The picture that paints 1,000 words. August 23, 2024

26:12Well, exactly. But say what you like about that. And it's just like that, the fact that people will spend that much on a pair of underwear, right? Now, and this, but let me make, let me just, again, men's underwear. This is going to be, I really, apologies if I'm being too stereotypical here, but yeah, it's a dangerous world we live in. I'm going to go for it. I'm going to, I'm going to, I'm going to go for it anyway. I think it's probably a reasonable generalization to say that most guys don't give a stuff about their undies, right? Like we will wear these things until they're just loose threads and our better halves just say, what?

26:51I am throwing them out. Like I have that conversation. I may have been there, yes. You are not wearing that. It's fine. What do you need? So this is to dudes, right? And you still get this like paying up for it and like in relation to very, very cheap alternatives and very high repeat purchases. and they decided that actually we should probably get – here was the other thing that was fascinating. One of our members – shout out, the handle is Mushroom Panda. He's an outstanding investor and a really good member. He said he's a test and learn machine. So going through the database, you realize that like a lot of names were female.

27:32It's like we're a men's undercover. Why is that? And then you go, oh, yeah, because most men in any long-term relationship don't buy their own underwear because we are so useless, right? It's our wives, it's our girlfriends, it's our partners that buy us our underwear. So we go, maybe I'm missing a trick here. Oh, here's the other thing. A lot of women were buying the undies to wear. Wrap your head around that. And then they actually got flack on social media saying, oh, why are you paying women to do this? No, no, no. we've got nothing to do they just are and so like you know what we should probably do a range of women's underwear as well because and i said well yeah it doubles your market it's like no no no it triples the market because again just generalizing um women on average spend twice as much as men on underwear well they've got twice as much underwear as well got the top end the bottom right and so it's sort of it's just like ah and that's going incredibly well anyway i'm i'm I'm putting it all out here to sort of say you've got someone who's entered into a highly competitive commodified business during a period of very difficult economic retail environment that is growing revenue at an extraordinary rate that has decided to be extremely cash prudent.

28:49Here's the other thing I criticized him for in a good natured way and not a criticism at all. It was a massive compliment. I said, Greg, you've got a very lazy balance sheet. because all the investment bankers will say, what are you doing? You can pay yourself a big, yeah, leverage up, man. They're bulletproof because they missed their target in year one after being listed. And the shares went, they were offered at the IPO at$1.53. They got up to above two bucks at one stage. And then they dropped to 20 cents. 20 cents at one stage. Now, companies that are highly levered with no dry powder, Like that's almost a death blow because then you have to raise and dilute.

29:29And it's like, well, it sucked. I don't think he enjoyed the journey. It was like, well, cool. We still keep doing what we did. Sales fell 10 % that year. And like just to put that in proportion, yeah,$2 to 20, a 90 % fall in share price because sales dipped 10%. And that was basically there was a bit of a glut from sort of COVID buying era. Anyway, I could go on and on and on and on, But it's just sort of like I think where the interesting opportunities are with investing, and I've mentioned this a lot of times before, and I wrote an article on it recently, in fact, is that variant perception.

30:02It's the thing that just doesn't – no one's interested in because it just doesn't seem like it's right. Again, disruption in undies, like I'm not investing in it. Pass. Hard pass. Not going to do that. Look at bonds. Look at Pacific Brands. Look at all these other big companies and how they've sort of had issues over the years. Look at some of the struggles that they're facing. I'm just going to completely upend the model and just the basics. I'm going to make a really good product and I'm just going to cut out all the middlemen. I'm just going to sell it direct to consumer and people are going to become my biggest advocates.

30:34And it's like that brand. I was thinking, someone said on Strongman, well, where's the moat here? I don't actually think there is much of a moat, you know, but it's operational excellence and a relentless focus on quality is,

30:49and being economically viable, shock horror, is important. And it just like, it feels strange that you have to sort of point that out as something that's unusual in modern capital markets and listed environments, but there it is. Anyway, that's my rant on step one. I think it's a fascinating comment. I don't own shares, don't run out and buy it just because of those positive things that I've said. It was just, I say it more because I was just so surprised. because I went into it thinking, all right, someone's requested it. Let's have a look at this thing. And it just, it really was surprising.

31:20Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

31:29I didn't expect to spend this much time talking about undies this morning. Sorry, mate. No, I'm kidding. No, I've got some thoughts that come out of the stem off that. So we might as well just take the tangent, put it in the teeth and run with it. A couple of thoughts, mate. One is the power and value of a founder owner, as we talked about before. Just that idea of doing the right things for the right reasons at a business level and let the share price do its thing. And I think that is so incredibly powerful because not to your point, not only would there have been different situations if they needed to raise capital, but run by a professional, quote, professional board and management team who felt like they needed to dance to the music played by the fund managers.

32:11and step one may be may have been a very different business if he'd sold out entirely and there was you know someone else to see are running the business the funnies all wanted to make their money i'm sure part of the reason they sold down was like this thing's he's not doing the he's not doing the things i wanted him to do the business they're not going to cost hard they're not going to you know change this change that not going to do any of these things so the future is not going to be all that different it's going to run it the way he wants to run it in the short term that probably shook out a whole lot of people who frankly he's happy to get rid of i would suggest Now, again, probably to enjoy the journey, but I dare say he's got a better shareholder base now than he did back then before it happened.

32:44So I think that's interesting. The other thing I think is interesting, mate, is we talk about cyclical stuff. And I think there is – I'm not a believer in life cycles of businesses in the way they're in the textbooks because, you know, there's the birth, maturity, and death. And not every business dies. And you can grow for longer than you think and all that kind of stuff. But there is something about the life cycle of a business in the context of an economy. i mentioned before during the gfc two businesses apple and of all things flexi group which now called hum group it's died a horrible death or not dead but it's almost dead um but they kept growing during those downturns and the answer in both cases was simply they were still growing penetration they were growing businesses and so the cycle and i'm not saying don't invest in cyclical businesses or mature businesses at all you should if there's great value on offer and they're great businesses you just got to ride the cycle but but why i'm kind of comparing the life cycle the economic cycle is because as you've already pointed out why step one doing well well probably because they've got better undies but it's not they're not bucking the cycle because they've got better undies they're bucking the cycle because they're small and growing and because they've got better undies if that makes sense and the difference here is when they have 95 market share in the undie market and when people say you know what i'm probably going to put up on the 25 I'll buy the$15 ones this year.

