The hidden opportunities in a slowing economy. November 10, 2023

0:00A listener production. This is Motley Fool Money.

0:33I think there is. Yeah. I'm thinking something along the lines of a non-public membership-based organization. Yeah. Yeah. That's good. Probably online only. Online? I think that makes sense. Yeah. What would you focus on as a membership business? I don't know. I've got to workshop it. I'll get the whiteboard out. Okay. And we'll brainstorm it. We'll thought shower it. And away we go. You're pretty good at this investment stuff, mate. You could probably roll that in as well, I reckon. There's an idea there. Yeah. There's something there. we'll see what we can have a thing if you do come up with something please let us know because i i am mindful that elicists probably don't know much about what you do in your day job they certainly wouldn't know who you work for or what it does so uh maybe maybe just kind of bring that to the fore would be useful i'll get the pr team on it do that if you wouldn't mind the strategy department should be doing plenty of strategy department yeah uh speaking of strategy departments of pr teams how how would you like to be in those groups at optus right now oh well i don't know if they have strategy team do they well what's what's the strategy here guys like you know like and let's not forget it was a year ago that you kind of had a bit of a wake up call right like if there was any time that you can't well maybe we should have some procedures in place for when things go wrong well and this wasn't a hack uh it seems at this stage yes um but but you would kind of think okay hey, something's wrong.

1:59Here's a step one, call the communications minister and the ombudsman, you know, let them know. Two, communicate with your cousin with three. I don't know. I'm not in the war room, but I imagine it feels as though it's sort of like a whole bunch of frantic phone calls went around and everyone was like, oh, I don't really know. And the CEO, it was funny how little of the CEO was actually even out there communicating to the nation as well. Look, I get it's a bit of a first world kind of problem, but there are consequences with it when there's, you can't dial triple zero and hospital systems are relying on, I mean, in the year 2023, this is not a, oh, I can't get onto my Yahoo chat forum to talk about whether Captain Kirk or Picard is the better, you know, captain of the enterprise.

2:45My 28.8 megabit dial-up, no, it was a bits per second, was it? Megabits a second, I think something like that. A dial-up modem. You know, it is critical infrastructure. And yeah, it was just, it was, look, things happen. Networks go down. I don't think you can fault anyone for that. But it's just, it was notable how poor the response was and especially in light of the big hack that happened last year. You think that would have really sharpened their, forced them to sharpen their pencils in terms of what we do in a situation like or similar to this. Someone's got to say, hey, we've just been through it.

3:24Let's write the book. And as soon as something else happens, hopefully it never happens. But when it does, the things we've learned are this. And so as soon as we know we're going to press this button and make this happen, it's not a difficult one, is it, if you think about it. I did have to laugh, though, mate, because the government's announced an inquiry. Oh, inquiry. Which is, you know, wonderful. I think I'm so depressed with our leadership. We elect you to make a decision. Make a bloody decision. Like, you know, you might make the wrong decision. or what it is, is backside covering. Of course it is.

3:54Pure PR. Pure PR. Yeah, it's like, well, it's the illusion of action without actually doing anything. Exactly what it is. That's what it is. And then you can, and the thing, I would be more on board with the millionth inquiry if you actually enacted any of the recommendations of the inquiry. That's the frustrating part. A, you don't make any decision. You do this big inquiry that costs God knows how much money it costs and takes how long it's time and then after all is said and done they go well this is what we think happened this is what we think you should do yeah i'm not going to do any of that yeah that's right so what was the point yeah you know they really want they want to be able to say a we're doing something then b the poor ceo have to come to some sort of senate inquiry and give evidence where they get to shout nasty things at the ceo so they sound like they're on the side of the punter and then it all goes away and they tick the box go yep the government's doing something thank goodness the pr thing drives you nuts i it's this theater it's theater you know it's um it's all it is yep i can't get as worked up as most people about it though i gotta say oh yeah well first world problem and you're right you can't draw triple zero that's a big deal um and you know medical stuff realize that so i'm not saying it's not important or not not you know consequential i just it's a bloody phone system like you know what i mean at some level the things we take for granted speaking of first world problems as you say just the things we take for granted and expect and some that i'm a big fan of you know governments getting involved in things where they're needed whether that's provision of services where competition doesn't work a whole lot of different things i'm just not entirely sure that i i don't know it it's not the world's biggest catastrophe when a mobile phone network goes down for six or eight hours i just i just don't i can't get i'm a telstra customer so maybe maybe that's why i just can't get worked up it's like oh the phone's out okay we'll be back up soon and then we'll get on with our lives yeah and the bloody hullabaloo and the you know the government inquiries government should do something about it and i don't know i just i just cannot i cannot honestly get worked up about it oh look when you see what's going on around the world right there are worse problems to have than not having internet access for eight hours i agree i mean i just i feel as though So, I mean, Optus, if I can say this without getting into legal trouble, is a pretty rubbish service provider, in my opinion.

