Ask Us Anything: Researching when investing in public companies + Was the Prime Minister’s Address Necessary!?

0:00I'm Adam Schwab. I'm Adir Shifman. And this is The Contrarians with Adam and Adir.

0:09And we're back episode 196, Ask Us Anything. Will you ask us questions and we do our very best to answer them? Over to the chief question asker himself, Michael. Hey everyone, first question this week from James. If you were to invest in a public company, what is the level of research you would do to have comfort or conviction with the investment? What does that process look like? And I appreciate this will naturally differ based on the quantum of funds being invested and the associated risk. Great question. Adir, why don't you have a crack at this first? Well, this is an interesting question because the amount of research people do in public companies before they invest, like here, I'm going to talk about this as a listed public company.

0:50You can have an unlisted public company as well. Luxury escapes, case in point. Yes, luxury escapes, exactly. So, but we'll talk about companies listed on a stock market. So lots of people buy these companies doing no research. Maybe their research is they got a tip from a friend or they want a momentum trade, which is I think this is going up and it's going to keep going up. But let's say you wanted to do some research. The only way I can answer this question is just to say the stuff that I would do, which by the way, for a company like Catapult, this is what I encourage people to do. Try to figure out what the underlying company is all about.

1:23And if you think its prospects are good. And in the age of AI, and I've been speaking to so many analysts and investors now that are really deeply using large language models to filter through tons of information and give them investment guidance and all sorts of things. I think in the age of AI, the main way to make money again consistently is to pick companies that you think are really good and undervalued and hang on to them. And so for me, maybe I would just divide it into two parts. Part one is what does the company do and how's it going and so that is just a matter of going to their website and reading about what their business is and then going to like google news or an llm and asking questions about what the company does and really getting a deep understanding if it's something you don't understand at all like if i was investing in oil and gas i wouldn't invest in it because i don't know what those companies do but i know in a very cursory way so one is you got to feel comfortable with understanding what the company does and forming a view of how you think it's doing and how you think the industry and its prospects are over time.

2:27And that is just desk research, we could call it. Or if it's a retailer, go to their stores and have a look if they're busy on the weekends, for example. Then the other half to me is the financial side of it. And if you're not financially literate, I'm not sure you should be investing in public companies. The best way to invest in the public company is to buy the index or give you money to a good fund where you trust the people. But if you're going to do it yourself, you need to be able to read an income statement and a cash flow and a balance sheet and understand what they are. And if you don't, you should go and get accounting for dummies, which I read and that helped me dramatically.

3:04And you need to, in this day and age as well, with crazy accounting standards, frankly, you need to understand how to try to figure out whether the business is actually making money in some cases by clicking together all these different parts from different statements. But that would be my general approach. Just break it into two halves and do that. And at the end, and this is what we do on the show, right? This is exactly the approach we take on the show. And I think that you can make, you know, I think 80 or 90 % of your investment decisions can be good if you follow that approach and you err on the side of being conservative.

3:36Yeah, that's a decent summary. I would probably say for almost everybody, and this is the Warren Buffett advice, just buy an index fund or an ETF. This is like an entire index. Don't even try and pick like a sub-index like the tech index or the oil index. I think just buy the entire index because there's what's called index bias and that indexes pick the best 200 companies at the time. Sorry, best is not the right word, but the biggest 200 companies at the time based on free float. So rather than try and pick a catapult five years ago when it was before at 5X, I think you're much better off. Unless, much to what I do said, I tend to agree with.

4:15Unless you've got a real skill in a couple of things I'm about to explain, I don't think it's worth actually even trying because you think active managers who you think have some sort of clue and they spend all day doing this and they've been to university and you think active managers are well trained, 80 % can't beat the market. So if 80 % of you think fairly smart people can't beat the market, I'm not sure regular punters who can spend a couple hours a week on it can beat the market. So my general advice would be don't try. That said, if you want to play around a bit and you haven't, I think you look at the EquityMates guys and they have a core and satellite portfolio.

4:51So you might say, I'm going to put 80 % of my money into ETFs. I'm going to have 20 % of money. Maybe you put 10 % to gold and then maybe you put 10 % of money into companies you might want to invest in. And as I did say, just do what we do. So there's actually two elements. There's one, companies give a lot of information in both annual reports and quarterly reports and presentations. There's a huge amount of info that most people don't read. So I'd be sort of spending a lot of time and Warren Buffett says this, you just read annual reports all day. So you spend a lot of time going back reading two, three, four years of annual reports, all the quarterly reports, all the presentations.

5:21You get some pretty good broker information if you have a broker or you can get your hands on broker reports. So I think brokers can, I think analysts do actually a really good job of giving great information. You might not agree with their recommendation, but they did an amazing job distilling the best information. So I think you can get a lot of information from analyst reports. But do what we do and think, What's the financials like? And then look at what does this business have a competitive advantage? Has it got competitive moats that more importantly moats that it will grow? And I think you look at what the businesses that I'd be trying to buy are businesses that have proven their moats and Catapult's a great example.