34:01I'll come back to the other ones and I'll get a bit more money. Then step one will become more cyclical. It just will when it gets to a certain size. Not entirely cyclical, not massively necessarily. It's reasonably, as you say, non-discretionary, at least as far as our partners are concerned. So, you know, I don't expect to be particularly cyclical. But while you're growing, your story is not the market's story. Same with banking, same with supermarkets, same with pick your category. When it's a mature, slow-growing market, you've used your telcos before. you know, why is Aussie broadband growing when Telstra is not?

34:32Is it because Aussie broadband is better? I mean, yeah, in some ways, but it's not acyclical. That's not its superpower. Its superpower is simply it's small and growing. And now, when you own those businesses, I'm not saying sell when they stop growing either, by the way, or at least, you know, when they become more mature. Just know what you own and why you own it. I gave you the example before we jumped on of corporate – so I own shares in corporate travel management. Everyone knows that. I've talked about it before. and they got smashed by the market both wednesday and thursday recording is thursday morning so i'm doing this live but they were down almost 10 on wednesday morning the final price was down one and a half percent this morning the shares as we speak are down five percent uh which is just the market doing market stuff and i don't know what happens from here price wise and we'll work it out in fact uh now down only three percent there you go so work that out okay where the price will we're both telling me what's on me close today the the point i want to make though mate is when you have a cyclical business the market does tend to the market is most irrational in my opinion with cyclical businesses because when you're growing everyone presumes the growth are going to go on forever at really high rates never gonna be cycles never be down downturns everything's always going to be fantastic and so they give that a high multiple because it's consistent and growing revenue and all that kind of stuff and then when you have the down part of the cycle the market freaks out oh profit's down the end of the road you mentioned step one already where they're you know and that's so what share price falls that sort of number and it's that it's that cyclicality that i think leads to extreme movements in share prices i don't even necessarily mean on single days although that can be the case but over those cycles you get that sort of story corporate travel management is doing better now earnings and sales wise than it was pre-COVID, right?

36:19And the share price is about not miles, less than half. And you kind of go, well, it's changed. Now you could say, maybe the growth trajectory has changed. Well, no, because if you look at the numbers, the numbers they released, this is not me talking up the stock at all, right? I'm not saying it's, again, like you said, I'm not saying you should buy it, I'm not saying you should sell it. I'm not making a case for the investment itself. I'm simply saying, if you look at the numbers, when they announced their results this week, Here's the detail, right? So they had revenue up 9%. Profit before tax up 12%.

36:53Underlying profit was up even more than that. So this is a business growing profit at double-digit rates. And again, I'm not saying it's spectacularly good. I'm just saying it's growing. And it's bigger than it was in 2019. And yet the share price is half. And you kind of go, what the hell? And honestly, whether it was too expensive then, too cheap now, or both or neither, it is just, in my humble opinion, evidence of the market simply extrapolating in both directions way more than it should have this thing will grow forever couldn't possibly fall there could be a pandemic could there oh actually there is this business is down things are going badly oh good i'll never return it's actually growing yeah and yet that that that sense of you know sentiment is just really really i'll say important i don't mean important from it from our perspective but for the market's perspective when it comes to short-term share prices it's all about that and the just the the incredible stories we tell ourselves in both directions or let us let ourselves believe in both directions is astonishing it's why you yeah and it's i've got to say i you want to just want to be careful right because a business that grows steadily forever is fine as long as that's going to be steadily forever when investors start to say i'll pay let's use pees right i'll pay a pf 20 so i'll pay 20 for a lot of earnings and then when the business is growing steadily they say I'll pay$30 for that dollar of earnings.

38:13And you kind of go, well, you already paid$20 because you thought that was good and worth it. Just because the line is straight and comfortable, you are literally paying, it's almost like paying an insurance premium or you're paying over something you're already getting. It's a fascinating, fascinating, I don't know if I'm making a whole lot of sense here, mate, but it's just the direction that things go and the degree to which they move, I think is interesting. I will say too about corporate travel. I used to own shares in Blackmoors too, when it went through this. I know you recommended it when you were working with us way back in the day.

38:46I also, we're talking about business doing the right thing, right? Jamie First at Corporate Travel doing the right thing. Sounds like Greg Taylor at Step One trying to do the right thing. Corporate Travel did a one-off contract which boosted profits. And then when the contract ended, actually it wasn't as successful as it should have been, or the Corporate Travel or the government that did the contract we thought it was going to be, profits fell. Why? Because you had a one-off, you made a one-off sale. and the sale was never going to be repeated because it was always a one-off and it went away.

39:14And so profits fell and sales fell. Now, if you're a business owner, right? Yeah. You're like, I can make some extra money this year and I'll go back to normal next year. Of course I'll do that. Of course you'll do that. What is wrong with that picture? Right? No thanks. No thanks. I don't want the money because it'll make the year-on-year comparison next year look bad. So I will make less money on purpose so I can have a smoother trajectory. And yet, I would bet you many dollars that had corporate travel never taken on that contract and made money doing it. Yeah. The profit line would be a smoother upward trend and the market's perception would not be, oh, maybe the growth is over corporate travel.

39:55Maybe it's all over. Maybe I should. It'd be, oh, gee, they're doing well. They're growing nicely, just steadily upwards. Gee, that's good. They would have made less money for you as a shareholder. And it sounds like a stupid statement to make because it sounds, when I say it, completely impossible to be true. That a company would be worth less because in one year, it made more than the subsequent year as a one-off deal because why would you not take the money? And yet, we've seen it with Blackmores. We've seen it with corporate travel management, frankly. There'll be other examples, I'm sure, probably our listeners are thinking right now and yelling at the pod machine.