6:14I'm allowed to have an opinion, aren't I? There it is. Hopefully. I thought we'll do the next podcast from your jail cell. We'll see how we go. Well, look, we've been with them for ages. And the irony of ironies is that we regularly wake up and the internet's just down. And it takes forever for them to even acknowledge that it's down. and all you get is a turn it off and on again. Like literally that's the response you get. No, it looks like it's up, it's at your end. And then three hours later you get a text saying, we've noticed that the internet is down in your area. Please be patient while we deal, you know, all this kind of stuff.

6:45But funnily enough, on Wednesday, we were down for an hour and then we had the internet for the rest of the day. So, you know, I just, I don't know. So yours is up for everyone else's? Yeah, I think so. It felt like it. There you go. But yeah, I mean, I do take your point though. The amount of push notifications I got from my various news apps and the rest is like gosh you know serious stuff is going down and i and i get the thing is i get people were upset by it my my starting point is maybe we should look at ourselves for getting upset by a six or eight hour outage like that you know what i mean so it's not that people weren't upset they were and i'm sure it was great talkback fodder and i'm sure the music has got plenty of clicks and all actually i'm sure the government will someone's like oh good the government's doing something about it thank god because that bloody opt is and i just kind of think i don't know mate we we have a lot of let's let's comment on social policy for a second shall are we uh there's a lot of important things in the world there's a lot of important things in life and i swear to god if your if your favorite outrage is your telco was down for six hours or whatever it was i don't know how long it was i just honestly like you know it was inconvenient sure annoying sure but you know what we still have health and life and we live in a wonderful country and we have food on the table everything else we're not we're not pulling our kids out from underneath building rubble right you know like this has been a context is sometimes needed and even you know and the things that do matter in the country we i'm not saying we don't have any issues but if you want to get outraged about issues go for it even then this is number 482 because there's a million things that you should be saying you know what that's not okay that needs to be fixed and if you want to spend time ranting about a private telco down for six or eight hours when you have a choice of three majors and whatever else uh and there's everything else going on in the country let alone as you say around the world i don't know i just i just cannot i cannot get worked up about i just i'm worked up with people who are worked up but i can't get worked up out of bloody a mobile phone it's like god i mean what how long ago 30 years ago we didn't have mobile phones and now all of a sudden we want you know heads to roll because you know our precious internet access went down for six hours like get a grip people yeah yeah i guess i guess where it's a little bit i mean it is a utility it's a critical infrastructure utility i i do feel that for whatever reason maybe it's this it's a question of scale and how big we are as a country and how concentrated we are, but you've made the observation many times that we do tend to be a land of duopolies or oligopolies.

9:03You know, there's four major banks. There's two major telcos. There's two major shopping grocery providers. You know, there's only two real airlines. You know, there's these kinds of things that we don't get the diversity of competition in other countries. And that's a whole other topic right there. But I think a lot of these companies, is they just get really lazy in terms of their investment. Yes. And the wake-up call they should have had from the hack last year to invest in some diagnostic systems for one. How about that, you know? You do wonder how you can't know. And I'm sure this is stupidly complex.

9:41I'm sure there are infrastructure engineers yelling at the podcast machine right now. They, by the way, would still call it a podcast machine because they're clever infrastructure engineers, not people who think that somehow it's not a podcast machine. You do wonder. And again, I'm sure there are absolute reasons why, but to your point, a network this big, surely point one is, hey, something goes down. How do we know what it was? Oh, we can't. Okay, let's fix that. It seems like the second or third thing a CEO might ask when they walk in the door. Kate, can you remind me? I'm desperately trying to research on the fly here.

10:14So Optus is owned by Singtel. Yep, Singapore Telecom. So I just went and Googled it, optus.com.au slash about, and then it's got an investors section. We are owned by Singtel. For more information, visit Singtel's website. All right, cool. This website cannot be reached. Doesn't that say it all? Oh, no. Does that not say it all? Oh, that's great. But I want to, you might know, the reason I'm sort of like desperately trying to look here, but I've got a feeling that it's been a pretty awful experience for investors over a reasonable long length of time. I could be slandering unnecessarily here. So I will say Singtel's share price is down 24 % over the past five years and is actually down 4 % since September 2005, which is as far back as Google takes me just with a really quick look.

