Ask Us Anything: How Do We Get Real People Into Politics? + When Is It Time To Pivot? (with Chris Judd)

0:00I'm Adam Schwab. I'm Adir Shifflin and this is The Contrarians with Adam and Adir. And we're back episode 242, Ask Us Anything, where you ask us the questions and we try our best to answer them. We've got a very special guest, fund manager, double roundloid medalist Chris Judd answering our questions. We're in front of a live audience again and we're going to have some live audience questions for us. So we'll throw to our first question. I'm Jake, love the pod. I've got two questions. First, we haven't heard about Adir's biceps for a little while. so just wanted to check. Thank God for that. I'm sitting next to Chris Judd.

0:31This is like we're just going to move right along here. We may be complete tennis but that's maybe. That would be my maximum chance of anything. But my second question is I was listening to the podcast last week and you were talking about how not many real people get into politics anymore. It was interesting I was reading about the Singaporean Prime Minister now just cracking a million dollar per year package. Obviously, there's a bit of a problem attracting great people into politics. What do the three of you think Australia can do to try to get real people back into politics? Because obviously, there's been a bit of a vacuum.

1:09There's been some questionable policymaking, depending on which side of politics you're on. But I know a lot of young, smart people that are leaving Australia, and it's really alarming to me. So what do you think we can do to try to arrest the stall in the direction of the country? Have you thought about going into politics at any stage? Never. You've never considered it. I think maybe Rebecca Jard could be a very good member of Parliament. They would be interested in having her, but she's pretty aligned in that. Andy, you've talked a lot about this, so why don't you go... I mean, I've thought a lot about this as a concept.

1:40The thing about politics is it's really mean. Like, I know that sounds... But it's actually super mean. Like, when I'm up here, mostly people say nice things to me when I talk to them or when I'm moving around the world. Some people don't say nice things. I can just ignore them. they don't matter like I can move on and in politics like the people that come up and want to engage with you firstly that whole thing is not the greatest experience either they're there to abuse you or to get something out of you or it's just a weird interaction and then the media like their whole business of politics in media is to try to make you look terrible for a headline no one ever says well that guy's much better than we thought he would be in politics and if they say that the next slide is because we thought he would blow up the country and so i think it's really mean like it's a not a nice environment to be in people write nasty things about you um people that are your teammates in politics they really care more about um who lee who's the captain of the team than whether you win as a team in general and so that's brutal like i don't know how much contact people have had with politicians.

2:51There are some nice politicians, but politics, it's awful the way they treat each other as a general rule inside their own party. And then the road to get there is a bad road to get there. Like, occasionally, someone might tap you on the shoulder and say, we're just going to skip you over the top of all of the political grassroots stuff and parachute you in somewhere. By the way, that stuff doesn't usually go well. Malcolm Turnbull got parachuted in, essentially. I mean he was not the greatest politician like that did his judgement on became Prime Minister I know but it ended very badly and he didn't get to do anything that he believed in because I don't think he was very good at politics yeah that's right and so I think like there is nothing I would like I'm just going to sound a bit a bit like earnest this comment there is nothing I would like more than to spend my time trying to make things better for the largest number of people possible like that's why I went into medicine but I think politics is a very hard way to do it and quite awful to be a part of.

3:50I think the question was more, a million bucks to you is probably irrelevant. You've got a million bucks in your back pocket right now. But if you've got a talented person and we pay them one 1.5 million bucks and we get them from a consulting firm or an accounting firm or even being a founder to running Victoria, for example. Millie Haymer, a great example. That's not the problem. The pay is not the problem. That's the question. We will pay. Is it elastic enough to make a difference? The Singapore Prime Minister, he didn't say you get better people because you pay them more he said you reduce bribery and corruption risk when you pay them more i think that's probably true like i agree with that part of the story but um all of the things that i just said none of them had to do with and by the way i want to earn more money but i could have said that i could have said by the way i want to earn more money but realistically someone that is super ambitious a million dollars a year being taxed 50 % on income, that is not going to overcome that.

4:49It's not as lucrative as I could get in the private sector problem. I think it's just going to be more money for people who deserve probably even less money, to be honest. Jody, any views? I don't think I've got much to add there. No, I'm fairly despondent, as most are. I would be completely comfortable if their salaries got, I don't know, 10x, to be honest, if you You've just got competent people in there. So there are countries. I mean, Singapore is a pretty good country to follow. It's a pretty well-governed country, so we should be able to copy some ideas from elsewhere. But, yeah, it's the wages for me is immaterial.