40:28and part of me thinks well what do you should I have been smarter and said oh the market's overreacting here I'll buy here sell here buy here sell here I mean maybe but I'm not that clever and I can't time the market and really neither can anybody else so every example where that works there's 10 others where it doesn't right so you've got to be a little bit you've got to be a little bit careful so it's it's it's an interesting it's an interesting problem to have and again I don't know really I guess I am saying if you have business like that just be mindful that the share price could be volatile as a result If that's not something you want to do, then maybe you want to think about selling, not being involved in those sort of businesses.

41:01But I also don't want people to just go and buy stuff. I'll mention another one we've talked about before, Pro Medicus. The shares are now 190 times earnings. And the reason for that is not, in my opinion, because someone's done the maths and gone, this is the most likely set of outcomes. It's because profit's gone up into the right year after year after year after year. And so that becomes the, it becomes its own self-fulfilling prophecy from a shareholder's perspective. And so profit goes up, so the share price goes up. And profit goes up and the share price goes up again. And eventually people are like, well, this thing doesn't go down.

41:34And so I can pay any price and still make money. Now, frankly, that's been true thus far. So I'm not saying how this ends necessarily. I will just mention that 190 times earnings, when the market averages 15 times earnings, you'd do a lot just to be a reasonable multiple. And if you don't do it quickly enough, you then got to catch up with the market's growth over that time. No strong view on the stock. I wouldn't know if I did. I'd probably sell it, but not as a particularly well-researched view. So, again, don't do anything as a result of this. But that's the reverse, right? That's the reverse, the story of so much shareholder enthusiasm, faith, whatever, whatever.

42:09If this does come crashing down or simply stagnates and loses to the market from here, no one should be surprised. Probabilistically, that's the most likely outcome. It's at a point where it's not even – it just doesn't grow. It still grows very rapidly, but just not at the same pace. Yeah, and that'd be enough. Right, right. Yeah. Anyway, I use those examples just to remind people that the share market is weird and it's silly and it gets most things right most of the time. Again, maybe ProMedicus is worth 190 times earnings. Maybe corporate travel is only worth$5 a share. I don't know, other things.

42:44But it's the machinations of the market that I'm trying to highlight here, particularly on earnings season, that you really want to be careful of. and I guess it goes back to where we started, which is the instant reaction, what is the market going to think now? You know, my saving grace as an investor, mate, again, going back to where you started, was my only question, even with earnings, like we're supposed to love earnings season, right? We're supposed to love being able to see all the detail and the numbers and we're supposed to kind of get excited about it and, oh, we finally get a look under the bonnet and we convince ourselves that knowing more stuff, and we've talked about this before too, the psychology, knowing more stuff gives us some special insight.

43:21The more we know, the stronger our conviction tends to be. And so we want more information so we can form these stronger convictions. And it's largely a fallacy. And when I go through winning season, honestly, even with businesses up, down, or sideways, my only question is, does this change where I think they'll be in five years? Roughly, not precisely, but roughly. Is corporate travel, I'll use the example, it's on the screen in front of me. Is it going to be a bigger, better business in five years' time? I think so, yes. If it is, does this price a reasonable price to pay? I think so, yes. That's literally it.

43:53Now, I'm not saying you can't ask that question in a derivative number of ways and really understand why and really make sure nothing's changed. You should do those things. But it's not because the account's payable has gone up by 14%. I don't know if it has, by the way, making up numbers. It's not because they lost or a contract didn't deliver what they wanted to in one single year. Unless the thesis was always they'll win this contract, it'll get renewed, they'll get another 10 of them, that's how they'll grow. If that was the case, yes, of course you should sell because the thesis is absolutely busted.

44:22But whether it's Woolies, whether it's corporate travel, whether it's BHP, whatever you own, is this likely to be a bigger, better business in five years' time? And is today's price pretty attractive relative to that future? It's kind of, again, I don't want to oversimplify it, but you've used the example before of the bell curve of, you know, start simple, make it really complex and realize it's actually simple again. That's kind of, that's why for all of Earnings Season's commentary, when I write updates for our, I'll stop in a minute, when I write updates for our members, I kind of write what happened and what some of the highlights and lowlights were.

44:52And I kind of struggle to write a lot, not because I don't care, not because there's not a lot of stuff to be able to be said, but when I think my job is for our members asking me, tell me what you think I need to know. You kind of, honestly, mate, I've got to avoid the temptation of I should write more, I guess, because I've only written X lines or X paragraphs or X sentences. I must have to write more because I'm somehow demonstrating value here. It's kind of one of those things, well, I've told you why I like it, and that's not changed. and the numbers are interesting and they're up or they're down and they're sideways and I can contextualize it for you.

45:25But if it doesn't change where I think the business is going to be in 2029, I don't have much else to tell you. My strong, deeply held conviction in not just investing but in life is that human beings, as a general rule, do not like volatility. Oh, yeah, absolutely. They do not. I mean, think about – I mean, how much time have we spent talking about the RBA and everything because we try to remove the business cycle. That's what we try. Gordon Brown famously said, you know, we've solved the economic cycle. I can't even say it with a straight face. But it's not that they failed at a noble cause.

46:06It's madness to think that we could even try. It could have otherwise. Or that it was – here's what will blow your mind – Or that it's even desirable if it could be done. I don't think it's possible to be done. And I don't think it's desirable to be done. And it's the same in share prices. Obviously, we don't like volatility. But it's also the same to your initial point with corporate travel. And, you know, do you take the money now, even if it means a poor year on year comparison? Like, even on fundamental earnings per share. ProMedicus has probably got the premium it does because its earnings per share chart looks like a perfect staircase.

46:39It is perfect up and to the right and strong. with this area of fluctuation that is there. We love that. Take the same company that did the same thing and in aggregate generated the same earnings over the same time period, but had a bad year, a great year, a bad year and fantastic year, an okay year, another okay year. Those companies, even though have identically performed in aggregate terms over that period, it's vastly different. People do not like volatility. and again, I just love that line with Buffett. You're my better investor because I'm a businessman. I'm a better businessman because I'm an investor and I think generally speaking, you will be much better at it.