11:07Okay. That was my guess. So I'm happy to have that validated. Yeah, about 40 % since April 2015, which was the high. Yep. So there you go. Now, I feel as though there's something awry here when there is such concentration in a sector. It says that there are either incredible scale advantages that are just naturally emergent from the industry itself. And I think that was probably a case when you had to sort of lay all the cables and wires and everything yourself. These days, it's the national broadband network. it's public infrastructure that anyone can clip into. So it feels as though, why is it that we have allowed such important critical infrastructure to be run by just one company when they have clearly not delivered on a number of, like for investors, for their all stakeholders, really?

12:07I don't know what I'm trying to suggest here or what the solution might be, But is there not a problem when we have – are people right to be a little bit outraged when through – maybe it's not public policy. Maybe it is just an accident and a quirk of the industry structure. But through whatever means, we have allowed a pretty sleepy, slow, sluggish company to be in charge of so many things that are clearly not doing what needs to be done. I don't know. Do you know what's interesting, mate?

12:37I'd have to think more deeply about it, but I actually think there is something actually about the net end result of capitalism in some categories where you have high capital intensity and really significant economies of scale and not so much network effects per se, but that idea of kind of the feedback loops because i don't know that i don't know that optus as a business is a failure i think this is possibly indicative of a market or a sector that maybe doesn't a competition is not a great attribute for and let me kind of let me kind of spell it out because if you think about so so these guys are the one of the two dominant players and yet the share price has gone nowhere this is singtong not just optus but gone nowhere in fact gone backwards since 2005 right so what that tells me is that this is not an industry where value is being captured by the incumbents in that circumstance you actually would expect fewer competitors because there is no benefit to compete and i think there's probably something about the um i'm going to suggest there's something about the commoditization of the service so think about airlines as well in the same vein um you have a commodity very commoditized service i.e you press the button and the phone rings or you can access the internet even even mobile um yes there's a slide between telstra and optis coverage map but it's not even that different so if you don't have a particularly differentiated product and you probably can't with call services and internet access so let's let's say that's true again feel free to disagree with it let's say that's true um then what happens well people want the lowest price and i don't know that this is not exactly what you would expect if you'd have said if you'd have been able to accurately describe 10 years ago the circumstances and then someone would say so what's going to happen is there'll be fewer and bigger they still won't make any money because this is a commoditized service and the fight for volume is such that the price will remain low and there's no super margins and sure property made by anybody everyone's going to compete on price so then what do you do well the incentive then is to try and remove unnecessary costs and not over invest in the network because you're not being rewarded for doing better than the other guy you know no one cares about the no one could have quoted to you the uptime before yesterday or for wednesday the uptime of any of the big telcos everyone said well they're all a bit the same telstra's coverage is probably a bit better but it costs you a bit more who do you want to go with and people make their own decisions now i live in the regional area so i'm with telstra because i just i'm gonna have less dropouts i was in the city i'd probably be adopt us or somebody else i'm some reseller or something else um but actually i actually i think at some level this is the maybe like politics we kind of maybe we get what we deserve we we want to pay the cheapest price we don't factor in trying to work out who's got the best network the most reliable network because we don't need to worry about because commoditized just like airlines right everyone gets from a to b it's all it's all governed by the civil aviation authority they're all as safe as each other relatively speaking other than aeroplot and you know something else um and so i'm gonna go the cheapest price and then you go the cheapest price and Qantas says well we better outsource maintenance then because we want to make some more money are they oh we could probably go over four hour customer service because you know when there's not that competition there's no incentive for it I'm not sure if this is not it's not market failure but I'm not entirely sure it's a particularly re-endorsement for capitalism in these sectors where it should promote competition better service better outcomes or maybe it did maybe it does the other way look at it is exactly what I just said except it's perfect capitalism because we're exactly getting what we pay for and we're paying for what we think we want and the market's working perfectly.

16:13We're not paying extra. Who's paying$25 a month more for their phone because a provider promises more uptime? You kind of go, well, 98 % is kind of like 99. I'll take it. I'll save 20 bucks. Then when Optus goes down, the proverbial hits the rotating device on the ceiling. And maybe that's exactly what capitalism is. We're getting exactly what we pay for. The things we care about only happen after the fact, but we're happy to get the cheaper prices for the last two years while we waited. Yeah, I totally hear all of that, actually. I don't have an easy answer. There is something, if we're here talking about the manufacture of coffee cups or something, things are different, right?