5:28It's the outcomes we're getting that's stressful. The president of Victoria gets$550 ,000 a year. The problem is not pay. How else are these people ever going to earn that amount of money? There is no other way that they're going to. Who would pay them that? Nobody. Would you? Are you going to pay one of them that? Well, the current ones? Even the current one. Would you employ the current one and pay five? No, of course not. Of course not. So that's enough money for them to attract them. And anyone that can earn, I don't know, make millions of dollars building a small business, let's say$4 million building a small business, you used to be able to keep three mil of that.

6:01Now you'll be able to keep two mil of that. That is not going to compensate the person for that. I just think money is not the answer to this problem. You've got to have a calling for public service as well. But I think the money doesn't hurt. I think we all agree they're probably underpaid. Whether that's the panacea to solving this problem, I think you're right. 100 % I could get you into politics. I'm being serious about this. You're going to laugh at me. If the salary was$50 million a year, you would agree to go into politics, correct? I think for me the blocker would be, I would only settle for being Prime Minister or Premier.

6:36So I wouldn't bother. You could get there. It's the backbench of stuff that doesn't interest me. You're not worried about offending people. No, that's not the problem. It's more the backbench of staff that's the problem. So I think the amount of money you'd need to pay to attract someone who had personal aspirations of, we just spoke about lawyers earning$5 million a year. Like, the amount of money you'd have to pay is actually unpalatable to the electorate, so I don't think it's a real conversation, personally. Let's move on to question number two. Thank you, gentlemen. I'm Aaron. As you can tell from my accent, I came all the way from Sydney, so excited to be here with you all.

7:08a question would be let's say you don't want to go into politics but we have some elections coming up and someone comes in and says I'll give you a magic wand I want you to solve productivity what would you do about that and maybe a second one would be if you transport yourself to the US or most developed markets and said can you solve the debt problem what would you do there everyone loves a bargain in this audience you get one question I'll slip in the second question half price questions. You want to answer this question? I've got some thoughts on this one. So productivity I would just remove as much red tape as possible.

7:46The amount of red tape is ridiculous in Australian business We talk about this. Let's get specific. What can we remove? Politicians say we've got to remove red tape and then add like 50 levels of red tape. I think an example would be I asked a really well known restaurateur the other day. What do you actually pay to a dishwasher who's got to wash dishes after midnight on Saturday night, so effectively Sunday morning. And he paused. I'm like, well, you don't know. And I'm thinking, no wonder you guys are always underpaying. And he said, well, the truth is because the answer is it's not an easy question.

8:19It depends how many days in a row they've worked, when their last break was, how long their last break. There's about eight different variables which determines what you've got to pay them. You've literally got to have a full-time HR person. That is absolutely true. It's almost impossible to comply with awards. So you've got to have a full-time HR person on there, which a large company can tolerate because they can spread that across a larger number of people, but a small company just can't. So that's one really small example. That occurs everywhere. So stop constantly changing the super payment rules or all these sorts of rules.

8:47So I think you've got to get rid of red tape. I think invest a lot in electricity. The red tape's 100 % agree. Like I'm trying to build a house. There's a million. Like you've got to have a number of windows. You can't have that much window. All this kind of ridiculousness. Windows are good. They're important. We can't have windows because it's bad for everybody. I know windows. Yeah, but everybody, like we talk about, but voters seem to love red tape because everybody wants this and everybody wants that. So how do you match the fact that voters want all this? Voters really do want red tape. Do they?

9:11Well, certainly left-wing voters do. Like the Greens could call themselves a red tape party. They love it. I went continuation from the last episode. There's another bingo box ticked. Left-wing voters want this. Okay, good, got that one. But you look at almost every form of red tape is some sort of ESG type thing. So someone has a, I want to give more paternity leave. I want to give more environmentally friendly houses. Everybody wants this stuff. The cost of this stuff is everything becomes more expensive. So there's a disconnection between... I couldn't agree more. Red tapes are ridiculous. But how does a politician actually get away with offending 5 % here and 5 % there and 5 % there, which is easy just to please people and get votes?