47:21Having gone through it yourself and understanding that the world is not clean, the world is not nicely, there's not guardrails at the side. It's messy, it's uncertain, it's random and it will all, no matter what our technological breakthroughs are, it will always be like that. I don't even care what kind of business you're running. You know, you're going to see things come out of your left field. Things are going to be messy. It's going to be volatile. And the market hates that. And the managers know this. So they manage the businesses for that, right? I mentioned Greg before, and he's talking about some of his experience with the investment bankers when he flowed this, like, whatever you do, hit the first year forecast.

48:08In other words, if you can earn more or just earn, get on that number. Now, anyone with half a brain thinking, well, wouldn't I just try and make as much as I can? And shouldn't I make, like, no, no, no, no. Because it's managed for that. And it's not, honestly, it's not stupid. Because we know who the owners are. That's exactly what I've heard before. Yeah, exactly. People want that. People will be upset if you make more money this year. Ordinate was another great example. I think we may have touched on it. So these are the guys that do the Dante AV solutions. They're basically digitizing the AV industry.

48:45And a phenomenal company, incredible growth. But it turned out that there was a lot of orders pulled through early, which meant that they had a pretty flat year. And the market, like a billion, whatever, billion and a half dollar company, tanked 30%. Over two years, if they'd sold the same number of units, Yes. Pull the first year down and push the second year up. Yep. The share price would be up. Yep. And if that doesn't sound, I hope our listeners understand how stupid that sounds. Again, Andrew and I live it, but think this through. If I said to you, I'm going to give you$100. I'm going to give you$40 this year and$60 next year.

49:17You say, that sounds pretty good. Yep. If I say, oh, look, I'll tell you what, I'm going to give you$60 this year and only$40 next year instead. That's terrible, right? You don't want the$100 anymore, do you? Oh, give me$100 and then nothing next year. Right. Yeah, what do you want? Well, I don't care. I mean, I want the money earlier if I can get it, of course, which actually means you should make the$60 now rather than wait until next year. But if you're going to put a share price on that, not what it should be, but what it is because the market's dumb. The$40, then$60 is worth more to the market than$60, then$40.

49:48And look, if the business is genuinely falling by a third because something's gone badly wrong, then of course it's different. Sure. But if it's literally just a timing difference or just the – to your point about certainty, mate, We don't want to worry that maybe it might be a problem. It's that idea of like, if it's up, then at least it's up. That's good. I don't have to worry about maybe there's something wrong. If it's up and down, you think, well, maybe something's wrong. That sounds awful. I better sell just in case. It is absolutely those human tendencies. Now, by the way, great opportunity for us, right?

50:16I was going to say, this is a good thing if you can look through all of this kind of nonsense. There's the opportunity. Everyone says, oh, I'd love to get this if it fell down. I always scoff at that. How many people right now are saying they would love to own ProMedicus if it got under 100? But yes, if it goes to 100, like something's gone, you know, at least uncertain enough for that to cause that big reaction in the share price. And you'll go, oh, I'll just wait for it to go back up. I better wait just in case. It's exactly what you will do. And I'm not saying that holier than thou, I wouldn't because I'm so certain.

50:47No, I'll do exactly the same thing because I'm human and we will all do that kind of stuff. So I guess what you've mentioned recently and repeatedly for good reason. and I do the same, which is the, if you could pick one thing, you would probably pick the founder. Yeah, you know how about it? The founder CEO. It wouldn't even be close, mate. I couldn't think of another thing that would actually challenge that for a single metric given the choice. And the other thing would be a founder CEO who still retains majority ownership. In other words, they can't get pushed around by the board too much. Oh, that is gold, right?

51:21Now, you're going to have some colourful characters there. Agreed? and you're going to get, sometimes you get the sort of the God complex Elon phenomena where it's just like there's too many sycophants and yes men around you to sort of say, remember you are mortal. Like, you know, what are you thinking here?

51:39But why is that? It's because they're the only ones who have the power to say no. You know, David Dicker at Dicker Data, I'm not even going to bother turning up to the AGM in real life. He's like, I don't care. I mean, no, that's unfair. He cares immensely, but he doesn't care for the nonsense BS of the financial world. For the dog and pony show of the - Not going to do it. And I would say, and this is where I will criticize the - It's unfair to say corporate travel manager because I haven't followed it closely enough. But those that do have these one-off things is that the - Not that they were wrong to do it, but I think they would be better served to be much clearer in their communication with shareholders, as Buffett did.

52:26Buffett goes, I'm not paying your dividend, and here's why. And everyone goes, oh, yeah, okay, that makes sense. So don't be led by these idiots. What you need to do is go, hey, this is what's going to happen. We're going to make more money this year, but I guarantee you that next year we're going to make less. Now, let me tell you, if you think about that for half a second, it's a good idea, but I'm telling you now, right? I'm telling you now that this is what's going to happen. But there's a lot of pressure not to do that, where the board's going, don't tell them we're making less next year.

52:54That's right. But no. By the way, mate, not only is it the board saying don't tell them, the board and the fundies who employ them, who get in their ears, are like, don't even tell them, don't accept you'll make less money next year. Find a way to make it better. Find a way to fix it. And that's, as corrosive, I've worked for so many companies in the FMCG space, so food and kind of those consumer goods spaces, where the end of a month, end of a quarter, end of a year, there is just shenanigans all over the joint to make a number. And not only is it wrong, but why is it required? Because we did that last year too.

53:28And so now we've got to grow on last year's shenanigans, and every shenanigan is going to be bigger than the last one, otherwise the whole house of cards comes down. What's this saying? It's not the lie that gets you in trouble, it's the cover-up. It's the cover-up. That's too strong a term here, but there's echoes of that there. Directionally similar. Correct. Yeah, no, it's just like you do things for a certain reason that may make certain sense in a certain context, But now it's like, oh, now we have to perpetuate this nonsense because we've painted ourselves into a corner. Correct. You know, and look, it doesn't matter how clearly and honestly you articulate things.