16:51Like there is enough. The way things work there is a random example. It's likely to result in some really good outcomes for consumers. Lots of choice. There's profit to be made for the ones that operate the best. The ones that don't operate poorly go out of business. It's the natural kind of way of things and how things sort of move forward. But it's different when it comes to utilities, isn't it? We only have – I'm in Sydney. We have Sydney Water. I mean, I don't have 12 different providers. That's right. That's right. Right? And I turn the tap and it always comes on. And no one I don't – even the most ardent capitalists are going to say, no, we need to open that up to the free market and we need – you know, and we have 12 different companies.

17:32Yeah, that's right. Digging trenches and putting pipes to every house. It doesn't make any sense. I don't know either. I do wonder if it needs to be – this is where these edge cases where I am more an interventionist, although I am hyper aware of how difficult that is. Well-meaning bureaucrats can really make the situation a lot worse. And I wonder if it's not more about disincentives. Like we're going to make someone the Earl of telecommunications and they're going to do it and they're going to get paid really well for it and it doesn't really make sense for, you know. But I tell you what, if it goes wrong, you personally have some liability that's there.

18:13So more the disincentive than the incentive kind of thing. Or a minimum service level type stuff where there is, even just a payment, if you run a telecom in Australia, you must be up 99.999 % of the time. If you're down for longer than that, you've got to pay a million dollars per minute you're down or something. It focuses the mind on making sure these things get done. I think that's right, mate. I think that's right because, and here's here's the problem right the things this is this is consumers for all the thing about the market being right we are not the same people every day so yesterday we wanted the cheapest possible phone plan or tuesday we're on the super simple phone plan by thursday we wanted perfect uptime and it's kind of like well you guys wanted the cheaper prices when we offered them to you and so you know the things we think we want and things we say we want and things we expect are all very different things and as i said not even not even at the time but over time our preferences have used change it's like uh you know the the company that has the lazy balance sheet we'll talk about that a little bit later um yes you know oh you're lazy but you got too much cash you're not getting good returns on that cash go and use the money and then my downturn comes like what do you mean you haven't got any cash why have you got so much debt i you know you didn't run this conservatively enough same same investor will have two very very different views based on the subsequent circumstances i think there's a bit of a question around what we should as a country want our governments to do and then what the government should then choose to do i'm not sure of the answer that that kind of you know uh regime as you say where you kind of if you if you're a certain entity uh that you do you do a certain thing you might telecommunications electricity water whatever it is you have these obligations and there are punitive penalties by the way that means the rest of us gonna have to pay more for our phones every other month yeah because you know opt is not going to say oh fine i'm on the hook for a billion dollars but i'll still let you have a 20 a month phone play it's like no no no it's only be 30 a month because i've got a gold plate this thing to make sure it never ever ever goes down and i've got to say mate that's on one hand i get your point about maybe we should penalize them i'm not even sure though if you add that up how much how much more would we have collectively paid for phone services over the last 10 years to avoid an eight hour outage at optus yeah you kind of think well actually i'm not entirely sure it's that's why i kind of back to the others i'm like how much how much would we should we have paid and there's a there's i mean that's that's the covet lesson right i don't know the answers but i do know we were woefully underprepared now for 100 years we didn't have to be prepared what was the cost of that versus the cost of what covet wrought on us what would we choose differently next time i'm not still sure i know the answer to that question but again that temporal difference of the person i am today the person i am tomorrow and yesterday and how my views change based on circumstances there's a bit of maturity needed from all of us to say how much more literally how much more would you pay for your phone plan if you knew it was never going to go down yeah and that is if it's not nothing i'm happy to in fact i bet you if you'd asked on tuesday what's it if i charge you five dollars a month more so that the phone the office wouldn't go down once in the next five years for eight hours would you pay it i'm not even people say no i'll take the chance i don't mind i'll take the risk and then what happens like oh my god you people are terrible why didn't you fix this for me there's there's something to the culture of that i think yeah i mean i would i would imagine given the nature of these networks they the cost is fractionalized so you know across 10 million different customers so it might it might be that it's sort of like well actually the added cost of a bit more robustness is an extra two percent not not you know 25 to 35 a month it's like well from 25 to 27 50 correct that might be a different conversation but you know what we need mate we need an inquiry just as well we're having one we need an inquiry once and for all my first act as minister is to initiate an inquiry they're going to report back in December of 2026 and then I'm just going to like bury it yeah exactly no no no see if the government had an inquiry what they would do is they'd spend a year and they get like bureaucrats and infrastructure engineers and business people and they sit down there so this is not about politics just print us some options and let's let the Australian people make a really thoughtful serious discussion about this policy issue it's not about the optics it's not about the Senate committee it's not about a CEO getting dragged over the coal so the police get their 15 seconds of fame on the nightly news this is about proper policy public policy where we actually care about the outcomes we want to make the country better that's what an inquiry would do would we of course it would yep sign me up I'm there good I'm sure oh kill me now hey um kill me now speaking of that let's move on to uh the other big news of the week mate uh and again by the way if if the opposite outrage can take over from the interest rate decision less than what was it 14 hours later uh you know we've got attention span issues with the design we only one thing at a time isn't that so true it's like the bloody uh you know the war in the middle east we used to talk about ukraine now we can't kind of keep one conversation ahead at the same time so no one oh ukraine that's what that's yesterday we're talking about israel now it's like maybe interest rates tomorrow and then it'll be telcos the day after anyway yeah yeah interest rates did go up by 25 basis points 0.25 to 4.35 we all know that by now uh it took nab about actually less than 24 hours to put the uh the first increase through uh they kind of seem to take it in turns there's no collusion obviously but it's one of those things where it's like i did it last month i'm gonna come first i'll wait for someone else and someone eventually does and they'll just go oh thank god we can do it too so that's already happened uh it makes a difference anyway within in that one little window.