5:53If you look at Catapult three years ago, it had proven several moats. And it was just a matter of time. It had to play it out. Time just had to play out its course. It's got great scale, great brand, great switching costs as we've talked about. And it was just a matter of time to let our dear and his team do their work. And it was always going to go up. So I think you look at a combination of does this business have competitive powers and are the financials in alignment with that? And is there enough margin of safety? So, for example, even though I think Kogan's a fantastic business run by a couple of great founders, when it was valued at$2.5 billion, I wasn't a buyer at Kogan.

6:25But when Kogan's at$400 million, I think it's a great buyer. So this is not investment advice, obviously. So I think you need to look at what the current share price is, build a margin of safety in, look at who's running it, look at the founders, whether it's private or public, look at the financials. and work out, does this business have competitive advantage that other investors don't realize yet? And maybe the last thing I'll say is look at last year's annual report and what they promised and see if it came true. Look at the year before, see what they promised, see if it came true. That is the best thing to do.

6:54All of the promises sound plausible in the moment. Go look at whether they came true. I think that's one of the most revealing things. And what I always like to look for is people who are, to that point, under promise. What you don't one is the drone shields of this world who are over-promising lots of stuff and inevitably don't deliver on it or the Atlassians we talk about. You want companies that inherently under-promise and over-deliver. And we'll go to question two. Over to you, Mike. All right. Question two this week from Bill. Recently, Prime Minister Albanese had a public address to the entire nation in which he shared nothing of value.

7:29What kind of event do you think justifies something like this in the future? Well, a war wouldn't justify it. I mean, a pandemic. I didn't like what I heard during the pandemic, but that was... Had the politicians not done anything, we would have had a much better pandemic. Had we just let life live as normal, it would have been a far better situation than the disaster that politicians around the world did. Well, they should have. I think they can speak because it's so dramatic. It's just what they said and what they chose to do was the wrong thing. Totally. The thing about this speech, it's very hard to understand why he felt like he needed to speak.

8:05I just wonder if he wanted to speak. Like if he thought, you know, other prime ministers have had their moment in the sun where they do a national address. I want to do a national address. I think there is, it was a completely inappropriate moment to go and communicate to the general population that there is something going on that is sufficiently severe to warrant a national address. Like it's basically an emergency broadcast and I thought it was ridiculous. And yeah, I think short of war or maybe, you know, war or something war-like, in fact, as it happens, I thought after the Bondi attack would have been a more appropriate time for a national address than some crisis in the Gulf where, you know, like this is just an operational, like they made a strategic mistake, the government, with storing fuel and now they've got operational problems.

8:59This doesn't need a national address. I remember there was a movie, and I think Christian Bale, and he played Dick Cheney. No, it was Russell Crowe playing, I think, Dick Cheney. Anyway, someone played him. And I remember he was giving advice to George Bush during, it was like, I think the movie was set during George W. Bush's tenure, and Dick Cheney, this sort of wily old guy, just goes to George Bush. Wartime presidents, very popular. And I felt like Elbow had watched that and go, I want to be a wartime prime minister too. This is kind of a war. Let me get on TV and say something. But the problem is Elbow is maybe an average at absolute best being super generous peacetime prime minister.

9:37He's not a wartime guy. He's just a bumbling sort of maybe not stuffed too much up and just hopefully nothing bad happens during his tenure because he probably won't do a great job. And this just felt like his time in the sun. And he's just a lightweight bloke who sort of was right place, right time. He's certainly no Paul Keating. He's certainly no Bob Hawke. He's no Malcolm Fraser. He's no Bob Menzies, this guy. Well, he says, I want to be a wartime prime minister. Unfortunately, I don't really have a navy that can stand up to drone attacks in the Gulf or really much of a military at all at the moment.

10:10So I can't actually participate in a war to be a wartime prime minister. So this is maybe the closest I'm going to get. I just think the whole thing was completely ridiculous. And it always shocks me that someone has reached the pinnacle of politics seeming to have such poor political instincts. It's just bizarre. Well, I actually think the bizarre thing is that Elbow, I think, probably what you say most positively about him is he's a pretty smart politician. Like he kind of generally understands the pulse of what's going on, but it feels like he's kind of lost it in Bondi. He was hopeless. And he's kind of done this again here.

10:44I don't know if he's lost his touch a bit since he's been PM, because the one thing you could say about him is the way he got there. And he was kind of just that every man, just inoffensive and kind of relatively likable, not overly competent, but you don't think he'd stuff things up totally, but it feels like he's just that those political instincts have deserted him. On that note, we've got a super quick break. Back with our last question in just a moment.

11:15Michael, question number three. Question three this week comes in from Lucas. I recently left a job with a team I love and had been working with for five years. I took an opportunity interstate because my wife had a career opportunity she couldn't turn down. I'm so happy for my wife and seeing her flourish is amazing but I loved my old team so much and it hurts seeing how quickly they replaced me. Do you have any advice of how to move on in a situation like this? Well this is an existential life question not just a business question isn't it? I mean, we are all just fleeting specks in a brief moment in an endless stream of time, basically.