54:02There'll always be a big section of the market that goes, no, I don't like that. And that's, I would again say that's cool because you get the shareholders you deserve. And what do you want? I want, if I was a CEO of a listed company or any company, I would want patient shareholders that get what we're trying to deliver here, right? And if you don't get it, fine, sell your shares. I don't want you here. You're a distraction. You're a nuisance. And I know that sounds really harsh, but one team, one dream, right? Teamwork makes the dream work. I want people who are, I want to be aligned. I want you to be aligned.

54:35And I want us all to sort of understand the bigger picture here. We are running an enterprise that we think can just generate squillions over the few years, but it's going to be bumpy. It's going to be uncertain. We're going to make missteps. We're going to get lucky. It's going to be a wild ride. But as long as we get the basics right, as long as we structure ourselves so we are pretty anti-fragile, just to hark back to last week's conversation, we're going to go okay, right? We're not going to be perfect, but we're probably all of us going to be much better. rather than letting the PR people get into your ear and the short-term fare where the friends get in your ear.

55:12Just no one wins under that scenario. Having said all of that, the next answer is, okay, well, give me some examples. They're like hen's teeth. They're like hen's teeth that are out there, which is why you've got to pay attention when you do come across them. Yep. And they're the usual suspects, right? They are the Buffetts. They are the Milners at Solpats. Yes, that's a good example. Rob Milner stared down an activist attempt to try and unmerge Brickworks from Solpats to try and unlock some value. He would have made more money in that year. Yes, correct. Millions. The share price would have been higher.

55:45Millions and millions and millions of dollars he personally and his family would have made in that year, although I reckon overall they would have been much poorer today. Correct. And that's the difference, right? So you want that alignment, as you say. Millers own a majority share, but they effectively own a controlling share, or at least have enough. Again, that's the other thing, have enough friends who think the same way. I've got to say, too, so corporate travel had been really honest, and frankly what I liked, again i'm a shareholder um they just said in the in the presentation we missed our guidance right right and here's why it wasn't like oh they didn't ignore it they didn't kind of talk about next year or last year they literally there's an icon on the presentation we missed guidance okay just up front just on my massive latest man crush with greg um he's like so the end of their presentation no guidance two words i was about to say that what i was going to say is management should really really not waste a crisis yeah right so your corporate travel i may uh jamie if you're listening uh uh so two things firstly you get the opportunity now when your share price falls meaningfully when the fair weather friends go good yeah they're gone now so now the ones who the ones who are still there hopefully for the right reasons this is the time to say here's how this is going to go moving forward and if you don't like it that's cool when the share price is riding high you run all sorts of risks the share price falling you should worry about it necessarily but once the price has already fallen that's off the table you have even less pressure now go and rebuild it properly so so shareholder base get the right shareholder by communicating and to your point mate i've banged out this million i'll do this till i die companies who give guidance honestly when they get hoisting their own petard we just found that last week uh they only honestly only have themselves to blame and again i love jamie and what they do at corporate travel is a great guy doing the right things from the sound of it and business is actually really good despite the share price falls but just please stop giving guidance i know the market wants it are you feel like you should you know the old line about pundits forecasting not because they know but because they're asked it's exactly what happens with guidance what do you think is gonna happen next year yeah well since you asked i guess my best guess is this yeah that's how that's how it happens right the expectation um jamie if you're listening just please stop giving guidance but you can do it in a way and this is what one did and this is what others do as well it's not that they say i've got nothing to say yeah they say well look here's where we find ourselves this is what the strategy this is what our plan the next 12 months we're going to be doing these things and we're only doing for these reasons we think it will lead to improving growth and right now but i'm not going to give you a number yeah and and and i even said to him it's like yeah it's like it's not your job to do analysts job for them an analyst's job is to forecast and to like and to anal look i know it sounds very obvious when you say that to analyze analyze you know so if and then if you ever dialed into an earnings report it's the usual oh god i can't even i so i find it so hard because they're all matey mates oh great result man so just on you know if i was to worry about margins for the next six months you know what what figure would you think would be appropriate they're basically saying i've got this ridiculous model that i've built can you tell me what number to put into cell c7 that's basically what this essentially what they're exactly saying.

58:49And it's like, it's not that they're not unreasonable questions, but a more appropriate question would be, what are the kind of margins that you think on average are achievable across the cycle relative to what your competitor is, relative to your operational setup and your strengths and the rest of it? That's a reasonable question. I ask that question. What's your gross margin percentage going to be to eight decimal places in the next six months? Like, give me a break, idiots. God, they're idiots. And the worst thing is as soon as you say it out loud, the psychology of just life is you're going to commit yourself to that because you know you've said it.

59:23So then it becomes an embarrassment, shame, ego thing of, I just said 38.4%. All right, guys, that's our new target. Let's go and get it the next six months. It's also when an analyst comes out with it and the company doesn't deliver it. It's like, oh, the company misguided. You made a bad forecast. You forecast something. It was wrong. And it wasn't your fault for forecasting wrong. It was the company didn't match your version of reality. They missed what I said should happen. I was like, that's not how this works. It's like the weatherman getting up and saying, I said it was going to rain today and it didn't rain.

59:54And Mother Nature missed expectations. That's a great analogy. You made a bad forecast, dude. I love it. There's a YouTube clip in that somewhere, by the way. Yeah, is there? It's a very niche nerdy one. You can imagine it. You play the weatherman from the ASX weatherman or something kind of getting up and pointing to the charts and saying, you know unfortunately the uh the yeah the crowd's expectations the rain missed expectations uh we was forecasted to deliver four mils only three mils uh that's a miss on the company's behalf unfortunately uh yeah mother nature's gonna miss the uh sti incentive scheme this year give me a break sti being short-term god i hate this industry god yes well again again other than so two things other than that's our opportunity yes uh and also but but and and slash but that's why we're doing this podcast yeah because for all everything we've just said and let's just know us pretty well by now this is this is literally how we we invest how we think about the market i say we as if we're together we're not but we have a very similar philosophy the the rest of the market will spend every other minute telling you to care about the things we just told you not to care about yeah and it's really up to you listening now to decide how you want to invest because you can pay attention to all that stuff.