23:39So you PR and spin. Yeah, nonsense. No one remembers, right? Who cares? No, do you remember? You tell me, last interest rate rise, who was the first to rate? Who was the one before that? Who altered their decision based on that gap where one rose ahead of the other? Like, it's such a nonsense. Yeah. It is. Interestingly enough, though, on Thursday morning, we recorded this on Thursday morning, so today in our time, but yesterday in podcast time, uh warwick mckibben ex-rba governor the most outspoken oh not governor sorry board member the most outspoken ex-board member who gets quoted all the time uh mr renter quote to some degree uh but i don't say critically because he does have some good thoughts to share and i was pretty pleased you and i've been banging on this for a while i am probably driving my twitter followers nuts uh talking about it but i kind of can't help myself um mckibben is saying and this is you know a bit of uh a bit of maybe bravado a bit of a bit of uh hyperbole but he's saying rates may have to go to five percent that'll be another two and a half rate rises away uh if the government doesn't step up to the plate to either raise taxes or reduce spending to help the rba out and you and i like nothing more than confirmation by so i was very happy to hear warwick say scott's been right all along uh exactly say that's what i think i read um so like pretend i read anyway um and just yeah like i think it's worth it's been too long we talked about rates a lot last week but i just um i don't know where we get to five percent i actually am hopefully is wrong i feel like the fall in retail sales recently and other things suggest that maybe hopefully uh we're in a situation where i hope that we're seeing a bit of food price fall we're seeing oil price kind of come down um we're seeing retail sales fall away Now, that's obviously causing a whole lot of people a whole lot of pain, but I'm cautiously optimistic, as I'd like to be, that inflation might be coming down belatedly, but finally.

25:40Still, Warwick doesn't agree, or maybe at least is holding up the possibility that there might be another two or three rate rises if the government doesn't come to the party. And I just thought it was, again, confirmation bias 101, but I'm glad someone's saying it. I'm glad we're talking about it because it's an important message. And I think the government's got away for far too long pretending they're doing something about it. I actually heard Jim Chalmers during the week, literally a soundbite saying, we're doing everything we can to reduce inflation. And then he moved on, like as if just saying it was enough.

26:08It's like, Jim, just how, mate? Just explain to me for a second exactly what you're doing as a government to reduce inflation, because I'm not seeing it. But if he gets away with it, that's politics, that's PR, as we just talked about. You only need the soundbite. You only need the soundbite, unfortunately. Yeah, look, I mean, we spent 40 minutes deep diving into this last week, So I don't have a lot to add. Other than I am heartened to some extent. Like you, it feels as though I'm noticing more people in the public arena put the focus on the fiscal side of things, which I think is right. Yes, 100 % right.