9:46Oh, they have to not offend their own voters. That's what they have to do. You notice any level crossings being removed in Bryson? None, right? Why? Doesn't vote for the Labor government. Leave them all in. So you have to screw your non-constituency. And so really the only way to get rid of red tape, and I can't believe I'm saying this to you, Adam, but, like, is to have a centrist or right-wing government that is not held to ransom by constituents that want more and more red tape. I think that is the only way. It's like a perverse, like, you know, vicious cycle, basically. I think the second question was the productivity question.

10:22It's probably not a fashionable answer, but it feels like skilled migration is definitely... Basically, to improve productivity, you've got to get wages, real wages down. It's not popular to say it, and people scream and shout because we want more wages, but ultimately productivity is a factor of wage costs. Look at building sector being a classic case, how much it costs to build a property, whether it's residential or commercial. That's because we don't have enough skilled labourers in this country. To me, that's one way to improve productivity is to effectively bring in more skilled workers.

10:47Again, not popular politically at all. Effectively, the tired look at One Nation support is completely against that, but we want higher productivity. You need more people working. I think it's to invest a heap in electricity production. I think in the world we're going to, everything's downstream of energy. There's a cost to productivity as you're spending that money. Are renewables? No, just gas, just as much electricity production as you can. And instead of underwriting the cost of these things, underwrite the revenue. So as a government, we're always underwriting the cost, underwrite the revenue, and then the risk lays with the people that win that contract instead of with the taxpayer, which is what currently happens.

11:23but yeah I think it's basically impossible to have too much electricity particularly in the world we're going and I think that's a huge productivity opportunity I mean you know there are a lot of people in Australia they're just tied up doing things that are not as productive as they should be one example is the carpenters and plumbers etc they're all on taxpayer funded mega projects and that is why they're not available for private enterprise and the other one is the size of the public public well we can yeah we can extend it to that second point which is the only thing growing in this country from an employment perspective i know this i sound like you when i say the only thing but it kind of is true the only net growth in jobs is in the public service certainly in victoria it's true and so this is not about bashing public servants at all it's saying there are things that make money for a society and there are things that consume money and the main thing that consumes money is taxes and then that goes to pay for things and all of these people working in the public service they are consuming money that's being produced and using it for their wages, fine but the thing is we need them on the producing money side of the equation in the private sector and so I would slash the, I mean by the way that would be the shortest election I'll be Premier for one term because that's what happened to Campbell Newman in Queensland but the only way that you can jump productivity significantly in the private sector is to substantially reduce the number of bureaucrats, not public servants, not teachers, police, et cetera, bureaucrats in the public sector.

12:55It's the only way. You need the labour, basically. We'll go to a super quick break. Back with our last question just in a moment.

13:10And we're back. Question number three. G'day, team. I was going to ask a very poignant question at Crest, but I'll see if I can make it a bit holistic for the three of you. Whether it's, you know, life, business, or an underperforming position. When a strategy is going against you, when do you pivot? What are the signals you look for? When do you time, when is it time to make a change? When is it time to hold course to the strategy you want to achieve? Love this question. Also, you realise New Zealand had 0 % CGT and we have 50 % now, so I think you might be in the wrong country, but doing here...

13:42By the way, we get taxed at my home country. I'm technically a temporary resident. There you go. I see one step ahead. I see. Yeah, why am I trying to a temporary resident? What do you go? What do I think about when to pivot? Well, there's no good answer to this question, unfortunately, because this is what the... I've kind of done this before, but now I can do it in person so people can see my hand movements. This is what the line looks like of a company that kind of takes off, most companies that take off. It kind of goes like that, and then it goes like that. And this is what the line looks like of a company that fails.

14:18It kind of goes like that, and then it keeps going like that. And no one tells you where that little turny hockey stick thing is. And so you never really, mostly you never know if it's time to quit or not. In my experience, you have to make a judgment call, and even the best people, the best investors or the best operators, can get the judgment call wrong. Like we talked a few weeks ago about the Zoox business, the autonomous cars that are rolling out in the US. Australian investors, Blackbird was in it. They held it for six years. Effectively, investors sold it for the amount they put in, a billion dollars in 2020.

14:51And I think it would be worth$150 to$200 billion today. So they missed 100x at least for a five-year extra hold on hardware deep tech. Were they dumb? They definitely weren't dumb. They had their reasons for doing it. And so I don't think there's one single flashing light that says it's time to pivot or time to give up and try the next thing. But it might be that you've tried a whole lot of, I think succeeding is there's a lock and there's a key. And you have to figure out like the right angle to turn the key to open the lock. And so you keep trying different angles or maybe different combinations if it's a combination lock.