1:01:09And now, it seeps into my head too. Don't be wrong. I'm not immune to this. Yeah. So it's a constant struggle. But you've got to start by saying, this is the game I choose to play. This is what I will consider important. This is what I will do my level best to ignore or to discount or to remove or to whatever. Right? And I have to think for myself. If I'm just going to be led by the market or told what to think, I mean, you can. But I mean, don't be surprised when you get mediocre results at best. It's really uncomfortable. Form an independent view by yourself. Go. In something that's diabolically complex.

1:01:47That sounds really hard. And it is. Yep, it is. But also, it doesn't need to be two eight decimal places, to your point. Yeah, exactly. The view isn't, you must do your own DCF model to 15 decimal places, including margin increases and SG &A cost outruns. and you know I'm serious it's you know it sounds negligent but it's my question about any company is just what's the five year outlook look like roughly me too and is it a reasonable price can corporate travel double its profits in the next five years probably not could it be up 70 % yeah maybe there or thereabouts okay if that was the case by then how much would I want to pay now for that sort of company roughly at those level of earnings okay about that much and by the way if they do 60 % instead of what your thumb suck of 70 but it's like okay it's ballpark right you know And it's likely to be 80 or 60 because I'm not that good at forecasting, nor is anybody else.

1:02:38Well, then you add a margin of safety to it as well, right? So here's my best guess. That's right. Pretty conservative. And then I'm going to knock a little bit off just because I know myself and the world well enough to know that I don't know. So I'm just going to put a bit of buffer in there, right? Exactly. I want to finish, mate, by tying a lovely bow on what's been a rambling but directionally a similar conversation we've had today. It was my favorite day of the year yesterday. well when are you listening to this you know yes i know what it is yes what you tell us what was yesterday it's vanguard chart day it is vanguard index chart day correct um i last year i wrote an article which was a happy vanguard index chart day and the subheading was um uh it was just sorry happy happy vanguard chart day to all who celebrate i think that's kind of my that's my to all who believe uh and i hope that's all of our listeners if you haven't yet i've banged about this so many times you hopefully all have a copy or seen a copy of the vanguard index chart But the new one's out.

1:03:34And the data is, you know what, mate? I try and keep concepts in my head. I don't do a lot of work trying to memorize very specific pieces of information. But I know that roughly the numbers over the last 30 years were about the same as they were for the 30 years that ended June 30 last year. Interesting. Which should surprise absolutely nobody because the market tends to go up roughly at these sort of rates over time. And so I just wanted to kind of highlight that because it's nothing I haven't said before, but I will share with our listeners just the numbers because the numbers matter. I think they kind of give you a sense of what actually happened during that period.

1:04:12And that's kind of, you know, when the rubber hits the road, that's kind of what we're looking for. We want to find opportunities where we can look at something and say, this is what has tended to happen. And this is the opportunity. So let me go through the numbers. I know numbers aren't great on a podcast, but let me do it anyway. If you invested$10 ,000 in these asset classes on July 1, 1994, and held them for 30 years, doing literally, absolutely, totally nothing, not a single dollar, more, nothing, not a single thing, $10 ,000, if invested on the ASX, would have become$135 ,000 over 30 years.

1:04:56That's a 13 and a half times your money, 12 and a half times gain,$125 ,000 free for doing nothing other than literally nothing. Just sitting there and letting the money compound. $10 ,000 to$135 ,000. If you'd invested in the US,$10 ,000 would have been$237 ,000, almost 24 times your money over that period of time. I'm running this number down, by the way. There's actual dollars, but that's close enough. and it's and it's just important mate because for everything this is where this is where unintentionally but we get to a nice point we tie a bow on everything we just talked about uh we also had the market crash uh panic route bloodbath call it what you want for the first few days of august the u.s market's already back above that level the australian market's within one percent of the level it was before the so-called route bloodbath crash panic call it what you want and yet over 30 years how many of those you reckon there were there would have been what one a year maybe maybe one every 18 months that sort of size pretty common yeah 10 falls roughly once a year so it's probably somewhere between 25 and 32 of them over the last 30 years yep um for all of that noise for all that froth earning seasons share prices up and down and missing guides and beating guidance and big falls and big jumps and all of that stuff all of that stuff rolled all together right and after 30 years how'd you you mentioned you know if you've been to antarctica for a week if you'd have if you'd have put your your if you'd lost your password for your brokerage account and not bother watching the news.

1:06:25Everything would have happened. And again, I really, really want to hammer this home, mate. Over the last 30 years, terrorism, wars, three big market crashes, a GFC, a COVID crash, the dot-com crash. I don't know how many presidents and prime ministers, but more PMs than presidents. And just the technological disruption along all of that time, right? I mean, internet effectively doesn't exist in any meaningful way. Or smartphones or so much. yes exactly the world changed yep and by the way this is the nine percent return for the asx was nine point so 9.1 is the annualized return which is almost exactly the average for the last hundred plus years this is not people say yeah but yeah but here's the other thing i want you to think about listeners if you're doing the yeah buts now and maybe you're not because you're still on the podcast you're listening to us and hopefully you you've drunk the kool-aid with us but i get when i do this i'll say yeah yeah but just the last this just that the people but the need for people to try and somehow argue against that return.

1:07:22That somehow, well, it's only that because of, and pick your favourite reason or whatever. It's been like that for 110, 112 years. The Credit Suisse data gave the Australian share market a 6.1 % annual return, adjusted for inflation over that 116 years, whatever it was when they did the data. And inflation back, guess what? You get to roughly 9%. There's nothing magical about it. It doesn't say it has to be 9%. What I'm saying is this is common. This is not the exception. right? Some years are terrible. Some years are wonderful. But the average over any length of time is roughly that. So that's, as you rightly point out, mate, this is what happens.