11:59And what he experienced in the workplace, I assume it's he, experienced in the workplace, is just a microcosm of life. And the only people that miss you in life are a very small number of people that actually love you because everyone else just moves on and forgets about you. That's my, I don't mean to be dramatic in saying that, but I think that's a reality. And I think the answer, the high level answer to this question is get in touch with that reality and make peace with it. Because no one is, everyone is expendable. No one is irreplaceable. Like the dead are largely forgotten pretty quickly.

12:33And when you move out of a business and you move overseas, it's like you used to be alive an important part of things and now you're dead. And the organization is going to move on. And I think my only answer to this is maybe parts A and B. Part A is if you really like the people as individuals, not just as a team, because that team, everything that occurs in life occurs as a moment in time and is transient and it passes. And you can't go and bring it back. And so that team experience, you have to enjoy it in the moment because it's not coming back. But if you like the individuals as people, I would certainly say staying in touch with them is a nice way to feel like it's not just all over because like reminiscing is one of the happiest things that most human beings do.

13:19The second thing I'd say is you've got to find the next door that opens because that door is now closed. And I think the only way to find happiness is to find the next thing to get excited about. And maybe this time around, I don't mean to be harsh in saying this. I've been through this myself. this time around when you're in the moment of something that's fun and beautiful and exciting and nice enjoy it in the moment knowing that it's not going to be here forever and this is going to die as well and move on i mean i know it's a bit philosophical but i don't think there's any any simpler answer to it than that lucas i wouldn't be to take this too personally i think every every single person who pretty much every single maybe if you excuse like a warren buffett and a jeff bezos but pretty much every single person i include myself in this i include idea unless it's like a creative show, like a podcast, where if one of us left, we have some real issues.

14:08But I think in most jobs, it doesn't really matter who it is. The person can leave. This can even be founder. I saw Scott from Atlassian. The founder can leave. Anyone can leave. And the business moves on. The business has to adapt and move on. So I certainly wouldn't take it personally, that people aren't missing you, as you said. It's just the nature of the... We've had people that both said, oh, when I go, it's going to be a disaster here. Or we've thought when this person goes, it could be a disaster and people that have hired might leave. It never happens. And even people we think really like this person, you actually find that, especially when you fire someone, you think, oh, you fired this person because they're no good, but the whole team's going to leave because of them.

14:44And then you hear all this stuff, the team never liked them in the first place. So like ultimately it's, I've never seen anybody ever leave because somebody else has left in the business. People tend to look after themselves and this is like, I'm not blaming anybody for this. You sort of people want, if they like their job or they're having an okay time in their job and they need the paycheck, whether person A or B or C leaves, generally doesn't really matter. They sort of move on. So certainly don't take it personally. I think ideas, advice is right. Just get another job. Like I've had some amazing jobs over my life culminating in the current one, but I've had some great jobs I moved on from.

15:15Like you sort of have, remember the experience and move on to the next one. What your experience is definitely not unique. Don't take it personally. I'm sure your team still do miss you. They just move on because you sort of have to move on and adapt. You have no choice. I think there's nothing I'm involved in that a few months after I was gone wouldn't like, it would be different, right? But it would just keep rolling forward. And like, you look at the most powerful people in the world, the most influential. I mean, 30 years after they die, maybe less, like pretty much no one remembers them. And you look at people that you thought in your circles were super influential and charismatic.

15:51And like three years after they die people stop talking about them so i do think that that is the beauty of life is that it's this endless cycle of like birth life death and it repeats and for as long as you get to do that with as many things as possible hopefully not people more than you need to on the death side but like as much as you can do it you should just embrace the fact that it's an opportunity for the next experience that's it took me a long time to reach that place like it sounds like you know So like I'm in a very calm place with it. That was a long journey for me and I think that is the place that I've landed with it.

16:24That's a really good point. I think the only people who are really remembered are people who die young and suddenly. So the JFKs, the James Deans, even the Shane Warne's who died a bit younger than you. Exactly. You don't want your funeral to be too full, right? But if you want people that have thousands of people at their funeral, that's not good. You want to be 130 and you died in good health and everyone that you knew is dead, basically. No one turns up. Princess die. Everybody who you remember generally died early. So you can sort of be remembered and live a quarter of your life or half your life, or you can not be remembered and live a much longer life.

16:59So you've got to have that choice. You probably prefer the latter. That said, it's each their own. Anyway, that was a really great question. And good luck with your next chapter, Lucas. I'm sure you'll do well. If you had a great experience last time, that bodes well for your next job anyway. so and obviously listen to the show you're ready one step ahead everyone else so thank you as always for our three fantastic question askers did a great job thank you mike for doing a great job delivering the questions we'll see everybody on tuesday for our long episode