15:32And so the time to quit is not before you've tried anything but the first one, but probably the 120th one is too long, but it might not be. And so my answer is like, when the cost of continuing this thing, financially, emotionally, personally, exceeds the cost of leaving and doing something else, to me that is the time to quit. And every day you should be doing some calculation in your head about whether that's true at that moment. That's how I think about it. Johnny, how do you look at it stock-wise? Yeah, a little bit similar to what Adir said. I mean, for us, it comes down to positioning. So we're not a fund where we've got 40 % of our farm in one particular stock, so 2 % is a small position for us.

16:13How many stocks do you have? We've got 36 stocks. So 2 % is a small position, 4 % is a large position. So step one, if the stock's not behaving how we think it would, and it's a big position, we might take it down to 2%. That's step one. If we're still not happy, we can take it down to 1%. and then it's often time for it to move on. For us, we come back to our management doing what they said. Is the sector still attractive? It's no sort of hard and fast rule, but it does end up coming down to can that capital be used better elsewhere? But in investing too, I think it's really important to not try and be perfect.

16:50It's the same as a game of football. No one's ever played the perfect game of football. No one ever constantly sells at the high, constantly buys at the low. It's just not how it works. You just make sure you've got all the information you can, you're sizing things appropriately, and then you've just got to move on to the next contest because if you live constantly ruminating over the 10X you missed because you sold too early or the opportunity you didn't capture here, you'll miss the next one. So I think there's an element of review, but there's an element of just getting comfortable with nothing's going to be perfect.

17:20Does the story stack up? Is the management team delivering and is the macro theme still strong? And then to get the sizing right. I think that also when you talk about things failing or not succeeding, it's very tempting to go and review that decision based on all of the information that's now available. It's much harder to say, I just need to analyse that based on what I knew or what I had at the time because there's a much more honest way and less brutal way of thinking about it as well. I'll give a quick founder's view on this because obviously you've got the investor view and the chairman's view.

17:49I think you look at... And we talk about... David Schaefer's got this great comment about making asymmetric bets. And as a founder, you've got to make lots of asymmetric bets because you know the payoff is 100 to 1, the loss is 1. You can't be making lots and lots of losing bets though because you just run out of resource, you run out of capital. So I think certainly what we do as a business is we try and choose our bets relatively carefully. Like we still want to have some puns, but we try and have probably 10 or so bets on. And they're relatively small in terms of our overall sort of call it revenue.

18:17And you want to give those bets a fair chance to succeed. So as a founder, our corporate travel business is a great example. We've been sort of persisting with this for four or five years. We've now got a much stronger team running it, a really experienced team running it, and gradually been increasing the capital to it because we've seen the trend slowly eking up. So for us, it's, is the trend in your favour? If you see the trend starting going, especially in business terms, the trend's going down, that's a problem because trends tend not to reverse. The trend is your friend in stock investing.

18:44It's the same when you're running a business. So if we can see we're getting some product market fit, which essentially is you're making contribution margin, then we're willing to persist. If we can't get that product market fit, certainly after a couple of years and we'll pull back. But we want to give our bets a real chance to pay off because we know the payout's going to be 100 to 1. We know the payout's going to be at least 20 to 1. So give it a chance. Give it a real chance, but don't make 100 dumb bets. And as Jeff Bezos says, the reason good founders are good founders is they tend to get 80 to 90 % of stuff right.

19:10So sort of as a founder, we've got a lot of founders in the crowd, a lot of founders who listen, back yourself. You're going to get it right most of the time. If you're not getting it right, you probably shouldn't be a founder, to be honest. So you sort of do have to back yourself, but don't keep backing losers. You know OpenAI and Anthropic, they are growing on the basis of negative unit economics. Like, not only is there no contribution margin, I doubt there's any gross margin on those businesses if you really factor it in. We don't have time to discuss this. So your theory is correct, and it misses out on the$2 trillion business.

19:38This is what I hate about business, by the way. We've got to go. Will's give me daggers. We've gone on way too long. Thank you to our incredible audience again. Thank you to Jardine Adir. We'll see everybody on Tuesday for our big episode. Thanks. Thank you.