26:48You know, and it stems from a lack of understanding on how the system works. And let's face it, it's diabolically complex. it's very slippery every time you feel as though you've got your hands around it just whoop out it goes so um so but but i think that is the right one where we need to have more of this adult conversation of you know hey here's a problem it's a real problem it's a serious problem um the rba will do what it can but gosh you know give them some give them a hand oh the rba will do what it has to that that's worse it will here's the problem it will get there the mckimmons point is it will cause a massive amount of collateral damage if it's required to do that work with nobody else actually helping on the process of course it will it has to i know this is what i've railed about week after week after week it's the it is always those at the lowest part of the ladder that wear it yep they're the ones that lose the jobs they're the ones who have to pay 50 percent more on their groceries and insurance and pet like you know it's sort of like for the the the person with three paid off investment properties and a 10 million in super is like higher interest rates are the best thing ever, man.

27:58Like I just, all it does is just increase my cash flows. And it's not going to stop me buying that third or fourth ivory back scratcher. So it's just sort of, you know. And the income earner, by the way, that's already getting smashed by inflation. So you've got the double, the inflation and the rates on top of that. They can barely afford one, let alone both. And that's the, this is why it's so bloody brutal because, you know, I hear people say all the time, so hang on, you're telling me the solution for higher prices is to, pay more of my bills like you know how's that and the thing is that this is the thing that the rba is not saying it's the preferred solution they're saying it's what we've got we've got one lever and we've been told to press the button when it's necessary there are people over there who can make this not necessary that that's the point right you can you can do other things and that that government activity can be tailored in a million different ways to make sure the impact is spread differently shared differently uh in different places for different purposes different things the best jim chalmers has done is talk about maybe we might start to look at reducing or delaying some infrastructure spending it's like by the time that happens if you cancel a project in june next year it's not going to make any difference and that's the you know they've got every every tool and by the way they've been in pounder for 18 months or whatever it is they get every every possible tool should they choose to use them those so far chosen to use none and foreshadowed possibly maybe using one at some point in the future it's um it's pretty rugged Now, I will say, just to be evenly critical, the last lot left a massive deficit, structural deficit and actual deficit.

29:26They were predicting deficits right through the forward estimates in the budget. This is not a Labor Party problem. This is an Australian politics problem, Australian parliament problem. And neither wants to confront the realities. Now, that's it. The current lot, other ones in government, it's their job now. They can blame the last one. That's what every new government does. But, guys, you've got the keys. You're on the Treasury benches. this is your job literally to do these things if you choose not to and you want to blame the other guys that's your call but don't expect a free pass because the last lot were worse or bad or something else they did that they left a crappy budget position they left a mess and you've done exactly nothing to fix it and that yes they can criticize the last lot justifiably but they left you won they lost now it's your job you don't the job that's fine give it back to those guys and go do something else if you want to be in government if you want to run the treasury well guess what guys this is this is this is government this is these are the hard decisions you wanted to be in a position to make make the decisions make the calls yep yep sign me up i'm all for that i get the reality the the difficult truth is that any solution is complex yep and painful yes and and no one wants to have that adult conversation except the poor rbo yeah yeah yeah which is you know it's the it's i don't know it's just the incentives i want i'm sorry i mean government i want to be re-elected so it's far easier to blame the other lot kick the can down the road and get re-elected and enjoy the perks along the way than it is to like well this is what needs to happen it's going to suck yeah um it's going to suck a lot less in the long term like trust me this is this is really a smart thing to do it's just like yeah but i'm i'm gone and everyone hates me and it's just it's just that that's that is the brutal reality of the situation let's let's what i want to ask you mate is that shaking our fists at the sky aside and we love to shake our fists don't we it's cathartic right like it's it's very i find it very good for my mental well-being with apologies for our listeners yeah but what do you i guess the question i imagine a lot of people have is like okay so what so what that that you there is the world as you would have it and there's a world as it is yeah and the reality is that right now i'm i'm i'm listening to you guys because i've got a bit of money i've got in the market yeah exactly now we're not going to give specific advice buy this sell that or whatever but but what how do you how do you let me frame it up this way if and let me know if i've if i'm putting words in your mouth here but if you think as i think you do and i do that these things aren't going to be fixed in the way that they probably should be fixed yeah yeah If we roll this forward with an inactive government, a hamstrung central bank with one big lever, where does it get to is the first part of the question.

32:17And how do I, for want of a better term, position myself for that? Love it, mate. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

32:33We've said before in different contexts, and the beauty of doing this podcast for such a long time is we've been through very different circumstances and I think our answers remain roughly the same, which I think is probably a boring for our listeners, so my apologies, but also hopefully credible because what I'm about to say is it has not changed despite the different circumstances, including a COVID crash, a massive recovery and everything before and after that.

