe he's wrong and it absolutely increases the risk. I think whenever you see people leave, it's obviously there are so many, there's such fundamental disagreement that the stakes are higher than they were because obviously he's saying i want this and they're saying we don't agree with that and they're out of there now if those five people are all wrong and twiggy's right then you're fine if half of them right half of them wrong they've got a problem if they're all right and twiggy's wrong then we're heading into a you know we're 100 k's now towards a brick wall so you absolutely should be mindful of that I think it absolutely raises the risk, whichever way you look at it.

1:09:18But the question is, what was your investment thesis? And why were you investing in the company? And if Buffett's two investment lieutenants leave him, I'm going to sleep perfectly well at night. Because Buffett's Buffett, right? No, I'd rather they didn't. And it would, again, suggest some sort of unrest or some sort of difference in opinion. And you go, well, that's a bit uncomfortable, but okay, that's what it is. Same with Jerry Harvey. for all for all of his faults he's been the the driving home she's in harvey norman too in berkshire um he's been the driving force behind harvey norman for 50 years now for all of his irascibility and you know shoot from the hip and all that kind of for all of that for all of that he's built a spectacularly successful business and maybe he's lost his mojo which is again fine you can decide that but if you lose a couple of ceos like oh jerry's obviously out of stand up blue with these people and they've they've displeased him and they're out of this like okay i sure you know Is it great?

1:10:09No. Do I own it because of those two people? Because of Jerry. Well, kind of because of Jerry. Okay, well, then there's your decision. And so on. And I shouldn't, by the way, underestimate the value of other people working for any of those businesses. I just want to make the point that, to me, it does come down to what were you expecting? Why do you own it? How many people has Musk lost at Tesla? I think everybody about four times over, right? He went through PR teams about one a month until he finally just dismantled the whole department because he got jack of it. And that's cool. I mean, I'm not a Musk fan, right?

1:10:38But if you own Tesla, you've got to own it because you believe in Musk. You can't own it because you think Tesla was great without Musk or despite Musk. I think that's a really, really gutsy call. It's a jockey play, as they say. Yeah, makes sense. In other words, you're betting on the jockey, not the horse. You believe the jockey is capable of getting the best out of the horse, so you don't have to worry too much about the horse. You're saying, you know, it's all about the person on the back, and that's perfectly reasonable if you do it deliberately, if you do it consciously, and if you know what you're expecting.

1:11:03it's a mistake to buy a horse you know not realizing the jockey matters and it's a mistake to back the jockey when the jockey can't do much to help the horse you know if it's a if it's a broken down nag i don't know any jockey so my metaphor is going to fall over very quickly here you put the best jockey in the world not going to do anything right equally you could put me on on far lap and it'd probably still go close to winning maybe not i'm a bit heavier than the average jockey so maybe not but you know that there is there's limitations and there's and there's whatevers but generally speaking exactly know what you own and why you own it as you've said many a time yeah this is this is one of those really clear ones and make sure that by the way why you own it is accurate if i own harvey norman because i really really like the franchisee at my local harvey norman probably the wrong reason if i if i i think personally i'll tell you what straight out my my investment in fortescue is absolutely largely twiggy based there's a very good cash flow from iron ore twiggy's trying to do some smart things and i'm happy to say i thought at the time i said at the time the iron ore price was cheap uh fortescue future industries for me is a free bet now it might be less than free because it might cost money in other words uh you know there's no upside there's actually potentially downside but i bought it for exactly that reason so am i unhappy that people have left no am i slightly disquieted yeah because i don't love the fact that whatever's going on there is so serious that a whole lot of people said this is no longer the place for me to work so i'm not happy about that but because i'm betting on twiggy that's why i'm still there but i don't blame anyone who says actually i thought it was about the iron ore business and these people great great executives and they're leaving and I'm not sure he's the right person to run this thing, then absolutely you should sell your shares and go and do something else.

1:12:31Yeah. Yep. I mean, yeah, I don't know. I don't get it. Other than I think as an investor, I used to be very – I know you were too. I think everyone is when they started. We're very numbers focused, very ratio focused, very spreadsheet focused. That's true. It's all good stuff, right? But it's just – And it helps to actually learn, but it's not your goal. Yeah, it does. I mean, I still got a place for it, but it is really like if I was if I was on Shark Tank, you know, it's really looking at the person in front of me and saying, do I believe in you? Yeah, because I will I will back, you know, I would rather someone who I feel has the the drive, the intelligence, the capability and not a great idea over someone with a brilliant idea who's dumb, lazy and corrupt.

1:13:22That's exactly right. And corrupt, you know, every day of the week, every day of the week. And there is something to be – look, this is just a heuristic, right? It's a rule of thumb. But when you see someone, a long-serving CEO with lots of skin in the game, not because they got lots of free options, but they bought it themselves, you know, and have a significant part of their wealth tied up in it, who continually make long-term capital allocation decisions, that's not a guarantee for anything. But, geez, it's a good sign. You know, I'll take that over almost anything else a lot of the time. And there's not enough examples.

1:13:57And the ones that are examples out there at the moment, I don't own nearly enough of them purely because I'm too dumb on valuation. It's a bit expensive, which is, you know, now that I say that out loud, I really need to slap myself a few times and just like get over it and listen to your own advice. But yeah, it is everything. It is everything. On that, I think we're done. This is everything. This is the end of our podcast for this Friday afternoon. Thank you for spending some time with us. As always, if you have any questions or comments, any feedback or suggestions for the pod machine, that's what it's called, Andrew.

1:14:32That's what the kids like. That's what it is. Then you can hit us up, info, I-N-F-O at fool.com.au. Follow us on Twitter. Andrew is at Sage underscore Simeon or at Strawman Invest. You get me on Twitter or Insta or threads at TMF Scott P. or The Motley Fool at The Motley Fool AU. And hit me up on Facebook, facebook.com forward slash Scott Phillips money. One more reminder, I've been impersonated by two separate accounts on Twitter this week. Please be very, very, very, very careful. Use the handle. Don't just search the name and grab something that looks like it because there's plenty out there.

1:15:06If Scott is trying to induce you into buying an NFT or a crypto, red flag is all I'm going to say. Red flag. I'm probably not going to send you a private message out of the blue either, just quietly. So if you get someone, they normally say they follow you, then you follow them. say, hi, how are you going? And you think, I love you all. I do care how you're all going. I'm not going to follow you out of the blue and I'm not going to DM you out of the blue with a, hi, how are you going? Here's an offer for you. So if you get that, assume. Why won't you share your latest investing secret with me?

1:15:33That's just selfish. Just send me some Bitcoin, not send you some back. I promise you'll be fine. Anyway, until Sunday morning. Full 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 License 400691.