1:07:59Despite all those things, because of all those things, it was cars, it was photocopiers, it was mainframes, it was plastics. Still along from The Graduate. You know, that's kind of what has to happen. Now, no promises, no guarantees. I don't know what happens next. Neither do you. But that's 9.1 % per annum is roughly what we've done over a period of time. My last thought, mate, and I'll throw it to you. I mentioned that the Australian market turned 10 grand and$135 ,000. In the US, investing in the US, 10 grand was$237 ,000. Close enough to double. No, maybe whatever it is. But, you know, there are thereabouts, right?

1:08:39Yeah. That difference of$100 ,000, the annual return difference, 2 % per year. yeah like 11.1 right versus 9.1 and so when you think about most people would instinctively think if 135 in australian shares if that's nine percent okay well the u.s must have been like seven or 18 right kind of almost almost double because that's how it works except it doesn't compounding really works on that extra couple of percentage points and that's what's really really really important the difference there between those two numbers can be can make a huge huge huge difference one last one just to illustrate this the average um return for australian bonds over 30 years 5.6 percent the average return for u.s shares 11.1 again i'm gonna ask your indulgence and say that's roughly double it's very very very close right the number of returns though 51 grand in bonds 237 000 so what's that four and a half times the difference for a doubling of the annual return that's what that's the beauty of company that's the beauty time do its thing.

1:09:42Yes. And the other thing too, this is another great reminder as to why you want to lean into risk. And again, I'm going against every other sort of, you know, talking head that's out there. It just, we, cash was 4.2 % just to go further down that line there. That's 34 grand. So you've tripled your money over that entire length of time. And they're very smooth lines. The bonds line and the cash line are very smooth. So the boffins will tell you that means that there's not much volatility, therefore there's not much risk. Now, I challenge you to say, which is riskier? Now, if I'm putting some money aside for the next couple of years because I want to put a deposit on a house, well, go cash.

1:10:24Go bonds. Go term deposits. They're your friend. And if you're investing over five years, 10 years plus, I mean, I would say is the dead straight face that it is insanely risky to leave your money in cash or bonds for the exact reason. Because although one has been far more volatile, it's delivered you insanely better returns, which is riskier when you're trying to put your money aside for your retirement over decades that is decades away. and I've always had a problem with this when you finish school, you graduate from uni, whatever it is, you enter the workforce, your employer puts a bit of paper in front of you and say, fill out this superannuation form and it says, hey, what do you want?

1:11:06And their options are high risk, balanced, low risk. And any right-thinking person who's new to this is going, well, I'm not picking high risk. This is my retirement savings. So you've got 20-year-olds like ticking the low risk option. Yeah, because it's sensible. Who would take risk? And it's not, I'm not having a go at the 20 year old because it's, it's the framing of this thing. It's like, it's almost needs to be illegal. Like, no, you are not allowed to put your money in cash or bonds or you are going quote unquote high risk. And it's, it's like, is it high risk? Is it like, let's think about this, like from first principles, what would it take for the markets to like underperform cash?

1:11:47and when you think it through you kind of get to a scenario of civilizational collapse right which is like no one wins in that scenario so it's kind of like you might you might just go haha i outperformed the market by doing doing this like yeah but you're in a cave and you're fighting off the zombies right so there's no there's no one's wins in this in this scenario so there's that's the first point i just i really hate the definition of risk and it comes back to my earlier point that everyone hates volatility and there is a massive segment of our industry that is all about packaging things up to hide it look look at the gfc right look at the structured you know collateralized debt obligations and oh well it's actually not that risk we've got all this crap in here but don't worry because you know we do this and blah blah blah it's super advanced and complicated it's nice and smooth like well we we all know how that that turned out right so it's it's that that's that's a an absolute nonsense um i did have another point on that chart and now it escapes me uh oh oh yes no um so you're right to point out the difference between australia and the u.s 9.1 versus 11.1 and and how big a difference that is over a long period of time the other thing that's interesting there is if you go to international shares you knock a further percent off the Aussie experience.

1:13:06In other words, you go into 8.2 % according to this chart. So instead of turn 10 into 135 in Australia or 237K in the US, you've gone to 105 ,000. And I'm more and more convinced of this. I think the idea of investing in a lot of other parts of the world is just a mugs game. And it's a complicated reason, I think, but it probably comes down to just the institutional strength of those countries in terms of what protections they have in terms of, you know, property rights, just various sort of fiscal and policies. As I say, it's very sort of complicated. But America, which has all kinds of problems and is without doubt a fading empire, still has something really special about it.

1:13:54the entrepreneurial flair, the lack of punishment for failure, the recognition of the inevitability of failure, the barriers that are removed to start business. Unfortunately, I think it's trending in a poor direction. But there is something special about the US despite all its faults. And if you invest in Europe or South America or Asia, and there's a lot of reasons to suggest that, yeah, the economies there have got a lot of potential. it's never worked out well for shareholders we spoke recently about china being like the worst market to invest in over the last 20 years well not the worst but not even close to the best very very bad and it's like again how do you square that that kind of circle so i i would i take note in that and they'll again that's a broad that's the msei world index x australia so it's it's there's a lot that's hidden within that average yeah yeah but you know for me it's kind of like Aussie with a bit of US exposure is good enough, especially if you're an indexer because you're so diversified anyway.

1:14:56I'm going to sleep perfectly well at night knowing I don't have any exposure to Venezuela. Well, that's a little bit unfair. You know, Canada or New Zealand. And I love our Kiwi and Canadian brothers and sisters, but I don't feel as though I'm handicapping myself by not being involved in those sectors. Aussie, why? Because home field advantage, I understand the market better. US, why? It's sort of, you know, capitalism. Heartland, yeah. Yeah, heartland, yeah. So, I don't know. It's a long rambling ramble. I'm going to add one more thought to that, mate. I tried to actually own the ETF that's covered by that.

1:15:36I'm happy to own it because I'm happy with the diversification despite the underperformance. But that wasn't the main point. I just wanted to kind of mention it because I think it's declaring that's important. Yep. What I did want to mention, though, was the reality of – we're talking about international investing or overseas markets. Again, I've said this before. I've really got to find a source, a new source, sorry. But it's probably five or six years ago, maybe even longer. The S &P 500, so the top 500 companies in the US, roughly half of the revenue for those companies actually was earned outside the US.