32:58We talked a little bit about Optus and the challenges they're having and the lack of redundancy the lack of kind of allowing for circumstances and there is a parallel between these cyclical comments and frankly um the gentleman who we're contractually obliged to mention once a podcast warren buffett uh who every time there's a massive boom the market says what's wrong warren you're missing the boat it's all about this new thing now and buffett kind of goes along and goes along and has has come up roses every time uh because he's done the right thing sensibly for long enough and he doesn't enjoy the same cyclical highs in the go-go times he doesn't suffer the same cyclical lows in the bus because he's running smart sensible plain businesses responsibly and conservatively and so honestly mate my my uh investing approach and there's two ways to do this i'll outline it generally you do company by company you do it at a total portfolio level But broadly, for me, I am very comfortable holding businesses that are designed to be winners over the long term and whose leaders are pushing in exactly that direction with business models and business attributes that give you an above average chance of success doing that.

34:22So let me unpack that just a little bit.

34:27i think you want to have businesses that aren't going to be putting their hand out for cash at a time when it may not be available i think you want to have businesses that haven't got a lot of debt so if rates do go high remain high their debt piles aren't overburdened and if their customers go away for a little bit uh they so the cost of the debt for the company but also the impact of other people's debt i.e if consumers go on strike for a bit are you around do you make it through and i think anything times zero is zero it doesn't matter how many wins in a row you have five ten a hundred a thousand the thousand and first when when you dial up anything times zero it's still everything else goes away and so my general approach is not to try and be too clever and maximize my upside at the expense of downside protection because square one is not a place you ever ever want to go back to so for my investing i tend to own businesses that are growing businesses that have solid balance sheets i.e not too much debt preferably a lot of cash have leaders who are preferably founder owners or people who feel and think like founder owners on the in the c-suite or maybe on the board if needs be.

35:45I don't try to be too clever about picking the next winners where the alternative outcome is a zero outcome. Now, that said, that's my approach. The other way you can do exactly the same thing is just do it taking more risk at a company by company level, but having a portfolio structure that allows for that to also be true. so i'm not saying don't buy growth companies or only buy companies that couldn't go broke under any circumstances buffett bought um was it a shoe company i think went broke um oh yes he's not perfect so you know berkshire hathaway the literal mills the the you know the mills that he bought berkshire hathaway was a was a you know linen company or cloth company um they shut those operations down so it's not a case of you know taking zero risk because there is no such thing or being so boring you get a bugger or return but at least the money's not going anywhere i'm still looking for a return i'm still looking for growth um so either the portfolio level and or the company level uh now again that's no different right so we'll say well hang on why aren't you responding to the most recent circumstances the answer is and i'm not i'm not warren buffett neither are you ram but you know the buffett approach was he he lost to the market badly in 1998 1999 why because the market got overexcited buffett i'm not playing that game and so the the old rules are the new rules i've said many times we are not going into a new normal we are going back to the old normal uh and and pricing power matters brands matter sustainability and growth matter i don't mean sustainability in a you know new age kind of way i mean literally business sustainability i will you be around um again at a company or portfolio level i think that's how i've always tried to invest um it's an easier more obvious thing to do and say when in circumstances like this, no one wants to hear it in 2021.

37:37No one wants to hear it in 2006. No one wants to hear it in 1999 because, dude, it's all about the internet. Haven't you heard? Or insert, you know, new fad here. AI, probably the most recent. AI, AI for sure. I'm not convinced with him isn't one of those. By the way, I've seen in the paper recently, have you noticed that we used to have the Fang stock? Now there's a group called the Magnificent Seven. Yes, I have heard that. Yeah. Great movie, by the way. It's fantastic. Anyway, so that's what I'm doing, Matt. What about you? Yeah. Yeah, I think that's about it for me. I mean, in terms of crystal ball gazing, I just, I feel as though the problems that we are experiencing, I would term them structural, not cyclical.

38:15Like, you know, things go from good to bad just because of natural cycle of things. The problems that we are facing, we only sort of – every now and again, we get lucky because commodity prices shoot through the roof and everything gets solved. But I don't think they're going to fix themselves because of the incentives that are at play anytime soon. And I think the long-term consequences of that are going to be very long-term and play out over decades. I've said before, I think the US is – we are an incredibly fortuitous position with our national finances compared to a country like the US, which I mean, I don't bring it up all the time, but I feel as though no one's talking about the sheer volume of debt.

39:00This week, their interest bill on a run rate basis passed$1 trillion. Oh, God. It's bigger than social, no, there's defense, social security, and interest. And I forget which one it's overtaken, but it's like the second biggest expense. Yeah, right. So they are paying off the credit card with another credit card. And it's not like, well, we're doing it because things are really tough at the moment. But when it gets back to normal. Yeah, exactly. It's like, no, no, no, you're a mile away. Like I think the deficit is 8 % of GDP. Like it's like, I don't know how that fixes itself. And at the same time, I'm not buying gold in a bunker because it'll play out over a very long period of time.

39:42But when I do look, and I feel as though although we're in a much better position, we are on that trajectory. And we are an ant on the back of an elephant here on the global economy, which is the other thing. So, yeah, I look around and history is always useful as a guide. And I think, well, what do I, whatever the situation is, whatever the economic environment is, things, you know, high quality businesses are scarce. And scarce things are good to own. Yes. You know, and it might be that, look, looking at the all odds over the last three years, it's up 9%. And it's probably up about 13%, 14 % with dividends.

40:29Actually, in real terms, it's flat because we also know the CPI has gone up about 15 % in three years. So, I think what we might expect as investors over the coming decade are not terrible nominal gains. but what we're really doing is preserving our purchasing power with yeah that's right that's right which i don't know is a terrible outcome which what might otherwise be the case so i'm certainly not buying what i consider to be overly inflated assets that are just so far away from their fundamental valuations and cash flows it makes no sense australian residential property um so you know no not in a million years could you make me in bed like to live in yeah short different story as i often say but but to invest in no i don't want a negatively yielding asset um and i and i want something that is that is genuinely scarce there is only one soul pads right there is only one csl there is only one cochlear i don't know what's going to to to happen in in the world but i know that things are going to get diabolically bad to the point where your portfolio is at least of your concerns if all of these major companies are in are in existential crisis um i think a lot of the market recognizes this which is why you get we i've often talked before about woolies great company but valuation makes no sense like it makes no sense it's ridiculously expensive and then i go unless unless i'm not here trying to score a 10 annual return i'm actually just trying to park my money somewhere where more or less over over the coming five, 10 years, I'm going to more or less maintain my purchasing power in an inflationary environment, which is really scary.

42:14And I don't know what's coming around the corner and the increasing tensions around the world. It's like, look, if I get a 3 % real rate of return per annum over the next decade, that might actually be okay. That might actually be okay. Now I'm personally going for more than that, for better or worse, maybe for worse. I mean, I'm forced to take more risk, right? That's the other reality of it. So I think you need to ask yourself, what do I want to do here? What is my aim? If I was 55 plus, I would be very much leaning on the wealth preservation side of things. Just quality, quality, quality. Don't buy anything at any price.

42:51Valuation matters, but don't be too clever with that. Maybe if you can get something that gives you a mid-single-digit real rate of return with dividends included, it's not terrible. It's not terrible under you know and and and your your retirement's taken care of um if i was younger i would just be continuing to save what i can spend less than what i earn have some money for a rainy day and just continue to plow it in because this this will pass eventually and the last thing i want to be doing as a 29 year old is worrying about this current set of challenges when And I'm trying to save money for like three decades from now.

43:30Right. So I think that makes a play for it. But yeah, I'll underscore your emphasis on balance sheet, reliability of cash flows. I've got a lot of stuff that's the exception to the rule. I am aware of what I'm saying here. But I think that makes a lot of sense. And this is not the time to swing for the fences. This is the time to manage your downside, not by hedging or by just being a – Something's all risks. Well, thank you. Thank you. When you're buying the next hot thing, it's like, yes, oh, this is going to moon. Great. If it doesn't, what does it look like? And I think when you look after the downside, the upside tends to take care of itself.

44:14And what you want to be as an investor, as a long-term investor, more than anything, is you want to be a survivor. Because if you don't survive, you're not there to let compounding do its thing. So that's a long, waffly answer. but that's I think how I'm thinking about it all. I think that's perfect, mate. I think if you think about the funds that do best, for example, over a long period of time, they're very rarely at the top of the pops in any given year. Almost never. But they do well over a full length of time because they don't have those bad years. They don't go to zero. They don't have the big losses.

44:42I think that's a really important one. I will say to you, mate, one very different approach, one additional thought. During the GFC, a little company that has fallen in very tough times recently changed its name, Flexigroup. Did remarkably well. Hum now, yeah. Did remarkably well. And you say, well, hang on. How did FlexiCrypt do so well during the GFC? Doesn't it give money credit for furnishings? And if you're having an almost recession we had here, how the hell have they done well? And this is worth highlighting because it wasn't about the category at all. It was about the fact that it was a disruptor and it managed to grow inside a category that was in decline.