1:16:07Yeah, right. Okay. And so not only are you getting invested in the US, whether US companies and entrepreneurship and laws and regulations. That's a great point. All that kind of stuff. And again, the US is not exactly the gold standard for regulation and for good governance. But we know, understand, and largely trust most of what's going on over there. But half of the revenues are coming from overseas anyway. So you're kind of getting – you're not investing in overseas markets. The location of the exchange is increasingly irrelevant, right? Yep. Because it's where's the money being earned. So I could invest in companies on the Venezuelan exchange, just a short example.

1:16:40or I could have, are you investing in companies that do business in Venezuela but listen on the US exchange? I think what would you rather do? And they're going to be global companies. They're probably going to be globally dominant so they're probably going to have a leg up on local companies in some of those markets. By the way, that's also the same in Australia and this is where I really, I really think Australian investors need to really look at the companies that are dominating our markets. There's policy and politics kind of views that stem from this. I'm not going to go there. Different perspectives and different views But think about the dominant companies in Australia.

1:17:12Think about the services and goods you use. Think about the products you buy and consume. Who are they made by increasingly, increasingly, increasingly? I'm an Amazon shareholder, mate. They're doing same-day delivery in Sydney they've announced the other day. I mean, this is a juggernaut, right? I can invent, I own shares in Cogan, as everyone knows. But at some point, and not about those two, but whose lunch is Amazon eating? And who's likely to win in the Australian retail landscape over the next 15, 20 years? is Amazon or some local companies, bits of both, absolutely. But think about the dominance of that.

1:17:43Think about food. Think about technology. Think about personal care products. The companies that we are increasingly buying from are domiciled in the US. And so, again, do you want to invest in Australia? Yes, the greatest Australian companies to invest in. But don't miss the opportunity to invest in the US in particular, overseas in general, but the US in particular. for all those reasons. Yep. And you'll get plenty of overseas exposure investing on the ASA. I'll just use step one as an example because they've got a big chunk of their change coming from the UK now. Primetic as we mentioned. Yeah.

1:18:20They're all, they're global players. And so you are participating in indirectly, but you know, and again, I do think there's, there's, you either, you either say I'm just an index investor and I'm just going to get the market and I'll choose the better markets or you're going to be a stock picker. And then if you do, you want to be hot. I come across a lot of people who have 80 stocks in their portfolios and just think, God, I'm just tired thinking about the amount of work that you have to do. And I'm very skeptical that you can be across that many companies, quite frankly. And besides, even if you are, diversification is a double-edged sword.

1:19:03It will protect you from big drops, but it will protect you also from big gains as well. Because you can have one of your 80 stocks go to the moon. Well, it's 1 % of your portfolio. Does it really move the dial a lot that's kind of here? There are definite exceptions of that. We've often talked about go passive and have a little bit here. If you're going to have an ETF and be done with it, probably. Yeah, that's where I'm really going with it. With the only exception that some people do have a never sell philosophy where the companies – I'm going to look at my own portfolio really quickly. Oh, you might have like lots and lots of tiny little watching positions or legacy positions, which just don't really make it.

1:19:40So in terms of your exposure and your weight, that's different. And in fact, there's a couple of guys on Strongman that are like that. They've got huge portfolios. But when you look at it, like, well, most of the capital is in these smaller handful of companies. And that's kind of my – or you might have one that you bought, you know, you bought shares of a million years ago. I've got Telstra, right? I bought those shares a very long time ago. Would I add to them now? No. Are I motivated to sell them? No. Could I? Maybe. So, yeah, again, your point about you want the bulk of your money in your best ideas so that, as you say, when that plays out, you don't end up with a 10-bagger that goes from 0.8 of your portfolio to 8%.

1:20:16Nice to have, by the way. It's not only makes your portfolio 7 % bigger. It's like, well, for all of that, again, take it. Absolutely. But it's not going to be the life changer that otherwise might be. Yeah, absolutely. Oh, gosh. So much to say. How far did we get through our agenda today? well i did manage to pull the uh the vanguard next chart around towards the end so we kind of we kind of we dragged ourselves back the last two points i covered in about three minutes just okay just make us feel like we actually didn't talk about something other than what we did no look it was it was a bit of a long and rambling podcast but i actually hope as per usual well maybe more than usual actually is my concern but um i think i think hopefully it was useful hopefully it puts any season in context i hope it's a bit of an antidote to the breathless reporting of rises and falls and this company this and that company that we didn't talk about a lot of individual companies spend a lot of time on underwear because that was my bingo card this week uh but um it's kind of you know i think what i hope our listeners are getting from this and the four that still left g'day mom um is is just that idea of the stuff that actually matters we've spent no time other than disparagingly talking about share price movements this week or you know the the the breathlessly reported this is up by that percent stuff um yes we want growing companies Yes, ideally you want to be bigger in time, but we've kind of hopefully spent more time talking about how to think through earnings season in a contextualized way that actually keeps the right things in focus and kind of pushes the other things to the background.

1:21:39If we've done that, then good. If we haven't, then again, there's probably no one else listening. So at this point, the apology is probably useless, but I think it was an enjoyable chat. I hope our listeners enjoyed it as well. I enjoyed it. That's all it means. I love hearing the sound of my own voice. What are you talking about? Scott, I do think you are right. Well, thank you, Scott. I appreciate that. We will call it there, though. We've got a mailbag coming up on Sunday. Assuming Andrew is back from - I always enjoy the mailbag. Yep. For sure. I'll run back early. Please do. Make it a 90K run than 100K run.

1:22:12No, okay. Make sure you're here on time. Is that all right? I'll try my best, yeah. Until then, enjoy your weekend and fool on. Cheers. The Motley Fool and people appearing in this program may have positions in the companies mentioned. General advice only. Please speak to your financial professional to understand how it may pertain to your situation. Subscribe to the free newsletter at fool.com.au forward slash listener. The Motley Fool operates under Financial Services Licence 400691.